Mortgage Contingency Clause Got You Down?

Weary about waiving the mortgage contingency clause? Try this...

First, a little bit about the mortgage contingency clause. A "mortgage contingency clause" is a provision in the home purchase contract that says that if the prospective buyer can’t get a mortgage within a fixed period of time, s/he can call the whole deal off. In other words, the agreement is conditional on the buyer being able to obtain a mortgage on the property.

Given the current seller's market, it is assumed that the buyer will waive the mortgage contingency clause, forfeiting their down payment if they can't get a mortgage. If this has you worried, take comfort in that you're not alone and there is a workaround!

If you have a great mortgage professional, they can "rush" the appraisal of the property and produce a commitment letter within 24 hours of receiving the appraisal report - this all happens before contracts go out to the buyer's attorney. At that point, the mortgage contingency is a moot point and can be waived with the confidence that you are guaranteed a mortgage for a proper amount. As always, consult your attorney and mortgage professional before heading down this road, and make note that this workaround isn't recommended when there are multiple bids on the table (a.k.a. "bidding war"), as the seller will likely entertain the offer that waives the mortgage contingency without any "headaches."

Plastic Mortgages = FREE Vacations!

American Express is rolling out what is likely the first program in the country to let homeowners charge their monthly mortgage payments to a credit card, allowing borrowers to earn reward points on their loans. "[It's] just another progression for us in the real-estate area and in the luxury space," said an American Express executive. Mortgage giants American Home Mortgage Investment Corp. and IndyMac Bancorp are the first two lenders that have signed up for the program.

"My budget is..."

"My budget is $995,000." Before you pick a somewhat ambiguous budget to abide by, consider first, the cost of ownership. This is significantly more important. Let me make my case.

The monthly cost of ownership for properties of similar size and quality may vary dramatically from one development to another. Consider the following: an apartment purchased for $995,000 with $1,600 in carrying charges will have the same monthly outlay ($6,078) as an apartment purchased for $1,084,000 with $1,200 in carrying charges (examples are based on 75% financing at a 6% mortgage rate for 30 years). So, keep your mind open when apartment hunting, as there are many ways to view a situation.

Check out the mortgage calculator at Bankrate.com (http://www.bankrate.com), to play with some numbers and determine what your threshold is, in regards to monthly payments (+ carrying charges).

Goodbye 421A...

Buyers, grab your checkbooks! The finite life of the 421A tax abatement is coming to an end. The 421A tax abatement has become a valuable marketing tool for new condo projects and saves thousands of dollars in monthly taxes for buyers. It drastically reduces monthly tax payments over a 10-year period, with monthly taxes increasing incrementally every 2 years (until fully adjusted by the tenth year). For example, 421A taxes on a $2,500,000 3BR/2.5BA at 310 East 53rd Street are only $231 (monthly, for the first 2 years)! I'm not sure how much longer it'll be around, but the rumormill foresees its extinction sooner rather than later. For more information about the 421A tax abatement, Google "421A tax abatement" and read to your heart's content.

Inclement weather...good or bad for business?

Some seem to think that inclement weather keeps people indoors and hurts business. Others seem to think inclement weather brings out the "serious" home hunters. I'm interested to know what home hunters think? Do you brave the storm with the best of 'em or are you a couch potato when there's inclement weather?

It is my personal opinion that the best deals are to be had on days where there is inclement weather. Most people will stay indoors, affording you the opportunity to be the first to view an apartment that just hit the market and avoid crowded open houses and sales centers. That's just my two cents.

Waive "bye-bye" to the Mortgage Contingency clause...

It is once again a seller's market in Manhattan. Open houses are like cattle calls and bidding wars are more common than not. When submitting an offer for an apartment, sellers will typically require that you specify one of the following: 1) This offer is contingent upon financing, or 2) This offer is not contingent upon financing and I am willing to waive the mortgage contingency clause in the sales contract (a.k.a. this deal is getting done come hell or high water). Sellers prefer the latter, as it conveys the seriousness of the buyer's offer. Don't be surprised if your lower bid is accepted over a competing higher bid, simply because you are willing to waive the mortgage contingency clause in the sales contract and the competing bid is not. Buying in Manhattan is a unique opportunity, to say the least.

I don't recommend that you waive the mortgage contingency clause if you don't have sufficient cash reserves to cover any discrepancy between the mortgage you were pre-approved for and the actual mortgage you are awarded (based on the appraisal of the premises). You may be pre-approved for a $350,000 mortgage, but upon receipt of the appraisal report, you may only receive $300,000 from your lending institution. You'll need to come up with that $50,000 difference out-of-pocket, if you waive the mortgage contingency clause in the sales contract. If you can't come up with the $50,000, your 10% down (good faith deposit submitted with the signed contracts) is gone forever. Ouch!

And yes, I've intentionally mispelled "Waive" in the title of this blog entry. How's that for a play on words?