ACCEPTED OFFER, DEAL SHEET, AND PRE-CONTRACT NEGOTIATIONS.
Once your offer is accepted by the seller, the agents/brokers to the real estate deal will prepare and send a "deal sheet" to the purchasers and sellers attorney summarizing the essential (pre-negotiated) terms. These terms become incorporated into the contract of sale that purchasers, sellers, and the escrow agent signs.
Simultaneously, you will (most likely) be ordering an inspection to determine the overall condition of the condo to find out if any immediate, short-term, or long-term repairs are needed. Often, parties to a real estate transaction will use the inspection report to negotiate additional items (e.g. repairs) into the contract prior to both parties signing. If a "repair rider" to the contract is not prepared, sometimes seller's are willing to issue a credit to the purchasers at closing to cover any and all repairs requested.
Behind the scenes, the purchaser's attorney will be requesting/receiving documentation on the condo including building financials, operating budgets, house rules/regs, bylaws etc. These "condo docs" are an important way to understand your roles and responsibilities as a unit holder in the building as well as how financially stable the building is at operating itself year over year.
Once the deal sheet, inspection report (if applicable), and due diligence period is completed, and the purchasers and sellers attorney have come to an agreement on the final terms, both parties will be ready to execute the contract of sale and any attendant riders.
In New York, it is customary for the purchasers to sign first. In fact, you are expected to send the partially executed contract and the "contract deposit" (typically 10% of the purchase price) to the sellers attorney. The contract deposit is put into the seller's attorney IOLA account (who acts as both the seller's attorney and the escrow agent to the deal). This deposit is held for the duration of the deal and will eventually be disbursed to the seller at closing.
The sellers will then sign and send back the fully executed contract to the purchasers attorney. At this point, you will officially be "under contract."
FINANCING (Obtaining a Loan).
Once under contract, you will be working with your loan officer (or a third-party mortgage broker) to obtain a loan. Typically, purchasers will have 30, 45 or 60 days to obtain a commitment letter from the bank stating that the bank is willing to advance you the funds for the real estate transaction. This language is stated in your contract of sale.
To start, you will order an an "appraisal" of the unit. The appraisal is a report produced by a third-party professional (known as an "appraiser") that determines the value of the condo. The appraised value that comes from the report is what the bank uses to underwrite the loan - NOT THE OFFER & ACCEPTED PURCHASE PRICE!!
Should the appraised value come in lower than the purchase price, in most circumstances, you will either have to come up with the difference out of pocket unless your contract allows for an exception (e.g. appraisal contingency - where seller's will either drop the price to the appraised value or allow the purchasers to cancel the deal and get their contract deposit back).
From the beginning to the end, your loan officer will be requesting several documents from you including pay stubs, tax statements, and running your credit etc. Obtaining these documents/information is part of their due diligence (i.e. their underwriting of the loan) to verify that you are qualified to obtain and pay back the loan over the specified period at the specified interest rate.
PLEASE WORK CLOSELY WITH YOUR LOAN OFFICER OR BANK REPRESENATIVE THROUGHOUT THIS PROCESS. Check out the common "do's" and "dont's" of the loan approval process.
Remember, a "pre-qualification" letter is not a mortgage commitment.
Once the bank deems you qualified, they will issue a mortgage commitment letter (with or without conditions). If the commitment letter has conditions, it is pertinent that you fulfill all those conditions in order to receive the loan.
Once you are issued a commitment letter or if the mortgage commitment period passes (without an extension or another exception), you'll be deemed to have waived or satisfied the mortgage commitment contingency. What this means is should the bank not fund the loan at this point, you would still be bound to proceed with the purchase.
IT IS IMPORTANT TO STAY ON TOP OF YOUR MORTGAGE COMMITMENT DATE.
TITLE SEARCH & REPORT.
After the contract is executed, purchasers attorney will order a "title report" on the condo. Think of a title report as a 40+ year search of any given property to identify any judgments, liens, violations, encumbrances against the parties in the deal, the building, and the unit itself. The title report is an important document the bank and purchasers rely on to ensure they are taking the property free and clear of any third-party interests. The title company will provide title insurance that protects both owners and lenders against any third-party claims that were not an exception to the policy or identified during the title search.
BOARD APPLICATION & INTERVIEW.
As a purchaser of a condo in NYC, you will also submit an application to the condo's board of directors. This application should be provided to you by your agent/broker.
The board will review your eligibility as a prospective purchaser and, similar to the banks process, will run a credit check, review years of income statements, bank & tax statements, and require personal/professional reference letters. All these documents are a way for the board to vet you as a purchaser in the building. Additionally, you will be required to sit for an interview. Remember, this is a mutual process and allows for the prospective purchaser to ask questions to the board members about the building.
You will notice in the contract of sale that the board has a "first right of refusal" to purchase the unit, ahead of you, at the same purchase price as listed in the contract. While this almost never happens, should it in your case, you will be refunded your contract deposit.
GETTING "CLEARED TO CLOSE" ON YOUR LOAN.
Once the bank finishes their underwriting process, they'll make the file "cleared to close" which will then allow all the parties to prepare and schedule a closing.
A few things will happen. First, you'll be notified that the condo board has either waived or elected their right of first refusal. If waived, there will be a letter stating the same from the board at closing - which you'll retain a copy for your records.
Next, the bank or mortgage broker will then provide you (if they haven't already) a final closing disclosure (CD) which you'll need to acknowledge. Federal regulation requires that you acknowledge a final CD three (3) days before a scheduled closing - as a way to protect you! If a final CD is not acknowledged right away, we will have to follow TRID guidelines and wait the three days to close.
Part of the process of getting you a final CD is the parties providing closing adjustments, broker invoices, a final title bill and any mortgage payoff letters for closing. After these items are squared away, purchasers attorney, sellers attorney, bank attorneys, and title will find a mutual closing date/time/location to finalize the transfer.
CLOSING ITEMS & CHECKLISTS.
Ahead of closing, you will have a contractual right to do a "final walk through" of the unit to make sure everything is in working order. Take this time to test the lights, turn on the water, flush the toilet, check the heating, stove tops etc. If something has changed since we went under contract, PLEASE CONTACT OUR FIRM IMMEDIATELY. We will likely be able to handle this before reaching the closing table. If not, we will handle it at the closing table.
Additionally, prior to closing, we will provide you a list of checks (amounts and to who the check goes to), along with the closing date/time/place, and the personal items you'll need to bring to closing (e.g. multiple forms of ID, personal checkbook). While we try to get these items to you ahead of time, typically they are sent 24 to 48 hours before we close. Actually, it is not unusual for you to receive these items hours before we close if we are waiting on "net proceeds" from the bank.
It is important to know that if you apply for a $500,000 loan, the amount of money the bank brings to closing (i.e. net proceeds) will always be less than the loan amount. You will NEVER receive the full loan amount for closing because the bank takes their fees (to do the transaction) off the top - thus leaving you with "net proceeds."
These proceeds are used to calculate the "cash to close" on your transaction. Please note, we will always ask for you to bring "certified checks" to the closing, while some condo fees (paid at closing) may be paid by personal check - this depends on the Board...we will be sure to let you know.
At closing you will be signing bank docs, transfer docs, and title affidavits to complete the transfer of real property. At this point, all the heavy lifting has been done. You should be excited and ready to close the deal and enjoy your new home!!
Should you have any questions, please feel free to contact us directly at: (631) 518-2986