How to Buy a Home in New York City
As a prospective buyer in the New York real estate market, you are about to embark upon a journey like no other. But don’t worry, below is everything you need to know to get you through this process and to fulfill your goal of buying a home in one of the most competitive real estate markets in the world.
Getting your financial house in order
- Collect your financial documentation
These are documents (balance statements for your checking/savings accounts, 401K, IRA, pension, equity in other real property, etc.) you will need anyway when you apply for a mortgage and for your Coop Board Package if you want to buy a Coop.
- Review your credit reports and determine your FICO score
Clear up any mistakes on your credit report. A 2004 Federal Law entitles everyone to a free credit report from each of the three main credit bureaus, once every 12 months. Go to www.annualcreditreport.com . You can get your FICO score at www.myfico.com for less than $20. In addition to determining your score, they will outline simple steps you can undertake to improve your score. This score is important as it determines the interest rates that banks will charge you for a mortgage.
- Get pre-approved for a mortgage
If you plan to finance at least part of your home purchase, you can work directly with a bank, or call a mortgage broker. Getting pre-approved lets you know how much you can realistically afford to pay for a home with financing. It also tells sellers that an independent third party has reviewed your credit background and determined your credit worthiness. The seller won’t have to worry so much about the deal falling apart 2 months later because you can’t get a mortgage. Having a pre-approval letter in hand might also give you a leg up if you are bidding against other buyers. Please note that, with few exceptions, the vast majority of Manhattan coops forbid buyers to finance more than 80% of the purchase price. So if you want to buy a 1-Bedroom Coop for $800,000. A lender may be willing to lend you $700,000, but the Coop Board may specify that buyers can only finance up to 80% or $640,000 in this example. Coops outside Manhattan or in northern Manhattan often, but not always, have less restrictive requirements. If you are looking at a coop listing, verify the requirements with the homeowner. Condos can generally be purchased with only a 10% down payment.
- Have liquid assets equal to at least 10% of your highest anticipated purchase price
If, for example, you plan to buy a place in the price range of $700,000 to $800,000, you need at least $80,000 in liquid assets. 10% of the agreed upon sales price is the standard deposit in a contract of sale. Due to the competitive New York market, you may not have time to liquidate assets when you find the perfect apartment, so make sure you have those funds available at the beginning of your search. The remainder of the down payment – usually another 10 to 20 percent for Coops – will be due when you go to closing. Please note that Coop boards have their own rules and can require that purchasers have substantially more liquid assets. For example, after taking your down payment into account, it is not unheard of for a board to require that buyers have the equivalent of 2 years worth of maintenance payments in liquid assets or even to have the additional assets equal to the asking price of the apartment. Furthermore, your total monthly outlay for housing (mortgage, and maintenance payments) should not exceed 25 to 30% of your gross income.
Protecting yourself with legal representation
- Find an experienced real estate attorney.
An experienced NY real estate attorney is a must. If you don’t know a real estate attorney, get references from friends, co-workers or family members who have recently bought or sold an apartment. You won’t need legal advice immediately, but by the time you do need it, you’ll be glad to have someone already lined up.
Beginning your search for a home
Looking at homes is the best way you can educate yourself about the market. Depending on your expectations, you may be shocked or pleased to discover what you can get for your money. Either way, after having viewed a number of apartments, you’ll know whether subsequent homes are appropriately priced.
- Get Organized
Make a list of features you want in your next home: location, price, size, and amenities (doorman, pet friendly, etc.). Be flexible. For example, if you insist on having a one-bedroom apt., you may overlook some studios that are bigger than some one-bedroom apartments. As you peruse the property listings, save those that you like (on ownersandbuyers.com, we make this easy by allowing you to create a free account so that you can save listings and even save searches). As you make appointments to view the properties, print out the listings, and put them in a binder, making sure that all the owner’s contact information is on the listing sheet.
