Buying a new home?
The New York City real estate market is unlike any other. Few other markets are as expensive, competitive, or complex. And buying a home in NYC is even trickier now, thanks to record-high mortgage rates and housing inventory shortages. No matter what’s going on in the market, the process can be daunting, especially for a first-time home buyer. In this guide, I’ll break down everything you need to know about becoming an NYC homeowner.
Should you buy or keep renting?
Obviously, buying a home in NYC is a big undertaking. Prices here are notoriously high — higher than in other parts of the country, even when there’s a dip in the market. No wonder so many New Yorkers prefer to rent! So how do you decide between renting and buying? If you’re a potential first-time home buyer, ask yourself these questions:
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Do you plan to move soon? If you plan to stay put for a while, it might make more sense to buy.
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How are your financials? Renting allows you to remain more financially fluid. There’s no hefty down payment or closing costs to shell out, for one thing. And from a maintenance perspective, most repairs — think plumbing, electricity, etc. — are the landlord’s responsibility, not yours.
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Do you love a particular neighborhood? Try “test driving” a neighborhood or building before you make a longer-term commitment to homeownership there. It’s a great way to learn about your surroundings and figure out commute times. If you’ve fallen in love with a neighborhood, buying is a great way to make it your home.
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Do you like to customize your space? If you own your home, you can (usually) hammer, drill, paint, or fully renovate it to your heart’s content. If you rent, you have to be much more careful, and you’re investing the time and money into something you don’t own.
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Do you want to build wealth? Buying a home in NYC is an investment, both in terms of building equity and in tax and mortgage deductions.
How Much Does an NYC Apartment Really Cost?
As in many cities, it depends on where you look and the state of the local housing market. In addition to your monthly mortgage payment, you’ll have to pay standard charges like taxes and utilities, as well as charges not common in other cities, like maintenance fees for co-ops or common charges for condos (more on these in a bit).
While there’s no perfect time to buy, it doesn’t hurt to stay informed on the latest NYC housing market trends and work with a local real estate agent to explore metrics like asking prices, total sales inventory, days on market, and more. There are always deals to be found, even in the toughest markets. You just have to know where to look.
Keep in mind that prices are almost always open to negotiation. There’s no decision to make until you’ve negotiated something down- I encourage buyers to look 10% to 15% above their budget, with the expectation we can negotiate it down. Then we narrow in on two or three properties, and we make multiple offers. Whichever one we get the best deal on, we move forward with.
Also know that condos tend to cost more than co-ops. (What’s a condo and what’s a co-op? Jump to the next section to find out.) But, while co-ops might be cheaper, you have to undergo the lengthy process of being approved by the co-op board, and there are onerous down payment requirements — a big ask for many first-time home buyers. Some buyers think the condo premium is worth it to avoid the hassle.
Condos vs. Co-Ops
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You may be wondering about this distinction that seems to be unique to the New York City real estate market — and it is. One of the many quirks of buying a home in NYC is that you need to decide between purchasing a co-op or a condo. There are also “condop” buildings, which contain both condos and co-ops; townhouses, or single-family homes that share at least one wall with another residence; and traditional free-standing, single-family homes in some boroughs.
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A co-op is a type of real estate in which buyers are actually purchasing shares of a corporation, and that corporation or “co-op” owns the building. Typically, the size of your unit corresponds with your number of co-op shares, and the bigger the unit, the more shares you own. Prospective buyers have to be approved by the co-op board (with the exception of sponsor units), a process that usually involves an interview, references, and meeting strict financial requirements.
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Co-op owners are also required to pay monthly maintenance fees, which cover the building’s taxes and operating costs, and abide by the rules set by the co-op board. The majority of residential buildings in NYC are co-ops.
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If you choose to buy a condo, you own the unit itself, and you jointly own the common areas of the building along with the other residents. Condos tend to be newer developments with more amenities, are generally more expensive than co-ops, and have higher closing costs (more on these in the next section). Condo buildings do have boards, but the board approval process is significantly less intense than it is for co-ops. Condo owners are usually subject to fewer rules, with more flexibility for things like subletting and pied-à-terres.
Closing Costs, Taxes, and Fees When Buying a Home in NYC
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In addition to a property’s list price, you need to factor in the closing costs, which are the fees due at closing when finalizing the deal. They usually amount to 3-6% of the home’s purchase price, and are higher for condos than for co-ops.
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Potential closing costs may cover a real estate attorney, application fee, credit check, bank attorney, mortgage origination fee, appraisal fee, tax escrow, mortgage recording tax, recording fee, and title insurance. Some co-ops charge a flip tax, which can be pricey, and some new development condos have additional closing costs, such as a transfer tax. If you purchase a home costing $1M or more, you’ll have to pay a mansion tax of 1-4%. And don’t forget the cost of renovations, if that’s also part of your homeownership journey.
