Purchasing your first home in New York City can be an overwhelming process because it is a much more complex market compared to the rest of the country. Doing some advanced prep work can make it easier on you.
Here are seven first-time home buyer tips to help you navigate the process successfully.
1. Understand Why the NYC Real Estate Market is Different
Condo, co-op, townhouse or new development? You can purchase any of these properties but they all have their own unique characteristics with slightly different transaction protocols. For any of these choices, you are likely to begin your research online. Be mindful that many of the articles, especially about co-ops, are extreme examples of what can go wrong and not all stories are representative of the actual experience of home ownership.
It is true that you can be turned down by a co-op board but this is not common. Some people dream of owning a townhouse. If you purchase a Harlem brownstone for example, where the prices are better than many parts of the city, you could find one configured as a three family where you can live in one apartment and the rent payments you receive from the other apartments will contribute to paying off your mortgage. New development can also be an excellent choice as long as you know about the additional closing costs in advance.
Finally, the very nature of vertical living, regardless of what ownership structure you chose, presents rules and requirements you may not have anticipated but knowing what they are in advance puts you at an advantage as a buyer.
2. Set a Realistic Budget
Start by knowing how much cash you have on hand for the down payment and closing costs. The minimum down payment is 10% for a condominium with the majority of co-ops requiring 20% down. In very rare instances you will find a condominium which allows a 5% down payment for certain loan products. Rarer still is the FHA approved building which allows 3% down. In general, plan on having 10-20% of the purchase price on hand for your down payment.
In addition to your down payment, closing costs will be anywhere from 5-7% of the overall purchase price. If you decide to purchase a co-op, which can be a great idea because they are frequently less expensive than a condo, you will need to show you have twelve months of your housing payment (mortgage payment plus monthly maintenance) in the bank after your down payment and closing costs have been covered.
A condominium becomes a popular choice for many first-time buyers because this post liquidity requirement is not necessary and a lower down payment enables you to preserve your cash while financing the bulk of the purchase. There are plenty of NYC Manhattan condos for sale these days. Condominiums have been the choice of most NYC developers over the past few decades giving you some great options in any price range.
3. Get Pre-approved for a Mortgage
Tips for first time home buyers should be expected not only from a real estate agent but also your mortgage professional. Additionally, a good mortgage broker with access to a wide variety of loan programs, will be able to advise you on the right loan structure for your financial picture. You may even qualify for a special program as the offerings are always changing.
Once you determine how much cash you have then figure out how much you can afford on a monthly basis. For approval to purchase in co-ops, you generally must show you are spending less than 24-28% of your monthly income on your monthly housing costs.
While a bank may have much more liberal debt to income requirements, the co-op may not. Therefore, just because the bank approved you for a certain mortgage amount do not assume a co-op, even one with liberal standards, will accept your offer to purchase. A condo will not be as strict which not only explains their popularity, but also why they trade at a higher price per square foot.
You may be tempted to skip the process of getting your pre-approval letter and go straight to shopping online. Who could blame you? That is the fun part. Yet a seller may require their agent to request a pre-approval before granting an appointment to view the home to limit the number of lookers traipsing through their home. You also run the risk of losing out on your perfect property. You will be required to submit the letter with an offer. Time is money as the saying goes and in NYC you need to be prepared to act quickly. If you submit an offer without a pre-approval someone else could come along and snag your dream home.
Even in a buyer’s market great properties go quickly.
4. Set Focused Goals
Once your finances are in order and you have your pre-approval, start figuring out your goals for how you want to live and how much you want to spend on a monthly basis. How long are you likely to own this property?
Even if you are purchasing a condominium and don’t need to worry about post liquidity requirements, do you have enough money set aside to make your payments should you find yourself between jobs.
As you look at properties online in your budget range, you will notice there is a great deal of difference in pricing not only between condos and co-ops but also different neighborhoods. If you are looking at upper west side apartments for sale, but want to stay below a certain monthly payment, you might also consider as an example, Murray Hill condos for sale as they are less expensive.
Next consider your lifestyle. If you have been renting in NYC for a period of time, the chances are good you already know your favorite neighborhoods, shops and your easiest commute to work. If you are arriving in NYC for the first time, think about what you will need near your home, bearing in mind that almost anything you need can be delivered. Do you expect to be at an office regularly? Perhaps you need a doorman. If you work from home this amenity may not be a necessary feature. Are you an avid outdoor enthusiast? Living close to a park could be on your list.
Finally, consider what neighborhoods you are interested in? Having focused goals will help you make good decisions and avoid being overwhelmed but also be flexible. As you learn more about the neighborhoods and available housing stock you may change your mind about what you want to purchase based on the amount of space you can get for the money and your financial goals.
5. Work With an Agent
You can work without an agent, yet those who do frequently wish they had not. It is not an easy process and an experienced agent can walk you through all of the steps and the many nuances of purchasing in NYC. While you may have a network of friends and family with plenty of experience buying and selling around the country, even they are likely to be surprised at how different the process is in NYC.
There is arguably an overabundance of information available online regarding the buying process and information around available listings. Many buyers become confused and overwhelmed as a result. The best real estate agents in NYC are experienced real estate professionals who will help you make sense of the information and streamline the process. They also know the right questions to ask about the properties you are viewing.
It is very helpful to have someone bring context to your decision-making process by understanding the local market and neighborhoods in great detail. And when it comes time to negotiate, an agent who is in the market everyday can help you get the best deal possible.
6. Know Your Rights as a Consumer
Big tech is here to stay and while they have made the process easier in some ways, in others it is more challenging. There is one very popular website which claims to make the process easy as their name implies, yet they actually make it harder. If you are looking for an apartment on this website and contact the agent listed for an appointment, the chances are very good you are not contacting the agent who represents the seller, rather an agent who has paid to be on the website and wants to be your agent as a buyer representative. Countless times this has caused confusion and frustration on the part of the buyer.
While this is annoying do not feel obligated to work with someone as your agent simply because they were the first person you contacted. Taking the easy path to working with an agent at the beginning can cause problems later.
Choose your agent carefully and take your time. You are not obligated to work with someone simply because they showed you a few apartments. By law you are entitled to choose your representation at any time. You should have someone you know, like and trust before you submit an offer. You also have protection under a wide variety of non-discrimination laws and your agent should give you an Agency Disclosure Form and a Non-Discrimination Form when you start working together so you understand exactly how the commission will be paid and all of the NYC laws protecting you from discrimination.
7.Retain a Real Estate Attorney
In NYC your agent will negotiate the business terms of your transaction then your real estate attorney negotiates the legal terms. You are not obligated to have a real estate attorney represent you but the one time I saw a client attempt to represent themselves it went very badly. Real Estate law is complex and always changing.
Your real estate attorney will not only conduct the due diligence and negotiate the legal terms of the deal but they will also be on the lookout for future potential legal issues and avert them in advance. Once they have concluded their due diligence, they will inform you of any potential risks which were not apparent in a physical inspection of the property. They will also run the title handling any issues which may arise and handle all aspects of the closing. The institutional knowledge a good real estate attorney brings to the table is invaluable.
Overall, you want to take your time, be informed, form good professional relationships and be flexible. Purchasing a property in NYC is not simple but it can provide years of joy and create wealth.