First Time NYC Home Buyer Tips
At Digs, we work with a lot of first time home buyers. Often times, these are our favorite clients to work with. Everything is so new and exciting for them, which makes it more exciting for us. There are a few things every first time home buyer should know and do before they embark on searching for a home in NYC. We’ve put together some home buyer tips based on our experience, and what we’ve learned has been important for many buyers to know in advance. The best buyer is an informed and educated one – you will have professionals help you along the way, but you should put yourself in a position to challenge them if the need arises.
What Every Home Buyer Should Know | Home Buyer Tips
Time to Closing
NYC is different from all other markets, and it is often much more complicated and takes longer to close once you’ve signed a contract. Once you find a property, it typically takes 2-3 months from contract signing to close (shorter if you are purchasing a house). This information will help you determine when to start looking, whether to re-sign your current lease (perhaps on a month-to-month basis), etc.
Co-op/Condo Board Will Know Your Intimate Financial Details
Be prepared to get very personal with your soon-to-be neighbors. Most boards require you share A LOT of your personal information with them, including your bank statements, tax returns, credit score, income, your debts (including student loans and alimony or child support payments), etc. Unfortunately, there is no avoiding this in NYC real estate, unless you buy a brownstone or stand-alone home. Even condo boards these days are asking for a huge amount of personal information, despite the fact that the only way to reject your purchase is by exercising their right of first refusal.
You Need Far More Than a Down Payment to Buy in a Co-op
Many NYC co-ops have very specific debt-to-income (DTI) ratio and post-closing liquidity requirements. While others take a holistic approach to evaluating a buyer’s financials. These requirements differ depending on the building.
DTI: Generally speaking, you should have a DTI of 25-30%. A co-op on Park Avenue may require a lower ratio, while a co-op in Washington Heights may have more relaxed standards. [Read more about DTI requirements here.
Post-closing Liquidity: Generally, co-op boards will require post-closing liquidity of 24 months of your mortgage and maintenance payments. Buildings consider different assets as “liquid,” like your 401K. To be on the safe side, you should aim to have 24 months of cash or cash equivalents post closing. Of course, there are some buildings that require far more. Recently, we made an offer for a two bedroom co-op on the UWS for a couple who makes over $1MM a year in salary and bonus, and who would have had over $500K in cash (plus another $1.75MM in less liquid assets) after the purchase. The seller’s agent checked with management and informed us that the seller could not consider our offer because the building requires the full purchase price liquid after closing. Buildings like this are rarer today than in the past, but they are still around. It is unfortunate because they are limited the buyer pool for their sellers and, as a result, potentially decreasing the value of the homes. Read more about post-closing liquidity requirements here.
Your Pet May Not Be Welcome
Some buildings do not allow dogs and/or cats (or dogs over a certain weight). If your furry friend is coming with you, make sure you are only looking for homes that will allow them. Some buildings allow dogs but require your pet to go on an interview with the board! In those buildings, you should consider how well your dog presents him or herself.
When deciding whether to buy, in particular if it is a short-term purchase, you should consider closing costs on both the buy-side and sell-side. NYC transaction costs are high, and you need to keep these in mind when determining whether to buy and what to buy. If you are getting a mortgage, your closing costs will be much higher on a condo or house than on a co-op. If you are spending over $1MM, you will be paying a mansion tax. Click here for a detailed description of buyer closing costs.
What Every Home Buyer Should Do Before Starting Their Search | Home Buyer Tips
Understand the Benefits and Risks to Home Ownership
Benefits can include appreciation in your property value, home equity, tax deductions and deductible expenses (capital gains exclusion, mortgage interest deduction, state and local tax (SALT) deductions), ability to customize your home and make it your own. Risks can include depreciation of your property, tying up a large sum of money in an illiquid asset, high transaction costs should you need to get out quickly, costs to upkeep your home.
Understand Your Finances
How much do you want to spend on your home? How much can you spend? What do you want your monthly costs to be (mortgage + maintenance/common charges/taxes)? Do you have student loans? Do you own other property? Is there a mortgage on it? What are the annual taxes? Do you rent it out? What is your income (some co-op buildings will not consider your bonus as part of your income)? Could you afford a large assessment if there is one? If you buy a brownstone, can you afford a new roof or boiler?
