Before you begin your search to buy an NYC apartment, it’s essential to understand what type of property you’re buying, and what’s required. The vast majority of apartments available for sale in New York City are in cooperative buildings or co-ops, which are quite different from condos. It’s crucial that you understand the difference between condo and coop apartments.
If you already know a bit about condos vs. co-ops, you might be thinking that buying a condo is a no-brainer due to the many advantages, but let’s not forget that for many buyers, co-ops may be the best option. This is because co-op apartments tend to be significantly cheaper than similarly sized condos. Furthermore, many New Yorkers can probably count themselves thankful for co-ops’ existence and their strict approval guidelines. Co-ops’ strict requirements have helped to lower their sale prices and prevented the city’s housing stock from being squeezed even further by investors, speculators, and foreign buyers.
Pros of Buying a Condo
- Flexible Financing Options
- Easy Board Approval
- Easy to Sublet/Rent Out
- Ideal for Investors
Cons of Buying a Condo
Pros of Buying a Co-op
- Cheaper than Condos
- Stricter screening can be beneficial. More financially stable, longterm owners
Cons of Buying a Co-op
- Strict Financing & Board Requirements
- Higher maintenance fees
- Potential restrictions on subletting/renting out
As you can see, the main benefit of buying a co-op is affordability. Still, even though going through a board-approval can feel intimidating, once you’re in, many New Yorkers find co-op buildings to feel more tight-knit than condos.
In any event, for many, the first step to buying a New York City apartment is doing what is commonly called the rent vs. own analysis. The purpose of the rent vs. own analysis is to figure out if it makes more financial sense to purchase a home rather than to rent.
Once you’ve determined that buying makes more sense for your financial situation, the next thing to do is to figure out your budget. Your budget is probably one of the most critical parts of the buying process because it will set the stage for the financing from the bank as well as the neighborhood and size of the apartment that you can afford. Overall, the critical part of figuring out your budget is to be realistic. Property ownership should not be taken lightly as unexpected expenses and situations come up all the time. As such, it is important not to overextend yourself when figuring out your budget. Make sure to account for monthly mortgage payments and any other required payments, such as monthly maintenance payments and property taxes.
New York City is a massive city. Entire books have been written about its five boroughs and the various neighborhoods in NYC. Therefore, before you begin your housing search, you should know what area you want to live in and whether you can afford to live there. Having an idea of where you want and can afford to live will save yourself time and heartache during your housing search. If you aren’t sure about where you want to live, or if you don’t currently live in NYC, start exploring potential neighborhoods throughout New York City. Be sure to visit each area during the day as well as at night to get an idea of where you see yourself living and/or raising a family, etc. In any event, an experienced broker can guide your search and give you an idea of where you can afford to live.
It is crucial to think long and hard about your non-negotiable criteria during your housing search. For example, if you have a growing family, you may need a 2 to 3 Bedroom apartment. In New York City, where apartments move quickly, keeping your search criteria as open as possible is crucial. Additionally, do not judge a “listing by its cover.” Sometimes when you view a listing in person, you may discover things about the apartment that you wouldn’t be able to see online. It is also important to note that many co-op apartments in New York City do not list the square footage. This happens when the owner (or property manager) does not know the apartment’s precise square footage. As such, you should keep an open mind and avoid filtering your search by square footage as you may miss out on a hidden gem. Overall, this is also an area where you should seek out the assistance of an experienced broker. An experienced real estate professional will be able to guide you to buildings that they are familiar with and save you some time during your search.
It is imperative to get a pre-approval letter versus a pre-qualification letter. That is because a pre-qualification letter can be produced in as little as 10 minutes with zero documentation or verification. As such, sellers will not treat you seriously and consider you to be window shopping if all you have is a pre-qualification letter.
A pre-approval letter will detail how much financing you have been approved for. The letter typically includes details on the loan program, the loan amount, the purchase price, and the interest rate that you qualify for. This document is significant because it shows both listing agents and sellers alike that you are serious about purchasing a property.
Additionally, you will not be able to submit an offer in New York city unless you have a pre-approval letter. Lastly, a pre-approval letter is essential because it is a second opinion about what you can afford. When you obtain a pre-approval, the bank or mortgage lender tells you exactly how much you’ll be able to borrow from them. As such, you won’t waste time shopping for apartments that you can’t afford.
Don’t be like some of those buyers who overlook the fact that you must have a down payment ready when you sign the contract. This deposit is called the contract deposit, and it is typically 10% of the purchase price, held in escrow by the seller’s attorney. If you have a large amount of savings, then gathering a down payment may not be as much of an issue for you. However, if you don’t have enough saved for your down payment, you need to have a plan to come up with the deposit. Keep in mind that your lender will trace all money used during your buying process. This typically means that any cash deposits and checks that are deposited in your account within 60 days of closing need to be sourced. Being able to source funds is another way of saying the bank needs to know where it came from and why it was deposited in your account.
The bank or lender will source all money in your bank account because they need to ensure that you have not taken out another loan that may compromise your ability to repay your mortgage. As such, if you are the type of person that keeps large amounts of cash in your house, i.e., “mattress money,” and you plan to use some or all of that money during the buying process, you need to plan ahead. As such, you should deposit your “mattress money” into your bank account 60 to 90 days prior to you applying for a mortgage. Typically, money that has been deposited into your account for more than 60 days is considered “seasoned,” and the bank will not have to verify its source. Lastly, it is advisable to consider starting a separate bank account just for your down payment funds as well as your closing cost. That way, you do not have to worry about the source of funds being deposited into your account, and you don’t have to worry about your daily transaction affecting your down payment deposit.
