The closing costs in New York City are known for being very expensive. One way to lower closing costs is by using a purchase CEMA. Let’s find out what kinds of transactions qualify and explain the possible savings when using a purchase CEMA.
What Is a Purchase CEMA?
A Purchase CEMA, also known as a Purchase Consolidation Extension Modification Agreement or a “splitter,” is a type of mortgage where the buyer takes over the seller’s mortgage and combines it with their new mortgage. A purchase CEMA can help lower closing costs for buyers who are purchasing a condominium, townhouse, or single-family home in New York City.
A Purchase CEMA is a strategy used to lower several NYC real estate taxes when selling a property. The purchase CEMA will lower closing costs in the following ways: The buyer’s mortgage recording tax in NYC will be decreased, and the seller’s transfer tax bill will also be reduced. Simply put, when using a Purchase CEMA, the seller transfers their existing mortgage balance to the buyer. The buyer then assumes the loan and combines it into a new loan. By doing this, many taxes do not apply to the original, outstanding mortgage amount.
Purchase CEMA Eligible Transactions
Just like a regular CEMA loan, there are many restrictions on when you can use a Purchase CEMA. Firstly, a purchase CEMA mortgage is only available to residents of New York. The next requirement is that the seller must have an unpaid home loan. Furthermore, CEMA loans can only be obtained by individuals who are refinancing condominiums, houses, or townhouses. Co-op opportunities are not available. That’s because coops are not considered real estate and are instead seen as personal property. Everyone involved in the parties must be willing to participate. This includes the person buying and selling something, as well as the lenders who are involved with each of them.
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How Does a Purchase CEMA Save Money?
Buyers Benefit from a Reduction of the Mortgage Recording Tax
The Mortgage Recording Tax is a fee that is paid when closing on a purchase or refinance in New York State. It is an important part of the closing costs and is usually the biggest cost that buyers have to pay. The advantage of getting a purchase CEMA loan is that you only have to pay taxes on the difference between the seller’s loan (which is transferred to the buyer) and the buyer’s new loan amount.
Sellers Benefit from a Reduction in Transfer Tax
The seller in New York State will pay less transfer taxes because of a lien reduction. In a slow housing market, sellers can use a purchase CEMA as a way to attract potential buyers. Although it may not save as much money as the reduction in mortgage recording taxes for the buyer, it can still be a helpful incentive.
Purchase CEMA Example
Let’s examine the possible savings that can be achieved by purchasing CEMA. Let’s imagine that we are going to buy a condo that costs $1,500,000. The seller currently has a mortgage of $500,000. This amount will be combined with a new mortgage of $1,000,000 for the buyer. Typically, when someone buys something worth $1,000,000, they have to pay a mortgage tax of 1.925%. This means they would have to pay $19,250 in total. However, if you buy a CEMA, you will only have to pay taxes on the additional money. The total amount due will be $9,625. Meanwhile, the seller will only have to pay $2,000 in transfer taxes in New York State. This amount is calculated as 0.4% of the property’s value, which is $500,000. This is a savings of $2,000 compared to the original amount of $4,000.
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