Get Pre-Approved (if Financing)
When making offers, you will need to submit a pre-approval (not a pre-qualification). Even if you’re not planning to buy for a while, it is a helpful exercise to undertake, as it is very important to know how much money a bank will be willing to lend you. This information may inform how much you can spend on a home.
Determine Your Must-Haves vs. Nice-to-Haves
A few things you should think about: What neighborhood do you want to live in? Does proximity to public transportation matter? How long do you want your commute to work to be? What area amenities do you need (fitness studios, supermarkets, day care centers, etc.)? How important is a dishwasher and laundry to you? Do you need parking? Is outdoor space a requirement? Do you need an elevator or a doorman?
When You’re Ready to Start Your Search | Home Buyer Tips
You want to be an informed customer
We tell all our clients that the best way to get started is to spend a few weekends attending open houses. Open houses are free, they will help you familiarize yourself with the NYC real estate market, and attending them will help you set reasonable expectations within your budget. It will also help you realize that maybe some of those things you determined were must-haves are really only nice-to-haves.
Find a Real Estate Agent Who Works for You
Just like attending open houses is free, hiring a real estate agent on the buy side is also free. If you choose to work with someone, make sure that person puts your interests first and advocates for you (not for him or herself). It is not a high bar to become a real estate salesperson, so it is important you vet who you plan to hire to make sure they will add value, be transparent and trustworthy, and act as your champion.
Your real estate agent should add value in the following ways:
- Teach you about different property types and the benefits of each (sublet restrictions, closing costs, etc.).
- Discuss different neighborhoods that may meet your criteria, and help you narrow your search (if you are new to the city and don’t know where to begin).
- Set realistic goals with you about what you can afford, what you are likely to find within your budget, and what you may need to compromise on.
- Explain the timing of a NYC real estate transaction, and discuss things like the time remaining on your current lease, etc. Once you find a property, it typically takes 2-3 months from contract signing to close (shorter if you are purchasing a house). You will need to consider whether you want to renovate after you close, and you should be prepared to make other housing arrangements.
- Provide a detailed analysis of a property’s value when you indicate you may want to make an offer, including comps, bidding strategy, and where the negotiation will likely end up.
- Explain to you how to improve your offer, by being flexible on things like closing date, leasing the space back to the seller post-closing if this is something important to them, waiving the mortgage contingency (and clearly explain the risks to you of doing so).
- Present your offer in the best possible light, in particular with a co-op board that will be considering your debt-to-income ratio and post-closing liquidity, among other things. Your offer should also show that you are a serious buyer and are ready to move forward quickly to contract signing – including your NYC-based real estate attorney and a mortgage pre-approval from a local lender in your offer helps convey this message.
- Having a good real estate attorney whose primary focus is on NYC real estate is imperative. I can’t count the number of deals that have fallen apart due to one side using an attorney who is not familiar with the NYC real estate market. You may want to hire your brother who is a patent attorney in the Hamptons, but I promise you, you are better off (and will sleep easier at night) knowing that your transaction is being handled by someone who lives and breathes NYC real estate on a daily basis. This may be one of the biggest transactions of your life – do you want to risk it over a few thousand dollars? Remember, in NYC real estate, a deal is not a deal until both sides have signed the contract and the deposit has been delivered to the seller’s attorney. You want someone on your side who can move fast, so your transaction will not be jeopardized by an 11th hour cash offer for a higher amount.
- Lending in NYC is different from many other areas of the country. Your real estate agent will help explain to you the importance of using a lender who understands co-ops (if you are buying a co-op) and who will be able to get you to the closing table smoothly. If you have a mortgage contingency in your offer, your choice of lender will be even more important to the seller.
- Refer you to competent professionals throughout the process, including mortgage lenders, contractors, architects, real estate attorneys, home inspectors, etc.
- Prepare a professional, clear, concise and complete board package.
A buyer’s agent should never ask you to sign anything with them, so if you start working with someone, and you are not happy with their services or don’t feel they are adding the value you need or want, you should find someone else.
We hope you’ve found these NYC home buyer tips helpful. Please reach out if you’d like to discuss your home search with us.
Digs Realty is a residential real estate brokerage in NYC that provides full service at a discount. The Digs Mission: Saving you money without compromising service or quality. We give our home buyers up to 67% of our commission and charge our sellers up to 4% less than traditional brokerages.