For years, each time a client in New York State decided to refinance their home, they would pay a state mortgage recording tax on the entire new loan amount.
But living in the Empire State shouldn’t have to mean paying a lot of taxes to refinance your empire. Thankfully for residents of New York, there’s a workaround when it comes to refinancing. It’s called a CEMA loan.
Instead of paying thousands of dollars in taxes, clients can obtain a Consolidation, Extension and Modification Agreement, or CEMA, loan. Rocket Mortgage® is pleased to offer CEMA loans to residents of New York State because clients only have to pay taxes on the amount of the new loan that is above and beyond their current unpaid principal balance, such as closing costs or cash-out.
What Is A CEMA Loan?
CEMA loans are only available on conventional, jumbo and FHA refinances. VA loans are not available.
The CEMA loan can help to reduce the amount of money a borrower pays in New York State mortgage taxes. Here’s an example:
- Loan amount = $300,000
- Financed closing costs = $8,000
- County tax rate = 2.05%
Without CEMA: Loan amount of $300,000 x 2.05% tax rate = $6,150 total tax
With CEMA: Financed closing costs of $8,000 x 2.05% = $164 total tax + CEMA fees
Qualifying For A CEMA Loan
The most immediate requirement for a CEMA loan is to be a New York State resident. CEMA loans are also primarily used for refinancing, but it is possible to buy with one as well in some circumstances.
Most types of houses and living situations can qualify for a CEMA loan, except for co-ops. New York State doesn’t collect mortgage taxes on co-ops, as co-op personal shares aren’t considered real estate.
Finding a lender that offers CEMA refinancing can be difficult, and you should make sure that the lender you choose offers it.
As mentioned above, Rocket Mortgage offers CEMA refinancing for those who qualify.
What You Need to Know About CEMA
A CEMA loan can save you a lot of money in refinance costs in New York State. However, it’s important to know what to expect in terms of fees and closing times.
Understanding CEMA Fees
One thing to note is that CEMA loans have some additional fees involved that could make it less advantageous. Fees vary for individual loans, but can range from a few hundred to a few thousand dollars, which typically covers CEMA assignment fees, closing fees and processing fees. If the CEMA fees totaled $1,120 in the example above, the homeowner would clearly benefit from using a CEMA loan.
However, it’s important to note that CEMA loans may not always be a good fit, as tax rates and attorney fees vary, meaning that a non-CEMA loan may be less expensive in the long run. But most clients looking for cost-effective refinancing should find that a CEMA loan makes perfect sense.
Longer Closing Times
While a CEMA loan does save you money in many cases, it’s not necessarily the quickest process. The state of New York, and any previous lender, must do some special signing off in order to get the mortgage and title transfers processed under CEMA regulations, allowing you to pay taxes only on the new money in the transaction rather than the full principal balance.
This means that CEMA refinances are going to require a little more patience than your typical refinance. It may take 60 – 90 days to close your loan. However, they’ll keep you updated throughout the process.
If for some reason you really need your loan to close quickly, you can take a look at other refinance types. Just be aware that you could pay additional taxes in exchange for that speed.
The Bottom Line: Is A CEMA Mortgage Right For You?
If the Empire State is your home, and you’d like to keep it that way, a CEMA loan could save you some valuable cash when refinancing. It may take some additional steps and the process may last a little longer than a traditional refinance, but the savings in the end can more than make up for that.
Whether you’re choosing a CEMA loan or another refinancing option, get started today with Rocket Mortgage or call (800) 442-4383.
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