What is a Purchase CEMA?
A Purchase CEMA is a financial arrangement that allows a buyer to assume the seller’s existing mortgage while securing a new loan, effectively reducing the mortgage recording tax burden. In NYC, buyers typically pay a mortgage recording tax of 1.8% on loans up to $500,000 and 1.925% on loans above that amount. By utilizing a Purchase CEMA, buyers can avoid paying this tax on the existing loan balance, only paying it on any new loan amount being borrowed.
How Does a Purchase CEMA Work?
- Seller’s Existing Mortgage – The seller has an outstanding mortgage on the property.
- Buyer’s New Loan – The buyer secures a new loan, but instead of taking out a completely new mortgage, they assume the seller’s existing mortgage balance and add their new loan amount.
- CEMA Agreement – The lender consolidates the old mortgage with the new loan, extending and modifying the terms.
- Tax Savings – Since the buyer is only paying the mortgage recording tax on the difference between the old mortgage balance and the new loan amount, they save a significant portion of what would otherwise be due in taxes.
Who Benefits from a Purchase CEMA?
- Buyers: Reduce their mortgage recording tax burden, leading to thousands of dollars in savings.
- Sellers: May attract more buyers by offering lower overall transaction costs.
- Lenders: Retain an existing mortgage rather than losing the loan to a competitor.
Potential Challenges with a Purchase CEMA
- Lender Cooperation: Not all lenders allow Purchase CEMAs, and some may charge additional fees.
- Processing Time: The process can take longer than a standard mortgage closing since multiple parties must approve the transaction.
- Seller Willingness: Some sellers may be reluctant to go through the extra paperwork required.
Example of Purchase CEMA Savings
Consider a buyer purchasing a condo for $1,000,000 with a loan of $800,000. If the seller has an existing mortgage of $500,000, a Purchase CEMA would mean the buyer only pays the mortgage recording tax on the $300,000 difference rather than the full $800,000. This could save the buyer over $9,600 in closing costs.
Is a Purchase CEMA Right for You?
If you’re buying or selling property in NYC, a Purchase CEMA could be a valuable strategy to lower transaction costs. However, it requires cooperation from lenders, attorneys, and both parties involved in the transaction. Buyers should discuss this option with their real estate broker and mortgage lender early in the process to determine feasibility.
By leveraging a Purchase CEMA, buyers can make a savvy financial decision that reduces their overall closing expenses, making homeownership in NYC slightly more affordable.
