In this article, you will learn…
- What document a seller is going to want to see before entering into a purchase agreement,
- What buying options are available to you on commercial real estate, and
- When funds need to be in place during the real estate transaction.
What Do You Need To Know Before Getting A Loan To Purchase Residential Or Commercial Real Estate Property In New York?
The first thing you have to know is that residential and commercial real estate are very different. The one similarity is that, in both instances, no seller wants to entertain your offer to purchase without seeing either a pre-approval from a lender or that you have cash on-hand to be able to purchase the property without a loan.
So, you’re going to need to provide the seller with…
- pre-approval letter, which is a letter from a lender stating that you are approved for the amount of the purchase price of the property, or
- bank statements or other financial documents that show you have liquid assets to use toward the purchase of the property.
With residential property, you can put down a very small amount. There are programs for veterans where you could get as much as 100% financing. In fact, you can get the concession up to 4% of the amount you’re borrowing.
In essence, you need to cover your closing costs. A veteran may be able to get a pre-approval letter with no money and still have a letter saying that they are qualified to buy the property because of their income. This is just one type of financing.
There are also programs for first-time home buyers where you can put as little as 3% down to get what they call a Conventional loan. It does have private mortgage insurance that has to be paid, but a typical down payment is around 20%, so having a down payment of only 3% is a huge benefit.
You can also go into government programs, such as FHA, where it’s 3.5% down but you add up to 6% seller’s possession, which should certainly cover all of your closing costs.
There are a lot of possibilities and a lot of different loan programs out there to help people get into homes. You need to go to your lender and get to know what program is best for you so that you can get your pre-approval letter beforehand.
When it comes to commercial property, it’s a very different process. Most commercial lenders are going to offer two types of loans:
A third option would be to do a purchase money loan from the seller.
In all three instances, you’re normally going to have to put down a considerable amount of money. Your down payment could be as much as 30% of the purchase price to cover the loan and most of those loans are variable and also may have prepayment penalties.
In New York, prepayment penalties are illegal in residential loans but not illegal in commercial loans. You have to look very carefully at what the terms of your loan are that you’re going to be getting in a commercial setting as opposed to residential.
If you can do an SBA, you could get a fixed rate loan and put down much less money based on what their guidelines are at the time. Their interest rate is usually much better, as well, on a loan through the SBA because the SBA is guaranteeing some portion of your loan.
At What Point Should Funds Be In Place During The Purchase Of Commercial Or Residential Real Estate?
You’re normally going to have a contract on residential that says that you have 45 days from the date of the contract to get your financing.
On commercial, it will usually be a longer period because of the environmental that you will need to get. It may be around 90 days that you have to get your financing in place.
Will My Real Estate Attorney Assist In Financing My Home Or Commercial Property?
The only way your real estate attorney will assist you is through your lender. Unless your attorney is also a licensed mortgage loan officer, he’s not allowed to assist you in the financing. Your attorney can look over the terms and conditions that the lender has put forth and can sometimes assist you in getting whatever documents are being requested or required by your lender.
Your real estate attorney is not allowed to actually quote interest rates or do anything that would make them a banker unless they happen to actually be a banker, which can happen.
With the guidance of a skilled attorney for Real Estate Law Cases, you can have the peace of mind that comes with knowing that we’ll make it look easy.