Inside Third & Bond: Week 104

This week the T&B crew talks mortgage financing.
With the finishing of our sales models, launch of our marketing campaign and start of open houses first one is this Sunday, 2-4 we’ve been spending a good amount of time looking at financing. Without good financing options, buyers can drool over a unit, dream about it at night, name their new puppies Third and Bond, but won’t be able to purchase a unit. (Unless they have a mattress of cash and can forgo a mortgage.) To this end, we’ve been talking with end loan providers and getting our ducks in a row with SONYMA, FHA, and Fannie Mae.

We have our project approval for FHA, which means that buyers looking at a mortgage maximum of $729,750 can put as little as 3.5% down. We expect over half of our units to qualify for FHA. For our 1-bedroom, 2 full bathroom (or 1 full bath and 1 fancy closet for you bathroom complainers) duplex with a private terrace, that means a down payment less than $25,000. Put that together with the federal tax credit of $8,000 for first time home buyers, and you’re really looking at $17,000 down. FHA also has a 5 year ARM for which they require 5% down but give an interest rate of 3.87%. So good we wish we could put numbers in CAPS.

We also have approval…

…from SONYMA. Buyers wanting to utilize SONYMA have to meet income limits of $92,160 for a 1-2 person household or $107,520 for 3+ people. The purchase price not the mortgage amount is a maximum of $637,640. There are several different programs through SONYMA. The friendliest in terms of the down payment requires 5% but allows the buyer to cobble that together by putting in a minimum of 1% herself, up to 3% as a seller’s concession and the rest as a gift from friends and family. This program has an interest rate of 5%. There’s another program, Achieving the Dream, that has an income maximum of $64,510 and a lower interest rate, 4.75%. The buyers who qualify for this program and are looking at Third + Bond probably have a good amount of cash saved up, in spite of a low annual income.

There is also an incredible Mortgage Credit Certificate offered by SONYMA. Buyers get to take 20% of the annual interest they pay as a direct credit for the life of the loan, AND can combine it with the $8,000 federal tax credit AND can take the standard mortgage interest deduction on the remaining 80%. The program has only been around for a few months and yet 40% of the $20 million or so set aside for it has already been allotted. We understand from our SONYMA contact that more money will likely be added. This certificate can be used with any fixed rate product loan, as long as it meets the other income and mortgage requirements. So, FHA, VA, or conventional loans will work, but not SONYMA mortgages (no double dipping).

So, let’s take for example a studio (full bath, washer/dryer, sleeping alcove) priced at $311,700: with the SONYMA 5% down, you’re looking at about $16,000 for a down payment. But maybe you only put down 1% ($3,200) and the rest you get in gifts from friends and family (hey, let’s leave seller concessions out for right now). Your monthly carrying costs including maintenance and taxes are just shy of $2,000 per month before you take the tax deduction. After taxes you’re looking at $1,500 a month.

Another SONYMA program that seems likely to be utilized at Third + Bond is the Energy Star Closing Cost Assistance program. If the building gets the Energy Star label, then SONYMA will offer $1,000-$3,000/3% of mortgage amount in closing costs to the buyer. There are no monthly payments on the assistance and payback is forgiven after 10 years. There is no bump in interest rate. (If a buyer gets closing cost assistance but the building isn’t Energy Star labeled, then there is an 0.50% bump in the interest rate.)

We are glad to have Third + Bond approved for both FHA and SONYMA because it makes it that much simpler to provide interested buyers with an array of financing options. We are also working on our Fannie Mae project approval. We started our application late because FHA offers 100% reciprocity with Fannie Mae or so it is supposed to be. After speaking with some lenders we found that many wanted to see the stand alone Fannie Mae approval, too.

In addition to these options, we’ve talked with a couple of banks about conventional loans. Some of our larger units won’t fit within the parameters for SONYMA and FHA. One of the lenders we’ve worked with for years on affordable projects has a loan product in play now that allows for a 20% down payment on loans from $1 million to $2 million if the buyer’s credit score is at least 720. As the credit score decreases, the required down payment increases.

Even with all of these financing options, most buyers will probably close with 10-25% down.

In addition to finding out more about the individual programs, we used our time meeting with the banks to get a temperature on the lending climate. They were upbeat and ready to roll. Paperwork takes a little bit more time but as underwriters are getting their heads around the changes to various programs and processes, loan processing is becoming smoother once again.

Now it’s time to take the temperature of our potential buyers…

Our legal fine print: The complete offering terms are in an Offering Plan available from Sponsor. File No. CD080490. Sponsor: Hudson Third LLC, 826 Broadway, New York, NY 10003.

Inside Third & Bond: Weeks 1-101 [Brownstoner]
The complete offering terms are in an Offering Plan available from Sponsor. File No. CD080490. Sponsor: Hudson Third LLC, 826 Broadway, New York, NY 10003.