One of the biggest expenses associated with buying an apartment in New York City is closing costs. Typical buyer closing costs run between 2%- 5% of the purchase price in NYC. Potential closing costs include:
Buyer’s Attorney’s Fees:
Typically less than $1500. You'll only need title insurance if you're buying a condo apartment. You can purchase similar insurance for Co-ops, which is called co-op leasehold insurance.
Property inspection fees: $500-$1,000
Mortgage Bank Fees:
0-3% of the loan amount
This is the money you pay at closing to get the interest paid through the first of the month on your loan. The day of the month that you close will determine this amount.
2.05% for loans below 500K & 2.175% for loans over $500K. However, the buyer’s lender typically pays 0.25% of the Mortgage Recording Tax, making the effective rates in New York City 1.8% for mortgages under $500K and 1.925% for loans over 500K. Please note that co-op buyers do not have to pay this fee, but condo owners do.
Real Estate Tax and Maintenance Escrow:
If you are taking out a mortgage for the apartment, your lender will typically require that you put six months of taxes in an escrow account. Like what lenders require, some co-ops have begun requiring that buyers hold 6-12 months of maintenance payments in escrow.
Move-In Fees & Other Building Fees: Most NYC condo and co-op buildings charge move-in and move-out fees. They can range from $200-$2500. Additionally, most buildings also have board application fees, which can run from $500 to $700.
Progressive tax paid by the buyer on homes over $1 million. 1% for homes between $1 million- $2 million up to 3.9% on homes above $25 million.
The Sponsor’s Closing Costs (for sponsor sales in co-ops and new developments):
If you’re buying in a new development, you will likely have to pay some, if not all, of the developer’s closing costs. These typically include but are not limited to their transfer taxes and attorneys’ fees.
Miscellaneous Filing & Recording fees: $150+
NYC Real Property Transfer Tax (RPTT) & Filing Fee:
1-1.425% of the purchase price
NY State Transfer Tax:
0.4% of the gross purchase price
Now the fun part begins, and you get to go home shopping. The key to finding a good broker is about chemistry and communication. Stated differently, you need a broker you can efficiently work with and who understands your needs. Additionally, if you are indecisive, then it may be a good idea to find a broker who is patient with you. Overall, finding a quality buyer’s broker that you can work with makes the buying process go much smoother.
Some buyers mistakenly believe that if they do not hire a broker to help them find an apartment, they will save money on their purchase. However, this is entirely false. In New York City, the seller is typically responsible for paying the commissions to both their broker and the buyer’s broker. As such, there’s nothing to lose by hiring a broker. If you choose to forgo hiring a buyer’s broker, the seller’s broker will receive a double commission as they become a dual agent. A dual agent is working for both you and the seller. Overall, it is advisable to hire a broker who will have your only interest in mind when helping you buy an apartment.
Down payment requirements in NYC co-ops range greatly, anywhere from 10% to all cash. However, the typical co-op down payment is usually around 20-25%. Co-op boards will also want to see that you have some cash in reserve after purchasing. For example, they may require that you have a year’s worth of maintenance payments in the bank. It’s also important to familiarize yourself with the building’s rules. Many co-ops have restrictions on subletting, pieds-a-terre, or parents buying a co-op for their children.
You need to hire an experienced real estate attorney. If you don’t know an attorney, your broker can typically refer you to someone within their network. Your attorney will review the contract, work with your title company, and coordinate the closing along with the seller’s attorney. Furthermore, if you are purchasing a co-op or a condo, your attorney will also be assessing the building’s financial condition.
If both the contract and the building’s financial condition are deemed satisfactory, then your attorney will give you his or her blessing, and you can sign the contract of sale. Along with signing the contract, buyers will typically submit a 10% deposit to the seller’s attorney to put into escrow until closing. Usually, co-op contracts contain contingency clauses regarding board approval. If the Board rejects your application, you will get your deposit back.
This is when the mortgage company will decide if they will fund your loan. Be prepared to provide additional financial information to your lender, including tax returns, pay stubs, employment letters, bank statements, etc. A word of caution if you’re purchasing a co-op, make sure that your lender is familiar with New York City co-ops. If everything looks satisfactory, you will receive a commitment letter from the bank, which typically contains conditions, all of which need to be satisfied before closing.
Now comes one of the most stressful parts, especially if you’re purchasing a co-op. You’ll need to be prepared to submit financial documents similar to those provided to your lender as well as personal letters of recommendation. It’s best for co-op buyers to ensure that your board package is “airtight” to avoid potential rejection by the co-op board. At the interview, be honest, be yourself, but conduct yourself respectably and professionally. Remember that you’re trying to convince the managing shareholders in the building that they should allow you to live in their community.
One of the conditions in the commitment letter from your lender is getting the property appraised. The process of getting an appraisal is for the appraiser to give his or her expert opinion regarding the apartment’s value. In general, the bank/lender will not finance an apartment for more than it is worth. As such, if the appraisal comes in lower than the selling price, the seller will have to lower the cost for the buyer to obtain financing and continue on with the purchase.
Another condition that must be met is getting the property inspected by a third party. This is also another part of the process where the seller may have to lower the price due to repairs that are discovered during the inspection. The inspector is looking for any outstanding problems that might affect the value and/or the safety of the apartment. This process helps to ensure that the buyer is making an informed decision regarding the purchase and so that the bank can ensure that it is not making a bad investment.
This final walk-through by the buyer confirms the condition of the apartment. If your contract required certain repairs to be made, this is when you’ll want to ensure the apartment is in satisfactory condition according to the contract terms.
“Closing” refers to the transaction when a property’s title is transferred from the seller to the buyer. This process typically takes between two and three hours to complete. The buyer and seller, as well as their attorneys, real estate agents, the managing agent of the building, and the mortgage lender, are all typically present at the closing.
After the closing, you'll officially become the owner of your very own NYC apartment. Congratulations!