- Look at Properties
Bring the print out of the listing with you to the appointment and take notes about that apartment on the listing. After viewing the apartment, consider filing the listing in your binder under either “Yes”, “No”, or “Maybe.” If it’s filed under “Yes” you should be seriously considering making an offer.
Tips for looking at homes: Remember that the homes listed on ownersandbuyers.com are being listed and shown by the homeowners themselves. Be gracious and respectful as you would when visiting anyone’s home. Also, don’t be put off if the owner’s style is very different from yours. You’re not buying their style; just their apartment. If the price, location, and layout are agreeable to you, try to imagine the space with a different paint color and with your furnishings.
- Make an offer. When you find the right place, make an offer. You can make the offer verbally, but it is advisable to follow it up in writing (email is fine) in order to avoid any miscommunications. Your offer should state the price you are willing to pay, and, if you anticipate using financing, what your down payment will be. If you are bidding on a coop, you also need to provide the seller a complete picture of your financial wherewithal – all your sources of income, your net worth, your debt ratio, etc. Please note that eventually you will need to provide proof of your financial status which will be very easy if you follow the advice above about getting your financial papers in order.
The seller will then either accept your offer or make a counter offer. When you have reached an agreement on the terms, the seller’s attorney will draw up a contract of sale. Please note that the seller is free to entertain other offers until such time as you and he ore she have finalized and signed the contract. The seller’s attorney will send the contract to your attorney. Never sign a contract without your attorney’s approval.
- Apply for a Mortgage and Complete the Board Package
If you are buying a coop, the seller will arrange to get a Board Package to you and to get the Board minutes and financials to your attorney. While your attorney is making sure there are no red flags, all your energies should be focused on applying for a mortgage and completing the Board Package. Fortunately, they require much of the same information.
There are many elements of the home buying process that are out of your control, but this is not one of them. You are the only person who can compile all the required information (letters of reference, financial statements, tax returns, proof of employment, etc.) for your board package and mortgage applications. Even if you had been working with a real estate broker, they could not have done this for you. Remember, your board package is the Coop Board’s first impression of you. Be sure to answer all questions truthfully and accurately and to follow all instructions. If they ask you to type the application and to submit 3 photocopies of the complete application, don’t submit 1 handwritten copy. (Please note that you should also make one complete copy for yourself!) If you don’t follow the instructions, your package may be returned or you may be denied an interview.
- Passing your Coop Board Interview
With virtually all coop sales, the final sale of the apartment is contingent upon coop board approval of the prospective buyer. As such, you will need to be interviewed by the Board. There are no guarantees with this process. By law, the Board cannot reject you because of things like your race, gender, ethnicity, etc., but they also are not required to tell you why they rejected you. Most Boards will not reveal a reason for rejection as it only opens the door for potential law suits. Your best bet is to pretend you’re on a job interview. Dress professionally, and put your best foot forward. By the way, if you have a pet, the board also has the right to “interview” your pet. (Welcome to Real Estate, New York style). After the interview, you will generally receive a decision in a week.
Condos don’t have such a stringent approval process, but they do usually have what’s called the right of first refusal. This means that, technically, they can refuse to allow the sale to you to go through if they agree to buy it from the owner on the same terms. This right is rarely exercised.
That’s it. Now you are ready to close. Your attorney will schedule a closing date with the seller’s attorney as well as the lender. You will need to bring your check book (certified checks are required for some items; your attorney will let you know in advance what you need to bring).
Closing Costs
First-time homebuyers often don’t realize how much closing costs can be. These costs include various bank fees, the lien search, the coop board application, a credit report fee and attorney’s fees. Generally, you should set aside $7,500 to $10,000. If you buy an apartment that costs more than $1 million, you will also have to pay a mansion tax equal to 1% of the purchase price. Please note that some costs, like the move in deposit paid to the coop or condo board, are refundable, assuming you do not damage the elevator or hallways while moving in.
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