READY TO BUY… HOW MUCH CAN I AFFORD?
First, determine how much you have to invest. This amount will depend on your income and the amount of reserves you have available for the downpayment and closing costs. Your income will also determine how much you can reasonably afford for monthly housing expenses, including mortgage payments. Add the amount of cash you have available for the downpayment, plus closing costs, plus your lender’s prequalified loan amount in order to determine your affordable price range.
When you sign a contract to purchase a home in NYC, you will be required to simultaneously make a downpayment equal to ten (10%) percent of the purchase price. For new construction you may he required to make an additional downpayment of up to fifteen (15%) percent of the purchase price. The downpayment may be made by wire transfer to the seller's attorney who will hold the money in an attorney escrow account until the closing.
In general, when obtaining a loan to buy a home, any funds that will he used for the downpayment and any other funds that are used to pay for the home (other than your bank loan) must come from your own savings. No money may be borrowed from any source, i.e., no credit cards, no personal loans, and no credit lines. However, you may be able to receive a gift of funds for the downpayment or a portion of the purchase price as long as you disclose this to your lender in your loan application and provide a gift letter (to indicate that you do not have to repay the money given to you).
Closing costs will vary depending on the type of property you are purchasing and your loan type. Generally, closing costs for a house or condo apartment will he greater than those of a co-op apartment. Title insurance and a mortgage recording tax on your loan amount will be included in your closing costs for a condo or house, whereas title insurance is not necessary when purchasing a co-op and there is no mortgage recording tax on coop loans. Purchasing a co-op apartment or a condominium unit from a sponsor or developer may also increase your closing costs substantially.
Monthly Carrying Costs
In addition to your monthly mortgage payment, there is another cost of owning a co-op, or condo apartment. In a co-op, these charges are called "maintenance" and in a condo, they are called "common charges.”
These monthly fees cover a share of the total cost of maintaining common areas, building-wide capital improvements, building staff payroll, etc. These operating expenses are apportioned to each co-op or condo unit owner based on the approximate proportion that the floor area of a unit relates to the total square footage of all units in the building, the location of the apartment within the building, and number of rooms in the apartment.
In the case of a co-op, the monthly maintenance payments include real estate taxes on the building and payments on the building's underlying mortgage, if any. For condo apartment owners, real estate taxes and homeowner's insurance are not included in common charges and should he factored into the calculation of monthly expenses independently.
Qualifying for Financing
Pre-Qualification vs. Pre-approval
In NYC, because no credit is checked, nor assets verified, prequalification letters really don’t get you very far. Trying to include them in an offer presentation is counterproductive, so get a pre-approval letter instead (not a pre-qual.)
To obtain mortgage pre-approval letter, complete a loan application and provide your loan officer with the necessary documentation so that the lender may verify your income and assets. This documentation will include your tax returns for the previous two years, paystubs, W-2 statements and your most recent bank statements. The loan officer will calculate your debt-to-income ratio, examine your outstanding debt obligations and order a credit report to examine your credit and payment history with credit cards and other loans. After this process is completed, you will receive a mortgage pre-approval letter for the specific mortgage amount for which you qualify.
Post-Closing Liquidity and DTI Requirements in Co-ops
Co-ops typically have post-closing liquidity and debt-to-income requirements that are higher than the bank’s criteria. This will impact your budget for purchasing.
Most co-ops require prospective purchasers to show a minimum of 24 months of mortgage and maintenance payments as post-closing liquidity and a debt-to-income ratio of 25%-28%, which means that your monthly mortgage and maintenance payments may not exceed 25%-28% of your monthly income.