Brooklyn Real Estate Q&A and Info

On Friday, President Obama signed a bill that deadline for HR 5623, the Homebuyer Assistance and Improvement Act of 2010.

The act allows buyers who qualify to get an $8,000 credit on their 2010 taxes.  The original deadline required homebuyers who were under contract by April 30 to close by June 30, 2010. The extension gives buyers until September 30, 2010 to close.

This is great news for buyers who found their closing date delayed because of the length of time it takes for banks to approve short sales and other issues that are outside of their control.

Having as high a credit score as possible has always been important when you’re considering buying a house.   Your credit score can make the difference between getting a loan and not, and getting a low rate, or not.  In today’s market with such a staggering amount of foreclosuses, lender’s requirements have gotten more stringent then ever before. 

In light of those facts, what can you do to improve your credit score?   Well first of all, let’s talk about how your credit score or FICO score  is determined.

What is a Credit Score Based On?

A FICO score (or credit score) is a formula created by the Fair Isaac Company, which has recently changed its name to FICO, that uses the information from your credit report to determine how credit worthy you are. 

Your credit report information, which is compiled by the three major credit reporting agencies (Equifax, Experien and TransUnion) is weighted according to the following breakdown of importance:

• 35% – Payment History
• 30% – Total Amount Owed
• 15% – Length of Credit History
• 10% – New Credit
• 10% – Type of Credit Now Being Used

As you can see from the list above, your payment history carries the most weight when it comes to determining your credit score.

What to Do to Improve Your Credit

Since your payment history carries so much weight in determining your  FICO score, the easiest way to improve your score is to pay your bills on time.   Late payments will stay on your credit report for 7 years, affecting your score for a long time.  Paying your bills on time should be a priority.

Another way to improve your score and make it easier for you to get a loan with a great rate is to reduce the total amount you owe.   The amount you owe on credit cards, personal loans, student loans, auto loans and any other financing as well as your Debt to Income percentage will be used by lending institutions to determine if you get a loan, and if so at what rate.

So, if you’re looking to buy that dream house, condo or coop pay your bills on time, and keep the amount you owe to a minimum, and you’ll see your FICO score climb and the interest rate you’re required to pay fall.

If I had a nickel for every time a buyer told me that they are looking for a brownstone in Clinton Hill or Bed Stuy, I’d be…well you know.

The next question that I always ask is, “what do you mean by a brownstone?” It might seem like a stupid question to some, but the truth be told, different people have different ideas on what a brownstone is. Some call any row house regardless of the material it’s made of a brownstone. Some call any row house that is brown in color a brownstone. Some call a row house with a layer of brown sandstone applied to its façade a brownstone.

Which idea is correct? Well, in Brooklyn New York, and the rest of New York City, the most widely accepted definition of a “Brownstone” would be a multi floor row house that has a façade made up of brown sandstone which, back in the 19th century when this type of construction was popular, was quarried in New Jersey and Connecticut. The stonemasons of that time period were artisans that liked to use sandstone during construction because it was easy to work with and allowed them to create the varied and ornate design elements you see on the exterior of brownstones today.

When brownstones were first build they were single-family homes that typically included a Garden Floor, sometime called an English Basement, that was at ground level which had a front entrance underneath an exterior formal staircase that led up to the “parlor floor” above, and a rear exit door that led to a garden at the back of the house. The kitchen was generally located on the garden floor.

The parlor floor was where guests were entertained and the parlor was usually the most elaborately designed room of the house with a large fireplace with an intricately detailed mantle, beautifully crafted moldings and fantastic hardwood floors. The entrance to the parlor typically had a set of pocket doors that discreetly slid into the walls when opened. The tall windows that looked out onto the flagstone sidewalk in front of the house would be equipped with raised panel shutters that folded into the window frames when not in use.

One of the things I love most about classic brownstones is the gorgeously ornate staircase banisters some of them contain. I find it so exciting when I see an intricately carved wood banister sweeping up to the floors above, especially if it still has its original finish.

Today, most brownstones have been converted to multiple family dwellings with a lot of the original detailing lost to neglect, indelicate care or too many coats of paint. Still, if you are looking to own a home with some of the finest architecture in Brooklyn, then a brownstone might be for you.

Well, as many had hoped, the First Time Home Buyer Tax Credit has been extended until April 30, 2010!

To recap what the credit is, it is a dollar-for-dollar reduction in what a taxpayer owes in taxes. For example, if you owe $8,000 in income taxes and you are eligible for the full $8,000 home buyer’s tax credit, you would owe absolutely nothing in federal taxes.

Its still a great time to buy.  Interest rates are still low and housing prices in Brooklyn are either flat are have risen slightly.   If you are looking to buy a house, condo or coop, give me a call and let me help you take advantage of the free money the tax credit represents.

Thanks to the recession, these terms have become common place. Newspapers, news reports, and blogs are all taking about how to buy foreclosures, REOs and especially short sales (which seems to be the buzz word of the day).

That brings up a good question. What is the difference between a Short Sale, a REO and a foreclosure, especially when it comes to Brooklyn, New York? Well here it is in a nut shell:

Short Sale – In order to completely understand the meaning of a short sale, you need to know a couple of other popular real estate terms. To be “upside down” or “underwater” means that a property owner, whether the property is a coop, condo or house, owes more on the property then the property can be sold for at the time.

When a property is being sold as a short sale, it means that the property owner is under water and the lender has either agreed to, or will be asked to agree to, forgive the difference between what a property can be sold for and what the home owner owes.

