BY MICHAEL STAHL
I grew up in an Upper Ditmars-area, two-bedroom rental. It was the first space my parents occupied together beginning back in the mid 1970s, and the apartment they’d continue to rent until about a year ago when they moved just across the street … into another rental.
I was in my early twenties when I finally discovered that renting for such a long period of time was – with all due respect to dear mom and dad – fairly out of the ordinary, and not very financially advantageous. “You’re basically just giving money to someone else when you rent,” someone told me then, “but if you buy a home, that’s an investment you can get a return on.” I’d never thought of housing in such a way, so it’s fair to say that I am at best a bit of a lament when it comes to home ownership.
Recently, my girlfriend and I vaguely committed to saving up for a home purchase that may happen some time in the distant future. I thought I might as well start studying up on what will be required of us should that day come. StreetEasy.com currently has an original first-time buyer quiz on their website, which I took as an initiation into the world of home ownership. Spoiler alert: I ranked in the lowest percentile of all the test’s takers, but as they say, “you learn from your mistakes” – and I made plenty.
Question one read, “Is preapproval better than prequalification?” and I wondered if I’d accidentally enrolled in an online course in quantum physics. After predictably guessing wrong, the site informed me that preapproval is “ultimately what you need to move fast on a house and place an offer.”
I took advantage of some in-roads I’ve laid at StreetEasy and procured a more extensive explanation from the President of Circle Mortgage Group Dale Robyn Siegel.
“A preapproval [for a mortgage loan] is actually obtained only after a potential borrower submits a loan application,” Siegel, who has written a number of consumer and educational books on residential real estate, wrote to me. “Preapproval is much better than a prequalification which basically shows you had a good faith conversation with a lender who ran your numbers.”
I nailed the quiz’s next two questions about what makes a legal bedroom in an NYC apartment – 80 square feet, a door, window and other features – and if a person can use a different lender than the one that preapproved them – yes, so don’t feel obligated to do business with them after they’ve examined your case.
The fourth question in the quiz asked, “Do all buyers need to purchase private mortgage insurance (PMI)?” I thought to myself, “All drivers have to get car insurance” and answered in the affirmative. But, in fact, PMI is not a must.
“PMI is insurance that a lender will require if the down payment is less than 20 percent,” Siegel wrote. “It ensures they will receive their entire principal payment if the home goes into foreclosure.” So it might be worthwhile for a buyer to not even enter the market until they have a sizable amount of money saved for a down payment that will exceed 20 percent of what they hope to purchase, otherwise they’ll spend a chunk of money on PMI anyway – cash they won’t get back in the event of a future resale.
Next, I was asked, “True or False: when you purchase a co-op you receive a property deed,” and I submitted an answer of true. “False! Very false,” the site emphatically informed me, pointing out the differences between a condo purchase and that of a co-op. Buyers of a condo own the property outright, though a co-op purchase is the equivalent of owning shares in a company – which, in this case, is the actual building the co-op is in.
Question six was as follows: “True or false: All residents in each respective co-op or condo building will pay the same amount in maintenance fees or common charges.” An answer of false ended my two-question-long drought of incorrect responses, but I asked Ms. Spiegel what determines the size of such charges.
“If there are more amenities offered, then there will be higher expenses,” she wrote. On top of repair costs, “the [maintenance fee] also includes the property insurance and real estate taxes.”
Therefore, in comparing the prices of co-ops and condos, be on the lookout for – almost literally – hidden costs, such as an “underlying mortgage.” These fees could almost balance out the costs of those two types of properties.
Throughout the test’s closing questions I learned the advantages of a property’s 421a tax abatement – no added property taxes for the first two years of the program! – as well as the circumstances unto which a buyer can in fact get a refund on a property contract deposit – i.e., if a co-op board turns the buyer down. I was informed that closing costs and types of insurance differ in a co-op purchase versus a condo transaction, and that a mansion tax is applied to all properties that cost in excess of $1 million, regardless of square footage – a fact I personally will likely not need to remember, ever.
My putrid results of just four correct answers out of ten questions put me in the category of “basic buyer,” according to StreetEasy. But I’m on my way toward becoming a more educated shopper, something even I know is invaluable, especially in such a competitive market as New York City always seems to be.
For more tips, take the quiz yourself at streeteasy.com.