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There are always unexpected fees, so it’s always worth asking upfront. A good broker will find out everything for you before you even consider an offer, so don't stress if we're working together!
Is There a Best, or Cheapest, Time to Buy a Home?
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Typically, real estate inventory in NYC peaks between April and June and then bubbles up again in October. Price cuts also rise in the spring and fall, especially after Memorial Day and Labor Day weekends. Timing the market is tricky, but there are rules of thumb buyers can follow.
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The best time to buy in NYC is when there is uncertainty in the market. For example, in an election year, or in times like [2020-2021], where we have a global pandemic on our hands. Buyers have much more leverage when sellers are anxious about the state of the market.
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When a listing has sat on the market for a while, that can also be a great time to buy. Home shoppers often avoid a property like this, thinking there must be something wrong with it, but it may be a hidden gem- It could be as simple as bad timing. When you buck the herd mentality, there is an opportunity awaiting. Simple risk/reward economics at work.
What’s a Typical Down Payment on a Home in NYC?
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The standard down payment in NYC is in line with the rest of the country: 20%, which leaves 80% to financing. Many co-ops have stricter requirements, such as only allowing 75% financing, meaning a bigger down payment. Some new development condos will allow up to 90% financing, making homeownership a little more accessible to a first-time home buyer.
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However, economic uncertainty has changed things. Many co-ops have changed their financing policy, they are reducing the maximum allowable financing and requiring buyers to put up more equity. For example, some co-ops that allowed up to 80% financing have now reduced the maximum to 70%.
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Banks may also ask for a larger down payment. While many are still looking for a buyer to make a 20% down payment, other banks require more. And some banks will finance as much as 90% of a purchase price of up to $3.5 million.
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Regardless of what is required, the general wisdom is that the more money you can put down, the better. Someone paying all cash or only financing 50% or less will have more leverage in negotiating with a serious seller.
Getting Preapproval for a Mortgage Before You Start Looking
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Whether or not you’re a first-time home buyer, it’s essential to get preapproved for a mortgage when shopping for a home. Preapproval is a formal process in which a mortgage broker determines if you qualify for a mortgage of a specific value. Sellers strongly prefer a preapproved buyer, and it can give you an edge when an apartment has multiple offers. Preapproval is not the same as prequalification, which is less formal and doesn’t hold as much weight.
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Preapproval is also helpful for you, the buyer, because it gives you an idea of what you can afford based on the loan you qualify for.
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To get prequalified click here!
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How to Put a Winning Offer on a Home in NYC
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A winning offer is about more than just the purchase price: it’s about the whole package. Work with your agent to put together a packet, including all the necessary financial, employment, and tax documentation. Note the team you’re using to purchase, such as your broker, attorney, and mortgage lender.
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Have everything in order. Include a financial statement, your preapproval letter, and an explanation of how you arrived at the price you did.
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I recommend including a “love letter” with your offer, as well. State a few personal highlights about the neighborhood and the home, and why it’s your first choice.
You Won the Bid! Now What?
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Once your offer is submitted and accepted, it’s tempting to exhale and consider yourself a first-time home buyer. But don’t relax just yet! You’re not done. The next step is signing the contract. When the final draft is approved by both sides, the buyer will sign the contract and return it with a contract deposit, typically 10% of the sale price, a ‘good faith deposit’ that goes toward the purchase price of the property.
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Once the contract is signed and the funds clear, you’re almost at closing. Co-ops, and some condos, also require submission of a purchase package to the board of directors. The bank providing your mortgage has to process the necessary paperwork as well. All in all, the time between offer and closing is typically 30 to 45 days, but two months is a good estimate to be on the safe side.
What Happens Between Signing the Contract and Closing?
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As stated above, the period between signing and closing is all about waiting on the bank and the co-op or condo board. Generally, there’s an evaluation by the board, inspections, appraisals, and walk-throughs. It can take a while — like, months — and depends on if it’s a co-op or condo, how you’re financing the purchase, and other factors.
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While the bank is working on the mortgage paperwork, buyers should not make major purchases or accrue any out-of-the-ordinary debt. I advise buyers to keep all accounts current during this time, don’t open any new accounts with credit card companies or stores, either.
What to Expect at Closing
The short answer is a lot of paperwork! Closing is usually a drawn-out process involving signing documents and exchanging large amounts of funds. The attorney for each side of the transaction, buyer and seller, act to keep everything moving.
It’s a long step, but it’s the final step. At the end, you’re a homeowner!
Congratulations on buying a home in NYC!
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