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 buildings and how they operate.
An intro to co-op apartments
Co-ops are different from condominiums and single-family homes. When you purchase a co-op apartment, you are not buying real property. Instead, you are buying shares in the cooperative corporation, and therefore becoming a shareholder. These shares entitle you to a long-term proprietary lease, to be provided by the corporation, which will make you a tenant in the co-op building. Generally, the larger the apartment, the more shares you will own in the co-op.
As a shareholder, you’ll be required to pay a monthly maintenance fee to the cooperative corporation. This fee will cover building expenses such as heat, hot water, building insurance, salaries for building staff, real estate taxes, and the building’s mortgage. Under the building’s bylaws, temporary fees known as special assessments can also be put in place to cover the costs of building repairs and renovations. These assessments will cover the cost of property repairs and renovations. These special assessment fees are incurred by each shareholder and can range significantly. Depending on the size of the co-op building and the cost of the repairs and renovations needed, they can be as low as $50 or as high as $800 per month.
Overall, the approval process for buying an apartment in co-op buildings is far more intensive than if you were purchasing a home in a condo building. The primary headache of purchasing a co-op in New York City is going through a rigorous board interview and approval process. Many co-ops also limit the amount of financing a purchaser can receive so you should be prepared to make a down payment of 20-25% of the purchase price. If you’re lucky, that may be lower, or you may be able to buy a sponsor unit, where board approval is not required.
We spoke with Sydney Blumstein, a top broker at Corcoran with over $200 million in sales, about her thoughts on buying a NYC co-op. "Co-ops are designed for a specific type of buyer. They are owner-occupied, participatory properties, so they're best for buyers who are interested in planting roots. Renovations are usually for improvements for the homeowner rather than designed to accommodate fix and flip. Flip taxes are often imposed to ensure that owners hold these homes for longer. They are less expensive to get into than condominiums, particularly on closing costs." explains Blumstein. Buying in a co-op building can also be a tricky proposition as the financial requirements are stricter, and more financial disclosure is required. "You need to be financially sound with a debt to income ratio below 28% and able to carry the home for two years (mortgage and maintenance payments) without earning another dollar from the day you purchase. Co-ops are protective, and they want to ensure you can afford to buy and carry what you are purchasing," continues Blumstein. Her biggest tip to prospective co-op buyers is, "Don't expect to be able to purchase and close quickly. Cooperatives are a practice in patience. And remember, without a carefully prepared board package fully explaining your financial picture, the board can turn you down without any justification. As a former co-op owner, though, for a special property, it's usually worth the wait."
An intro to condo apartments
The process of buying a condo is similar to that of buying a house, in that the condo is considered real property. Condo buyers will receive a deed, and virtually anyone can purchase a condo. While it's true that most New York City condo buildings have a board and require an application, it's more of a formality than anything. A condo board cannot reject a buyer the way a co-op board can unless they wish to exercise a right of first refusal and purchase the apartment themselves. There are also fewer restrictions when it comes to subletting or renting out your condo apartment. You will, however, still have to pay monthly maintenance fees. Typically they will be lower than maintenance fees in a co-op as they will not include property taxes, but nowadays plenty of condos offer so many high-end amenities and facilities that the monthly maintenance may feel like an additional rent bill.
Condos vs. Co-ops, pros and cons
Now that you know a bit about each type of building 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 due to the fact that co-op apartments tend to be significantly cheaper than similarly sized condos. Furthermore, many New Yorkers can probably count themselves thankful to the existence of co-ops and their strict approval guidelines that 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.
|Condo Pros||Condo Cons|
|Flexible Financing Options||Expensive|
|Easy Board Approval|
|Easy to Sublet/Rent Out|
|Ideal for Investors|
|Co-op Pros||Co-op Cons|
|Cheaper than Condos||
Strict Financing & Board Requirements
|Stricter screening can be beneficial. More financially stable, longterm owners||Potential restrictions on subletting/renting out|
|Higher maintenance fees|
As you can see the main benefit of buying a co-op is affordability, but 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.
Figure out Your Budget
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 as well as any other required payments such as monthly maintenance payments and property taxes.
Choose a neighborhood or a borough
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 have an idea of 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.
Establish a Search Criteria and Decide what you can be flexible about
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 absolutely need a 2 to 3 Bedroom apartment. In New York City, where apartments move quickly, it is crucial to keep your search criteria as open as possible. 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 precise square footage of the apartment. 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.
Get pre-approved for a mortgage
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, another reason that a pre-approval letter is essential is that it is a second opinion about what you can afford. When you obtain a pre-approval, the bank or mortgage lender is telling 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.
Make sure you have your financial ducks in a row
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 reason the bank or lender will source all money in your bank account is that 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.
Plan ahead and assemble your closing costs
The closing cost usually runs between 2%- 5% of the purchase price for the buyer. Potential closing costs include:
Buyer’s Attorney’s Fees:
Typically less than $1500. Title insurance is only for condo apartments. 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.
The Mortgage Recording Tax:
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, which makes the effective rates in NYC 1.8% for loans 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 Escrow or Maintenance Escrow:
Typically, when you take out a mortgage on a property, your lender will require you to put six months of taxes in an escrow account. Similar to what lenders require, some co-ops have begun requiring that buyers hold 6-12 months of maintenance payments in escrow. This is especially true if the co-op board is unsure about the buyer’s application. The ability to put these additional funds into an escrow account may be the difference between an approval and a denial.
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
Find a Buyer’s Broker & Start attending Open Houses
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. In the event 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.
Submit Non-Binding Offers and Confirm that you qualify
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 years 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.
Hire a Real Estate Attorney
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, then your attorney’s will also be assessing the financial condition of the building.
Sign the contract and put down the deposit
If both the contract and the financial condition of the building 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.
Receive a commitment letter and get cleared to close
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.
Submit your board package & wait for the board Interview
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. For co-op buyers, it's best 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.
Inspections, Appraisals, etc
One of the conditions that will be in your 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 value of the apartment. 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, in order 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.
Conduct a final walk-through of the apartment
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.
Close on the apartment
“Closing” refers to the transaction when the title of a property 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.