Financing Your First Home in NYC Doesn’t Have to Be Scary
You know it’s the right time in your life to buy. You know what building you want to call home. You’ve already started collecting moving boxes. But how much thought have you put into your finances?
There’s a lot that goes into financing your first home in NYC. Do you have what it takes (in the bank) to be a Manhattan homeowner?
How much cash do you need?
When it comes to buying a home in NYC, the more cash you have, the better. Consider the following.
- The average home price in Manhattan is $1,017,197.
- Most boards require a down payment of 20 percent or more.
- You may also need to have one to two years’ worth of maintenance fees in liquid assets.
- Closing costs average between two and five percent of the total purchase price.
- Real estate attorney fees can reach $3,000.
If a condo or co-op you’re considering is on the market for $850,000 and has monthly maintenance fees of $1,000, this is how much cash you’ll need.
- Down payment – $170,000
- One years’ worth of fees- $12,000
- Closing costs – $34,000
- Attorney fees – $3,000
There are miscellaneous fees you’ll also need to consider, like moving fees (a six-hour move will run you about $750) and the cost of condo or co-op insurance. You may also need to complete a few repairs or upgrades before moving day. The point we’re trying to make is that you shouldn’t spend every last penny securing a unit. There will still be more costs to come.
What will the board look for?
Impressing the board is no easy feat. Your entire life will be temporarily under scrutiny as the board determines if your personality, hobbies, and lifestyle will mesh well with the community. While they may be forgiving of your unique hairstyle or accept that your dog is a couple pounds over the preferred weight limit, they will not compromise when it comes to your finances.
When looking over your finances, you can expect a condo or co-op board to explore your:
Debt-to-income ratio
A board typically has two ways of approaching your debt-to-income ratio. Some may prefer that no more than 28 percent of your monthly gross income goes to paying your loan principal, interest, property taxes, and home insurance. Other boards may prefer a maximum 36 percent of your monthly gross income going to your mortgage, maintenance, and recurring debt, like credit card payments and child support. Both are much lower than the average 43 percent debt-to-income ratio lenders tend to cap out at.
Income
A board will always want to explore your income. They’ll look at some of your most recent pay stubs to make sure your income is steady and predictable. This could be difficult to showcase if you’re self-employed or your income varies throughout the year.
Tax returns
If you’re having trouble proving your income, tax returns are a great way to showcase your true earnings for the past several years. Expect to present the past three years’ worth to a board. Many boards look at gross income, even if you take a dramatic number of deductions. However, some will only consider your adjusted gross income.
Credit score
You’re unlikely to make it in front of a board with a poor credit score so you likely have nothing to worry about in this department. They’ll confirm it and move on.
Liquid assets
We already know that buying a condo or co-op in Manhattan comes at a premium price. But even after you’ve saved for a down payment and made sure you’ll be able to cover additional monthly costs other than your mortgage, you may be surprised to learn that boards often require you to have one to two years’ worth of maintenance fees in liquid assets. Sometimes you’ll need to place the funds in an escrow account so this really isn’t a financial standing you can fudge.
Working with your team
Financing your first home in NYC involves an entire team of supporting players. You can’t do it alone, even if money is no object. Here’s who you need in your corner and when to use them.
Financial advisor
Speak to your financial advisor before committing to the idea of buying a home in NYC. If you don’t have one, now’s the time to find one. When you’re considering an investment as large as an NYC condo or co-op, you’ll want the input of a professional. Should you discover you don’t have a large enough down payment or the required assets, a financial advisor can get you on the fast track to where you need to be.
Realtor
Once you know you have the finances to support a purchase, reach out to your realtor. They might already have a few buildings in mind once you tell them about what you’re looking for and what your finances will allow. They can also put you in touch with a mortgage broker if you don’t already have one.
Mortgage broker
Your mortgage broker will give you the final outlook on your finances. While they may give you a few options as far as down payments and loan amounts, make sure to always consider the mortgage rate. Mortgage rates in New York range between 3.38 and 7 percent. Keep this in mind when choosing a loan.
Insurance broker
You’ll need to secure insurance, or at least the promise of a policy, before signing a contract so it’s never too early to get in touch with a broker. They can determine how much coverage you need by asking a few questions and inputting your answers into an equation. Your lender will need to approve your policy so make sure it at least covers the cost of replacement.
Real estate attorney
A real estate attorney is required to be present at a New York closing. With an attorney, you can sign your contract with confidence.
Need more information?
Financing your first home in NYC is a daunting task. But with the right team and strong plan of action, you can come through with flying colors. For more information on buying your first home in New York City, download our ebook with input from top NYC realtors.
