Buying a home for the first time in New York City, one of the nation’s most complex and competitive real estate markets, can be a daunting and overwhelming experience. But it doesn't have to be. Real estate novices are advised to collaborate with an experienced professional who will narrow the multitude of choices, minimize the stresses and streamline the process from start to closing.
Not all first time buyers are created equal. They come in all shapes and sizes with small to large wallets and differing motivations: young singles moving out from under their parents roofs; young families desiring a home in a good public school district; suburban empty nesters considering their future retirement years; out-of-towners looking for a pied a terre; immigrants looking to establish new roots; investors hoping to diversify their portfolios; foreigners seeking a safe haven for their capital flight or housing for their college aged children.
Newcomers to Manhattan encounter a steep learning curve. Though only 13.4 miles long and 2.3 miles wide, the island presents scores of differing neighborhood alternatives, each with particular character nuances. Rookie buyers must also grasp the distinctions between the housing stock of cooperative, condominium, condop (a hybrid of the two), and townhouse, and then endeavor to match individual lifestyle to a myriad of property options including prewar, postwar or new construction, and then high rise, low rise, skyscraper, mansion, or walk-up. Manhattan’s predominance of co-ops and the restrictive nature of co-op boards is very often culture shock for the uninitiated. The higher price of condos over co-ops is equally perplexing to the tenderfoot.
Hire an advocate
A smart buyer recognizes the value of working with an experienced real estate professional. The seller will have agency representation; so should the buyer. Serving as trusted advisors, agents help to evaluate options, discover preferences, highlight opportunities and set realistic expectations.
Formulating a reasonable budget is a key step in this first phase of the process. How much cash can you afford as down payment and how large or small a loan do you want to carry? Your agent can refer you to a knowledgeable mortgage broker who will help to determine the maximum loan amount for which you qualify. Consider all the numbers so there are no surprises. Does the property you want to buy have a flip tax? Note that New York State charges a mansion tax of 1% for purchases of $1M or more. Condo purchasers will also pay a 2% mortgage recording tax, while co-op buyers are not charged a recording tax for a co-op loan. Calculate closing and moving costs and estimate expenditures for any repairs or improvements. Consider other expenses in addition to the property’s monthly charges, like utilities and insurance.
If you plan to finance, a preapproval letter from a recognized lender is essential as it provides evidence that the bank has already reviewed your income, assets and liabilities and also checked your credit history; note that the preapproval letter is nearly always required when your agent submits an offer that is contingent on financing. If there are blemishes on your credit accounts, resolve these before you apply for a loan. Credit service companies can clean up delinquencies and settle disputed claims which if left unresolved damage your credit score. Your agent can refer you to a reputable credit service professional.
Take the time to prepare a balance sheet of assets and liabilities, gathering current statements from bank, brokerage and retirement accounts, as well as liabilities such as student or auto loans or other property mortgages. Have at the ready your most recent tax returns, last two months pay stubs and anything else you think might be needed like trust documents or life insurance policies. These will be required for the mortgage application and ultimately for submission to the co-op or condo board.
If you purchase a co-op, the board will want to see that you have a cash cushion after you close of a minimum of 2-3 years of monthly carrying charges in post closing liquidity. They will want to see a housing cost debt to income ratio of 25-30%.
The process of searching for a home is all about weighing the choices and deciding what “must haves” are non-negotiable and what other features on your wish list you might trade for something else. Flexibility is key. Some purchasers may compromise on space, while others will opt for something smaller with good light in a better building. Still others may exchange a washer/dryer for a view, or perhaps choose a low floor if it comes with a fireplace or doorman.
An educated and well advised buyer is one who is prepared to act quickly and decisively when the right property surfaces. Take your time to make an informed decision, but once you’ve made your choice and your offer is accepted, instruct your real estate attorney to complete contract review and due diligence promptly. Parties are not bound in NYC until a contract of sale is fully executed. Back up bidders could be standing in the wings, so delays could cost you more money or worse, you could lose the property.
Buying a home for the first time in New York can be a little unnerving, but expert guidance from an experienced real estate agent makes all the difference.