5 Tips for First-Time NYC Home Buyers:
So you’ve decided to take the leap. This will be the last year you rent in New York City. You’ve told your roommates, your parents and people at work and you have enthusiasm and momentum on your side. That’s right — you’ve saved enough money and you’re ready to buy your first apartment. As you begin your search for the perfect pad, here are 5 tips you’ll want to hold near and dear as a first-time NYC home buyer.
1. Save That Cash!
Considering that a down payment on a New York City apartment will generally be 20 percent of the purchase price, saving as much as you can is essential. For a lot of people, this fact will create some serious sticker shock as many have a preconception that they can get away with a lot less. As the saying goes, we’re not in Kansas anymore. Many co-ops won’t even allow financing for more than 80 percent of the purchase price, and in many cases will expect a down payment of anywhere from 25 to 30 percent of the price. (See how your down payment impacts your purchasing power).
Condos sometimes have a 90 percent financing limit, which means you can get away with a down payment of 10 percent. However, you have to be able to qualify for the 10 percent down payment loan and also be prepared to pay private mortgage insurance (PMI) if you choose to put less than 20 percent down. Combined with the high cost of real estate in New York City, either way you slice your mortgage, save that cash. It’s also important to consider that closing costs will generally add an additional 3 to 5.5 percent to the purchase price and these costs will need to be paid in cash.
2. Get Preapproved
So you think you know what you can afford? Hate to break the news to you, but you are probably mistaken. The way you can actually know what you can afford is if you’ve spoken with a mortgage broker, worked through your preapproval and have the cash sitting in a bank account. The preapproval process is short and sweet. A lender will verify your income, run your credit and ask about your existing assets and liabilities. It takes about 24 to 48 hours and you’ll get a sense of the top end of the price range that you can afford. That doesn’t mean you’ll want to buy the most expensive apartment you can, but a preapproval lets you know what is possible.
There are numerous reasons it’s important to address the preapproval process. For one, it will help you be realistic about the types of apartments you go out and see. Additionally, once you want to present a purchase offer on an apartment, your offer will not be taken seriously by the sellers unless you show proof of funds equal to the amount of the purchase.
3. Be Open Minded
If you’re looking for the perfect place, you’ll never find it. It’s important to have a wish list of things you really want, but it’s equally as important to be willing to start sorting out your wants from your absolute needs. Generally speaking, finding the right apartment will require a balancing act between the location, size and price. Of course, there are a lot of details in between those three factors, and ultimately you’ll need to make certain sacrifices to find the right balance that suits your needs.
The worst decision a first-time apartment buyer can make is to take the foot off the pedal because they can’t find the perfect place and will resign themselves to signing another year’s lease. Finding perfect won’t be any easier the next year, and based on recent property appreciation statistics for New York City, you’ll likely pay significantly more a year later for the same space. Be open minded to different neighborhoods and different types of apartments. When you keep your eyes open to different ideas, you might actually find an apartment that suits you better than you initially envisioned.
4. Be Prepared to Lose Out
More than 50 percent of condos purchased in Manhattan were bought by all-cash buyers in 2015. If you thought you don’t have competition when you submit your offer, this should be your wake-up call. Additionally, demand for apartments in all of New York City has long outstripped the supply. Developers can’t even keep up! When you combine these two factors, you get a recipe for a hyper-competitive market landscape. Be prepared to lose out on deals to someone in your same shoes, or maybe even an international investor who is scooping up the property with an LLC and paying all cash. Losing out is often part of the process and while frustrating, it shouldn’t be treated as a setback. It’s an opportunity to refocus and hit the pavement again, this time with even more determination.
5. Work With a Buyer’s Broker
Yes — you should hire a buyer’s broker to represent you. When you’re dealing with one of the largest investments you’ll ever make (in the near term), it makes sense to have someone on your side that will treat it as such. It makes even more sense when you begin to realize that a buyer’s broker doesn’t actually cost you anything and is generally only compensated by the commission that is split with the listing broker. A broker that represents you throughout your first apartment purchase will be able to help you navigate through the entire process. Finding you great listings that meet your needs is only part of what a good broker will do for you. They’ll submit your offer(s), negotiate the price and terms, connect you with lenders and lawyers, as well as prepare and submit your board package. Equally as important, a good buyer’s broker will always act in your best interests and act as a buffer between anything coming from the listing agent.