Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.
There are a lot of closing costs associated with purchasing a home and using a CEMA Mortgage Loans in NYC represents an excellent way for buyers to save money by reducing their mortgage recording tax liability. In this guide, we’ll go over how and when you can use a CEMA mortgage. We address the following questions and aspects:
To start, let’s break down what CEMA stands for: It’s an acronym for “Consolidation, Extension, and Modification Agreement.” A CEMA remains best thought of as a sort of mortgage assignment. Essentially, it combines an existing mortgage loan with a new one, resulting in lower buyer closing costs by lowering your mortgage recording tax. In fact, as this tax ranges from 1.8% to 1.925% of the mortgage amount, you can save a lot of money by using a CEMA, assuming the size of the existing loan is substantial.
The most common times to use a CEMA remain when you are refinancing, although you can also use a CEMA when purchasing a home.
Sometimes, you can also use what’s called a “purchase CEMA” or splitter when you buy a property. In this case, you’re combining the seller’s existing mortgage with your new loan. Besides saving the buyer money by reducing their mortgage tax liability, a purchase CEMA also saves seller money. Instead of having to pay transfer taxes on the entire sales prices, the value of the existing mortgage is deducted, lowering the seller’s closing costs.
A purchase CEMA makes the most sense when the seller’s existing mortgage is high. The one drawback of a purchase CEMA remains that there are a lot of moving parts, and everyone has to agree. In a hot market, most sellers might prefer to simply close a deal faster. If a seller’s existing mortgage is not high enough, then the savings won’t be worth the hassle if the “assignment” is for a relatively small sum.
There are several requirements for using a CEMA. First, you need to purchase real property (house or condo). Co-ops are personal properties and, therefore, not subject to mortgage recording taxes. The lender or lenders will need to approve the CEMA. If either the existing or new lender doesn’t agree, there’s no way to obtain a CEMA. Typically, you can expect to pay around $2000-3000 in fees to the lenders and their attorneys for a CEMA. Finally, in the case of a purchase CEMA, the seller also needs to agree to the loan.
That doesn’t always happen as it can delay closings, and create potential risks for the seller. There’s also the risk that the seller’s bank doesn’t accept. Generally speaking, purchase CEMAs are relatively uncommon and only seen when purchasing from a developer who has already paid mortgage taxes on a construction loan.
It really depends on the situation, but in the worst-case scenario, a CEMA can delay your closing by 2-4 weeks. If you are using the same lender, it likely won’t cause much of a delay, but if there are two different lenders, and if the CEMA wasn’t discussed with your initial offer, things can certainly take longer, and push your closing as far back as a month.
A CEMA makes more sense when the amount of (consolidated) mortgage is higher. Typically, it’s not worth the hassle if you’re talking about a seller’s mortgagee of less than $250,000. Let’s look at an example of what a deal would look like for a $1,000,000 purchase.
Selling Price- $1,000,000
Amount Financed under new mortgage- $800,000
Seller’s existing mortgage- $600,000
Mortgage recording tax avoided- $11,550
CEMA Cost- $2,500-$3,000
Total net savings- $8,550 to $9,050
Overall using a CEMA remains a strategy to save money and reduce your closing costs, but you need to have the right folks in your corner. Our agents are highly experienced and here to help. Send us an email at email@example.com if you’d like more info on how to save money by using a CEMA.