Q & A with Dottie Herman

---

Q1 - My son is currently renting in NYC. Assuming he has money for a co-op purchase or a condo purchase, which is advisable? He is looking at co-ops in the neighborhood he wants to live in. We currently live in New Jersey, own our own home and are not in the mindset of sharing in a corporation and have no experience with NY real estate. And yes, we are learning that condos are more expensive. We want to learn about co-op vs. condo so we can help him make the best decision.

A - When purchasing a co-op, you are purchasing shares in the cooperation and are issued a Stock Certificate and a Proprietary Lease. The purchase process requires full financial disclosure and, depending on the co-op, the financial requirements vary both in terms of the amount to be financed and the applicant's required liquid assets. Purchasers of cooperatives are, in general, seeking a lifestyle in which the majority of the residents are prime residents. Most co-ops discourage subletting and pied-a-terres as they do not encourage investors or non-prime residents. The monthly maintenance for a co-op apartment can, in some cases, include utilities and cable. If your son is new to the job market and does not have substantial assets in his own name, you may be asked to be a Guarantor on his purchase.

The condo type of purchase is similar to your home ownership. You are issued a Deed and own a percentage interest in the condominium. There are monthly Common Charges and Real Estate Taxes. The latter, unless purchasing in a tax abated building, can be steep as real estate taxes are on the rise. Leasing and pied-a-terres are not restricted and you may elect to purchase a condo in an LLC or another type of corporate entity. This flexibility does often impact the purchase prices of this type  of ownership making it more expensive. If you are planning to finance your purchase, it's important to make sure that the building is approved by the lender you have selected.

It is always helpful to work with a real estate professional, and we would be happy to introduce you to one of our agents.

---

Q2 - I put my house on the market and had a buyer immediately. Now I've been waiting for them to get a mortgage for a few months. What should I do?

A - In your sales contract there should be a clause that says how long the buyer has to obtain a mortgage.  It could be 30 days, 60 days, or 90 days. If that person is over the time limit, determine whether you want to let them try to get a mortgage or not. You may have to move on and get a buyer that can really get financing secured. You want to make sure the buyer is working with a good, reputable banker like DE Capital who can assure you of their ability to get financing. Otherwise, you are taking your property off the market, and betting on a buyer who can't get their financing. If they've been to two different banks, three different banks and they've gotten rejected, the chance of them getting accepted by a fourth is  not likely to happen. If somebody gets rejected by a bank, generally it's the same reason that another bank is going to reject them . 

---

Q3 - I recently heard every time your credit is reviewed it hurts the score.  Please explain how this works and what it does to the score?

A - Credit reviews are also known as inquiries or pulls.   There are two kinds, the first is referred to as a soft pull and it does not affect the score.  The second is a hard pull or inquiry and could drop the score up to 5 points each review.

Soft inquiries, which occur when consumers pull their own credit, receive an offer for a reduced interest rate promotional credit card, or have an insurance company review credit for policy approval, do not affect the credit.

Hard inquiries or pulls occur when consumers give authorization to a third party to review their credit during an application for most types of financing including mortgages, an increase in a credit card limit, new credit card approvals, and more. 

While shopping for a mortgage, car, or student loan consumers have a window of time in which numerous inquiries will have a limited effect on credit scores.  Most mortgage banks today use a 14 day window.  If a consumer is shopping for a mortgage with a variety of banks it is wise to have them all pull credit within a few days of each other, limiting the damage to the score.

---

Q4 - I hear about these different "ratios" when qualifying for a mortgage. What are front and back ratios?

A - Part of the mortgage application process will be the determination of how much house you can afford based on your income. The two ratios that will be computed are the front ratio and the back ratio.

• Front Ratio: The total mortgage payment including principal, interest, taxes and insurance (PITI) as well as any condominium or homeowner association fees divided by your total GROSS income. Example: With a gross income of $3700 per month, a total mortgage payment (PITI) of $973, the front ratio would be 26%.

• Back Ratio: The total mortgage payment PLUS any car payments, credit card and any other loan payments divided by your total GROSS income. Example: With a gross income of $3700 per month, a total mortgage payment of $973, a car payment of $212, 1 credit card payment of $59 and 1 credit card payment of $43 for a total of $1287 with a back ratio of 35%.

---

If you have a real estate question for Dottie, please send it to; Reporters@WorldPropertyChannel.com