Borrowing to Purchase a New Condo
The process of buying a new development condominium differs from buying a resale property in a number of important ways that may make or break your deal.
There are five main points we emphasize to clients who are considering financing a purchase in a new development.
First, it is important to engage a real estate attorney experienced in negotiating new development contracts. These agreements are usually boilerplate, and it is more difficult to negotiate in contingencies. Hire an attorney who knows how to negotiate for loan commitment timing concessions, at a minimum.
Second, budget out your closing costs. In the local market, purchasers may be required to pay sponsor transfer taxes and attorney fees. Over $1mm in purchase price, the mansion tax is added, too. Closing costs can total 5-7% of price, and you will likely foot this bill out of pocket in addition to your after-close liquidity requirements.
Third, engage with a preferred lender at the development, or a lender who extends portfolio loans on new condos, so you can get a commitment. Bigger banks may not lend if a project is less than 51% sold. Case-by-case exceptions can be made, but do this homework up-front.
Fourth, make sure the attorney general has declared the building effective – requiring 15% in contract or sold – and have your attorney read the offering plan carefully. Banks require effectiveness to close, and special risks and abatements must be reviewed.
Finally, consider closing timing when planning your loan. With many developers selling the bulk of their units “pre-built”, you may not move in for up to a year after signing. Lenders typically offer 60-90 day rate locks, but can extend much longer for a fee. If rates go up, it’d be worth it.