How to (Actually) Buy Your First Home in New York City
You have to earn the right to call yourself a New Yorker, and one of the ways you can do that is by suffering through the challenge that is finding housing in New York City. It’s a badge of honor you can wear with pride once you do—I mean, New York is one of the only cities in the world where people willingly pay over $1,000 a month for an apartment that has a shower in the kitchen.
But even as one of the most expensive cities in the world, it may make financial sense to buy sooner rather than later in this city. You only need to stay put for three years to make buying in Queens worth the price, four and a half years for Brooklyn, and seven and a half years for Manhattan, according to a study done by StreetEasy.
The desire for space and affordability sends some first-time homebuyers to New Jersey, Long Island, or quaint towns along the Hudson River (all of which still come with steep price tags). But for those committed to staying within the five boroughs, the question remains: Just how the heck do you navigate being a first-time homebuyer in New York City?
What to understand about New York City real estate
212 isn‘t the only expensive area code
Of the five boroughs that make up New York City, Manhattan is the most expensive. The average sale price for a home in quarter four of 2016 was $1.99 million, according to The Corcoran Report. However, the remaining four boroughs of Queens, Brooklyn, Bronx, and Staten Island aren‘t exactly chump change.
The average sale price of a home in Brooklyn spiked 17% to $947,553 in quarter four of 2016, while prices went up nearly 10% to $573,455 in Queens, and Riverdale (a trendy section of the Bronx) increased to $389,520, according to the Douglas Elliman Report.
Transportation really matters in New York
Realtors elsewhere often recommend buying a home based on school districts. New Yorkers have other priorities: mass transportation. Your home‘s proximity to subways and bus lines impacts the price, big time.
Owning a car can drive the price up even further; some New Yorkers actually pay $1 million to park their cars (paywall). Yes, really.
Smart property owning options in New York City
Location and transportation aren‘t the only factors to consider. Buying a home in NYC comes with a unique set of considerations: to co–op or not to co–op?
Co–op: New York City likes to add another layer of difficulty to the home buying process known as a co–op. In a co-op, you technically own shares of the corporation that owns your building, not your actual apartment. Co–ops are run by boards; elected positions comprised of residents living in the building. You, as a resident, are required to follow the board‘s rules. Co–ops can dictate pet policies, whether or not you can renovate your apartment, and even who you can sell your apartment to. There are also monthly maintenance fees that you‘ll need to factor into the total cost, and you may also be required to put a minimum of 20% down if your application is approved by the board.
Co–ops typically require an interview as part of the application process in which you‘ll need to be prepared to fully open up about your financial and even personal life. Tax returns, bank statements, and reference letters are common asks for a co–op interview.
Condo: Short for condominium, a condo requires a much less invasive process. There‘s typically no interview requirement, you can often just put 10% down, renovations are usually not as tightly regulated, you can sell the property at will, and often sublet as well. However, closing costs on a condo are likely to be higher than a co–op because a condo requires mortgage title insurance, while co–ops usually don‘t.
Townhouse and single–family homes: The experience of buying a townhouse or single family home is usually akin to what the average home buyer in other parts of the country goes through. It‘s typically a direct purchase from the seller without board approval or involvement.
Scouting listings and open house events
Once you narrow down your interests, it’s time to actually find your dream home. Thanks to the Internet, it’s pretty simple to start scouting available apartments and filter them based on your non-negotiables, like no co-ops, or two bedrooms, or desirable neighborhood. You get the point.
Here are a few good websites with New York City–specific information to start sifting through:
The tried–and–true sites like Zillow and Trulia will also help you search for properties and provide details on available open houses. The Corcoran Group also makes it easy to find open houses with its interactive tool.
It‘s wise to visit some open houses in order to get a better sense of areas you like, and to do some networking with real estate agents. Word of mouth is also an excellent way to find real estate agents and lawyers in New York City. Ask around at your office or even crowdsource on social media for leads.
You can start flirting with the market early and checking out apartments before getting pre–approved, but don‘t fall in love until you can put money down. Once you‘re ready to buy, you need to be prepared to act fast.
Making an offer
New York City real estate moves quickly. Inventory in moderately affordable ranges rarely stays on the market too long, so when you want a property, you need to be decisive. Be prepared to bid shortly after an open house. Common advice is to wait until the open house wraps so the real estate agent can‘t use your offer to incite a bidding war while the open house is going on.
Even though SoFi offers mortgages with 10% down payments, do your research to see if the properties you like generally require 20%. That way you can enter a bid that‘s competitive, even if you‘re eligible for 10% financing. A study by StreetEasy found that the typical down payment was 27%, with a down payment in Manhattan running up to 30%.
You will also need to hire a real estate lawyer, as required by New York City law, to help navigate the legalese of your contracts. As frustrating as this may be, you should be prepared to get shut out of one or more places you want to buy. Patience is a virtue in a competitive market like New York City.
Once you‘ve navigated through finding a place, making an offer and, if necessary, gaining board approval, it‘s time for closing. The closing costs in New York City range broadly depending on the type of property you‘re buying. You should plan to pay several thousand dollars at this phase; standard fees include an attorney‘s fee, bank fee, credit report fee, and an appraisal fee. Then, if you plan to buy a home with a price tag of $1 million or more, you’ll get hit with a mansion tax. The size of the home doesn’t matter; it’s the cost. The tax is 1% of the entire purchase. With all this in mind, it’s important you don’t over-extend on the purchase, and that you keep money set aside just for closing costs.
Do’s and Don’ts for First-Time Homebuyers in New York City
Do: Start saving early. Start saving before you even fully commit to buying in New York City. Real estate here is expensive, and the earlier you start prepping your bank account, the better.
Don‘t: Fall in love outside your price range. This advice holds true in any market, but bears repeating.
Do: Get pre–approved for a mortgage. Entering an open house with a pre–approved instead of a pre–qualified mortgage will make you a more competitive player in the New York City real estate game. This means you will need to have done your research on how much you can realistically afford and only seek out and bid on homes within your pre–approved range. Even though SoFi offers a 10% down mortgage, be sure to check if your seller requires more. Some co–ops will want the traditional 20%.
Do: Get your credit score up. Credit scores matter. While SoFi does look beyond your credit score for a mortgage, co–op boards, and even condos may require you to fork over your credit report.
Don‘t: Procrastinate on your bid. If you want to buy it, then put in an offer. Otherwise, it‘s going to get snagged by someone else.
Do: Have reference letters, tax returns, bank account, and asset statements prepared. Be sure to have all necessary documentation ready to go as soon as you want to make an offer. People won‘t be patient if someone else is waiting in the wings to make an offer.
Do: Your due diligence. Research the history of the property, including any prior violations or complaints, and have an inspector come.
Don‘t: Nix the outer boroughs as options. Owning property in New York City is a great goal, but Manhattan isn‘t the only part of NYC. Keep your options open to include other boroughs to get the best deal, especially if you want to get a 10% down payment mortgage with no borrower-paid private mortgage insurance.
Ready to start hitting the housing market in New York City? SoFi offers mortgages to help you get into your dream house quickly. Check your rates to get the process started.
Licensed New York Mortgage Banker – NYC Department of Financial Services License Number 108933 – NMLS 1121636.