If you plan to buy your first home in NYC and have done any research, you will already know that compared to the rest of the country, it’s a) expensive and b) highly competitive. That means you’ll need to know exactly how much home you can afford and exactly what kind of home you wish to buy. Agents and brokers have packed schedules so being able to tell them, “I want this kind of home, in this neighborhood and at this price,” saves a lot of time. To have that information, you’ll need to do some homework.
How much house can you afford?
Knowing how much house you can afford depends on a few factors:
How much liquid cash do you have?
Your liquidity means how much cash you have access to in an instant, that you can use for a down payment, closing costs and can show as reserves (ie. in a bank account, not in stocks, retirement accounts, or in equity).
Whether you can buy a home all-cash or need a mortgage
Cash is always king and may allow you to buy a house for less money than buyers that need a mortgage.
If you are getting a mortgage, you'll need to know how much you can “easily” get approved for, and what your credit score is. The higher the credit score the better. Different banks require different scores. A score of over 740 puts you in the driving seat with any lender and although some accept much lower scores and FHA (government-backed loans) even accept scores below 600, in today’s highly competitive market it’s not a wise move to go house hunting until you first fix your credit. Check out our article on how to improve your credit score here.
Condo for sale in Williamsburg ($1,395,000). Picture: Courtesy of Compass.
What type of house do you want to buy?
This is very much linked to what kind of house you can afford. You might want to buy a brownstone in Greenwich Village but unless you can afford it, there’s no point looking. In NYC, your choices will be a co-op, condo, townhouse (single or multi-family), or single-family home. Each one of these has slightly different lending criteria from banks and each has its own rules.
Condos: Generally speaking, banks do not finance new construction condos unless they are 51% occupied. Aside from the usual raft of closing costs in NYC (note, the costly NYC transfer taxes, including mansion tax on properties over $1 million), in the case of new condos, the condo board may also expect you to pay their attorney’s fees! Ouch! It gets pricey and you should plan to pay 2-5 percent of the purchase price of a co-op, condo, or townhome with new construction condos costing the most. So, on a million-dollar condo, your closing costs could be as much as $40K, without even factoring in a down payment and liquid assets for reserves.
Co-op for sale in Hamilton Heights ($699,999). Picture: Courtesy of Compass.
Co-ops: The rules differ somewhat with co-ops as you are buying a share in a building and not an actual home. The one thing to know is that a co-op board’s approval process can be a lot more invasive and stringent than a condo's, with your personal finances likely to be scrutinized. A co-op board, rather than the bank, may determine how much you can borrow to buy shares and they might insist on a 20% down payment. Also, some lenders are wary of lending for co-op purchases because of this. We’ve all watched movies or read stories where snooty Manhattan co-op boards refused entry to people based on reasons that had nothing to do with money. However, in this day and age, this tends to be more the exception than the norm.
Single-family home for sale in Bedford-Stuyvesant ($1,750,000). Picture: Courtesy of Compass.
Single-family homes: These tend to follow more tried and trusted guidelines for home purchases around the country. The only difference is that, in NYC, a single-family home is likely to cost over $1 million, so you’ll have to deal with the mansion tax.
Multi-family homes: A multi-family home (of 2-4 units) offers the home buyer the advantage of being able to offset their mortgage with rental income. However, these usually require larger down payments than condos, co-ops, and single-family homes, have higher taxes, and greater city inspection criteria. It also means that potential buyers have to be comfortable with the idea of being landlords and living in the same building as their tenants, which has a track record of becoming contentious when rents are late or repairs are not made.
Multi-family home for sale in East Harlem ($2,995,000). Picture: Courtesy of Compass.
Maintenance and Common Charges
As a co-op resident, you will pay a monthly maintenance fee which goes towards the upkeep of the building, heat, and taxes. While these often increase uniformly each year, a sudden expense (such as replacing a heating system) could result in a larger than usual maintenance increase. Increases correlate to the number of shares in the building you own.
In a condo, a maintenance charge is referred to as a common charge and usually increases relative to a building’s expenses.
Co-op for sale in Washington Heights ($425,000). Picture: Courtesy of Compass.
Knowing where to buy
This is very much a personal preference but also dependent on how much you can afford. If a luxury condo in Tribeca is not in your budget, it’s pointless looking there. Instead, if you are on a budget, look for areas that have potential and are likely to increase in value. While all of NYC is pricey compared to the rest of the country, some neighborhoods are more affordable than others. Often, these are next to more expensive neighborhoods and exist throughout Brooklyn, Queens, The Bronx, and Manhattan. If you have to commute to work, check public transport options. These days, unlike in the past, there are relatively decent food options throughout the city but if you plan to eat out, you’ll want to pick a neighborhood with decent dining options, which in some areas can be a bit limited.
Conclusion With a good credit score, cash, reserves, and proof of income, a NYC home is ready to welcome you with open arms. Even though it’s currently a seller’s market and deals are hard to come to buy, NYC has historically created more millionaires than anywhere else in the world — in part due to its appreciating real estate. It may be a struggle to buy a home in NYC, but once you do, you'll be glad you did.
If you would like to know more about the process of buying your first home in NYC, reach out to me at gene@charneycompanies.com.