In this tutorial, we will be showing you how to use the Purchase CEMA Savings Calculator for New York City
available at Hauseit.com. If you're not already on the calculator page you can get here by
visiting the Hauseit website. The spelling is at the top now. Once you're on the website click on the calculators tab
navigate to the buy
menu and scroll down to
Purchase CEMA Calculator. Now if you're on the Purchase CEMA Calculator page, it is highly likely that you're
taking out a mortgage and you are buying real property. Now real property is defined as something with a deed
So in New York City real estate lingo it includes
condos and houses. It would not include a co-op because a co-op is not real property
so that being said if you are buying a co-op, you probably do not need to look at this calculator
But you might be interested in taking a look at your buyer closing cost calculator
that'll give you a good overview of your buyer closing costs for a coop. They are lower for a co-op versus a condo
so figure about two percent as opposed to your more common figure of around four percent for a condo or a house in the city
You may also be interested in looking at the mansion tax calculator. Now this applies for condos coops and houses
It doesn't matter if the property purchase price is a million or more you are in the mansion tax threshold and
one final note, you might also be interested in looking at the mortgage recording tax calculator
We will talk a little bit about this today because it is related to the Purchase Calculator
But if you're looking for more granularity in regards to the mortgage recording tax element of your closing cost bell
this calculator is for you
So going back to the Purchase CEMA Calculator. We want to start just by giving you an overview of
What what exactly is a Purchase CEMA now?
If you go down to the glossary at the bottom of the calculator page, we have a brief overview here
But we are going to go over it with you in this tutorial
Now the takeaway of a purchase is that it helps lower closing costs
so beyond the specifics of how it works what it is what the acronym stands for?
Just know that if you hear the words purchase CEMA
somebody is trying to save money on closing costs now
It could be a buyer or it could be a seller who brings it up because both the buyer and the seller
would save money in the event that a purchase CEMA is
successfully included in a deal
specifically the acronym. CEMA stands for Consolidation Extension
Modification Agreement and basically what a purchase CEMA consists of is a seller
instead of paying off their loan
they
transfer the loan to a buyer who's taking out a mortgage and because the buyer gets some of the existing loan balance
It means that the buyers lender has to underwrite a smaller amount for the new mortgage
So it doesn't change the amount that the buyers financing it just changes the amount of new loan
that is originated to facilitate the deal. Now
this is relevant because the mortgage recording tax for buyers is only based on the amount of new loan being underwritten
so if for example a buyer is taking out a
$500,000 mortgage and
The seller has an existing $500,000 mortgage in theory
The seller can just assign their mortgage to the buyer and the buyer wouldn't be taking out any new loan money at all. Therefore
they would not have to pay any amount of mortgage recording tax on the deal. Now
the buyers mortgage recording tax is one of the largest closing costs in New York City
It is two point zero five percent for loans below half a million and two point one seven five percent
for loans of 500k or more so it is pretty substantial
Think about it this way, if you're buying a 1 million dollar condo, you're financing 80%. You would essentially have to pay around
2% on
$800,000. So by way of basic math, that is a huge amount of money that
$16,000 give or take
so you can already probably tell that the purchase SEMA strategy is
merrily benefiting
sell a buyer's rather buyers are unequivocally saving the most money using the strategy
But in order for the strategy to work the seller has to obviously agree to it
the seller will not just assign the mortgage. If they don't
give their own permission and also the lender on the seller side needs to approve it as well
Now the seller also saves money with a purchase CMAs specifically the seller does not have to pay the New York State transfer tax
on any amount of loan that they assigned to the buyer
Now the New York State transfer tax is only one component of the total transfer taxes due on a sale
The other component is the New York City specific transfer taxes
which are considerably higher the New York State transfer tax itself is
0.4% for the majority of residential sales below 3 million if you're selling above 3 million or
exactly 3 million your New York State transfer tax is slightly higher at
0.65%
So a seller will save
0.4% or
0.65% on any amount of loan that they assign or transfer to the buyer
So just to summarize using a purchase CEMA. The buyer can save around 2% and the seller saves around
say 0.5 percent on average clearly. The buyer is saving way more than the seller
But it's not that simple because the buyer can't just do it
without the approval of the seller and the seller is certainly not going to agree to something which
disproportionately benefits the buyer. So as you can probably see the seller
with an existing loan has leverage
they have the ability to say yes or no when it comes to the purchase CEMA strategy
Therefore in most occasions the buyer and the seller
come together and they more or less agree to split the total savings
available using the strategy
so if the buyer is saving say
15k and the seller is saving 5k
the total is 20 the buyer and the seller might agree to just split it equally as
a condition of the seller to agree to this in the first place now, everything is negotiable
So it may or may not always end up at that point
but it really is the case that the seller has a ton of leverage
well again
why would they allow the buyer to walk all over them and save all this money when the seller isn't
benefitting as much as the buyer?
So going back to the
calculator itself, we can actually give it a shot. So let's say that the seller has an outstanding loan principal of
nine hundred thousand and
the buyer is taking out a loan of 1 million three hundred and fifty thousand dollars
We can also say that the sale price is
$2,250,000
Now if you look here on the right,
you'll see that the buyers mortgage recording tax without the CEMA is around 26 k but with the purchase CEMA
it's around eight thousand
So there is a savings available for the buyer on the mortgage recording tax of over seventeen thousand dollars
Now for the seller they're saving less because they're only saving on the New York State transfer tax and
with the purchasing that looks like they're saving around
$3,600. So in this arrangement, the total savings available is approximately 21 K
So what would happen on more or less would be the buyer and sellers attorneys would get together
negotiate and the buyer and the seller would probably both walk away from this saving around 10k
You can play around with this as well to test it out
There are some other options such as commercial real estate and this is relevant because under commercial the
mortgage recording tax rate is higher. So the upside possibly for a purchase seen as larger on the mortgage recording tax side
and we also have sale price here because of the fact that
again, the transfer tax rates do
depend on the the sale price
So if you're above 3 million or three million exactly the transfer tax rate goes goes up a little bit as well
there's also a couple other options for you know for more family house and
this is relevant because of the fact that the
lender will usually contribute a portion of the mortgage recording tax for your typical
non-commercial deal so they'll contribute for this that should be for this and this but they will not contribute
for commercial real estate
If you go further down here, we also have an overview of
the transfer tax rates. They're also different
so if you have a commercial deal or a forum or more family house
transaction that higher rate
applies at or above two million as opposed to at or above three million for your typical residential deal consisting of condo,
coops as well as one two three family houses
We hope this was helpful. If you have questions leave us a comment below the video and feel free to email us
Give us a call or send us a text if you are interested in
learning more about what we can offer you in terms of helping you save money as a buyer or a seller
here in New York City