REO and Foreclosure - I’ve lumped these two terms together because they are the same.  REO is an acronym that stands for Real Estate Owned and it refers to real estate owned by a bank after it has been foreclosed on.  That brings us to the definition of foreclosure.

A foreclosure is when a borrower fails to live up to the terms of a mortgage and the bank decides to exercise its right to sell the property at auction to recover the money that was lent for the purchase.  If no one purchases the property at auction, the property becomes an REO.

Buying a short sale property or a foreclosure is a good way to purchase property at rock bottom prices, but its not for everyone.  If you’d like more information about buying a bank REO or a short sale anywhere in Brooklyn, NY, feel free to give me a call at the number below or Click Here to email me.

With the difficulty some buyers are having getting financing, and Condos and other new constructions in Brooklyn sitting empty, rent-to-own has become an option available for some buyers. But what is rent-to-own?

The rent-to-own scenario, which is also called a “lease-option” requires a potential buyer to pay a down payment of as much as 5% of the purchase price up front and pay rent monthly while they live in the property he or she intends to buy at the end of the lease.

Part of the rent goes to the owner, and a portion of the rent, called a “rent credit”, goes into an escrow account and is later applied toward the purchaser’s down payment when he or she is ready to buy.   The price the buyer will pay for the house or condo at the end of the lease is determined at the time the “rent-to-own” or “lease option” contract is signed.

The PROS

1. Its a great way to get into a house or condo that you like now without having a large down payment.
2. It gives you an opportunity to “try” before you “buy”.
3. It gives you time to make repairs to your credit rating if its necessary.
4. The owner is obligated to sell the property to you at the price agreed upon, even if the property increases in value.

The CONS

1. If you decide not to purchase the property at the end of the lease, you loose the down payment you put into the transaction at the start of the lease, however the rent credit monies that has accumulated in the escrow account is refunded.
2. If the property decreases in value, you are required to pay the price agreed upon at the signing of the lease, even if the property is worth less.  If the property does not appraise for the amount agreed upon, you may not be able to get a loan and fail to be able to close on the deal, again loosing you down payment money.
3. If the owner of the property fails to pay the mortgage and the property is foreclosed on, you may loose all the money put into the transaction.

As you can see, there are advantages and disadvantages to purchasing property rent-to-own.  Weigh the pros and cons carefully, and if you decide that rent-to-own is right for you, find out as much as you can about the owner’s financial situation, vigorously negotiate the price to be paid, and have a Real Estate Attorney thoroughly review the lease option contract before you sign it.

For more information about rent-to-own (lease-option) properties available in Brooklyn.  Please feel free to contact me using the phone number below, or via email.

One of the first things any home buyer should ask him or herself is how much of a down payment is he or she is going to need to buy a house, condo or co-op.  Fortunately, figuring that out is easy.

There are two types of mortgage loans that are available in these tough economic times, the FHA Loan and the Conventional Loan.

FHA mortgage loans are loans that are insured by the Federal Government and allows anyone who meets certain qualifications to put a minimum of  3.5% down on a house or a condo (Co-ops cannot be purchased with FHA loans).

Here are some examples of how much of a down payment you’ll need if you want to purchase a property using an FHA Loan:

Conventional loans are loans made through lending institutions such as banks and credit unions. Most conventional loans require that you put a minimum of 10% down and, depending on your credit score, you may be required to put down even more.

Here are some examples of how much of a down payment you’ll need if you want to purchase a property using an Conventional Loan:

As you can see from the information above, figuring out how much you’ll need for a down payment is simple.  Of course, if you can put down more then the minimum amounts, that’s terrific.  The larger the amount of your down payment, the less your mortgage will be.

Besides determining whether or not you want to own a house and can you afford mortgage payments, ”do I have enough for a down payment?” is the next most important question any first time home buyer should ask him or herself.

What’s the Down Payment For?

The theory is that when a borrower puts a significant amount of their own money into the purchase of a house, they are less likely to “walk away” from their obligation to repay the mortgage because they don’t want to lose their own money.

An example of that would be, a person buys a $500,000 piece of property.  If they put 10% or $50,000 of their own money towards the purchase, when things get tough, they are less likely to let the loan default.  Why?  Because not only will they loose their place of residence, they will also loose their $50,000 dollars, and that kind of money’s not easy to come by for most of us. 

The recent crash in the housing market where 0% financing was running rampant has proven the above theory to be a sound one.  I was told by a fellow realtor of a client who had purchased a home with 0% financing who walked into the bank he borrowed the money from, put the keys to the house on the loan officers desk and said, “Here you can have your house back.”   He was having a hard time making the payments and decided to simply walk away from the house.  True, his credit would be trashed, but since he put no money into the house, he didn’t loose any.  0% financing is a thing of the past, for now.

How Much Down Payment Money Do I Need?

Today in 2009, with the exception of an FHA loan where you can put 3.5% down on a piece of real estate, most lending institutions require that you have at least 10% of the purchase price to put down when you want to buy a house, condo or co-op.  In some circumstances a lender might require even more.

So, if you want to purchase a co-op in Brooklyn for $200,000 and 10% down is required, you will need at least $20,000 for the down payment. (FHA loans are not available for co-ops)

If you want to buy a house for $400,000 and you qualify for an FHA loan, you will need at least $14,000 or 3.5% of $400,000 for a down payment.

So, before you start searching craigslist.com or going to open houses, or you make that call to your local realtor, you have to have enough money for a down payment before you can purchase that dream home.

If you would like more information about down payments or house buying in general, feel free to give me a call.