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July 30, 2007
Too Good To Be True?
I am a prospective buyer (first time) doing some research. I saw this listing on Craig's List and thought that it seemed to good to be true. Does this raise red flags to anyone else?
Perfect for first time buyers!
Large 2 Bedroom garden apartment plus a basement that can be used as an Office, Storage or Recreational room.
Fully renovated: new Kitchen new bathroom ALL NEW. new appliances
Only $5K Down. will get you into ownership with only $1350 out of pocket expense per month.
Must provide income verification & credit check.
Must have good credit, No Programs. Pets Friendly.
Lafayette Avenue between Throop and Thompkins
Comments
Lots of red flags. This is not how houses are normally bought and sold. Their "monthly payment" is probably an effort to disguise a) a very high interest rate, b) an inflated selling price or c) some serious problem with the house that they do not want revealed or d) all of the above.
Ask the seller this: what is the actual price of the house and what is the interest rate on the loan (expressed as an ANNUAL rate)? How do you know if its a good or bad deal until you can compare like with like to other offerings?
If you have never purchased a house before, the normal procedure is the house is listed at a price, and you are responsible for finding the money (i.e. a mortgage that will be used to pay for the house.) This can be a very good thing: the lender probably will not allow you to buy a house that you can't afford, won't lend on a house selling for a ridiculously inflated price (well, at least in theory...). Also, your not being able to get a mortgage is a great excuse for backing out of a deal if something goes wrong (and in this case, you can expect something will).
In some unusual circumstances, the seller may offer some type of financing, but that is unusual and cause for some serious scrutiny.
Have you read in the papers these days about the subprime mortage crisis? If it were me, I'd walk away right now.
Posted by: Anonymous at July 30, 2007 11:49 AM
Subprime issues aside, ask if and why the seller is insisting on holding the note. There's reasons sellers want to do this that are legit (like money) but it definitely might not be in your best interest. Especially depending on the fine print.
Decoupling the seller from the mortgage avoids a pretty big cnflict of interest. Seller wants as much as they can get for the property but a bank will (more or less) lend you not what the seller wants but what they think the property is worth and what you can afford to pay back. That can be a drag sometimes but it's an important check and balance that can act as a sanity check. . . . sometimes.
Not a dealbreaker. Just a reason to be more careful. Much more careful.
Posted by: John at July 30, 2007 11:59 AM
Yes, it is too good to be true. Trust me. This is not the way apartments are bought and sold. As other posters have said, the information you need is:
1) This is an apartment. Is it a condo or a coop?
You need to understand this first off. If you are not familiar with the differences, you have your own deed for a condo and in a coop you buy shares in a corporation which owns the building and "lease" your apartment. The finances of the coop are crucial since the coop usually has a mortgage on the underlying property.
2) What is the price?
3) If a coop, what is the maintenance (debt service plus expenses and taxes) or a condo, what are monthly maintenance charges.
4) Why does the seller want to provide financing?
5) What kind of loan is this? ARM (Adjustable rate mortgage? fixed? Or something in between?
This kind of vague marketing to first time buyers is often predatory lending which requires the most sophisticated scrutiny, something which the new buyer is usually not equipped to do.
One of the best things you can do is to take a few courses for 1st time buyers - i.e. given by neighborhood organizations, NYC, learning Annex, etc.
Good luck to you!
Posted by: anon at July 30, 2007 12:31 PM
One subprime trick that may be operating here is to backload a lot of hidden costs to hold down the initial monthly payment. Perhaps the $1350 is interest only, minus estimated tax savings. Perhaps not even the fullinterest is being covered initially, with interest accruing on unpaid interest.
Follow the advice the first two commenters gave you. I probably wouldn't even bother. Anyone not willing to be upfront about the basic terms is probably hiding something. You'll end up walking away in the end so why not save your time.
Posted by: Anonymous at July 30, 2007 12:33 PM
this reminds me of some listing i found on CL years ago, the post said it was a house in ft greene and the price was something like 400K. but you had to get 'preapproved' through their service before they would even tell you the address. the guy i talked to wanted me to come to his 'office,' which was supposedly in the Empire State Building. when i asked the office number, he said i should call his cellphone when i get to the building and he would 'come down and meet in the lobby.' uh, yeah right.i opted to search elsewhere for real estate.
Posted by: Jimmy Legs at July 30, 2007 3:32 PM
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