A Beginner’s Guide to Buying a Home in New York City

Gary Farro, Senior Managing Director, First Republic Bank
March 15, 2017

New York City’s housing market is unlike any other. Buying your first home in the city may require a large amount of cash, but it’s also a tremendous accomplishment: Once you sign the papers, you will own a home in one of the greatest, most dynamic cities on earth.

Prospective homebuyers in New York face heated competition. Buyers end up in bidding wars over properties due to lack of inventory, which drives up prices even further. It is expected that 6,500 newly constructed units will be released in 2015, which could help dampen competition in the market. As a first-time buyer, how do you gain an edge? 

As you begin your search for a new home, it is essential to be prepared.

First things first

A crucial decision for any buyer is where to live. Ask yourself: Do you want a trendy neighborhood close to work? Do you care about living by parks or quality schools, or do you care more about access to nightlife, stores and restaurants? Location is the most important decision you will make because it directly affects your quality of life. Once you’ve chosen your preferred location, find a real-estate agent who is very familiar with that neighborhood and its properties. A knowledgeable agent can give you a huge advantage in the buying process.

Prepare for the costs

Familiarize yourself with costs before you get serious about your home search. New York City levies certain taxes on home-buyers that aren’t common in other cities. For example, buyers must pay a one percent “mansion tax” on homes costing $1 million or more. The city also charges a mortgage tax of 2.05 to 2.175 percent, depending on the size of the loan.

Once you factor in the down payment and closing costs, you may need to bring $250,000 with you to the closing—if not more. It’s essential to estimate your costs in advance. Save up and get pre-approved or pre-qualified for a specific loan amount before you start shopping around for a home. Keep in mind that many sellers today do not allow mortgage contingencies in the sales contract, meaning your deposit is at risk if you’re not approved by a bank. Be smart: Get pre-approved or pre-qualified first.

Compare condos vs. co-ops

A key decision you will likely have to make once you start home hunting in New York is whether to get a co-op or condo. There are several key differences.

Co-ops comprise about 70% of all real-estate inventory available for purchase in New York. The building is governed by a board of directors. The board must approve all buyers and make other executive decisions, such as authorizing renovations and determining whether to allow rentals. Co-op boards will want to see a buyer’s financial records, employment history and other personal records before approving the purchase.

Co-ops can also enforce other rules, such as requiring that buyers make a down payment of more than 20%. Monthly maintenance fees are often higher than condo buildings.

The upside of buying into a co-op building, however, is the overall purchase price is often lower than buying a similarly sized condo. Additionally, you do not have to pay the mortgage tax or title insurance, because you’re buying shares of a corporation rather than real property. A co-op’s maintenance fees may  also be partially tax-deductible.

If you choose the condo route, you will likely pay a higher overall purchase price, but you will have more flexibility to renovate, rent out and eventually sell your condo to whomever you choose.

Know the difference between warrantable and non-warrantable

If buying either a condo or co-op, it’s important to know the difference between the terms “warrantable” and “non-warrantable.” Warrantable buildings are those in which 51 percent or more of the units are owner-occupied, no more than 10 percent is owned by one person or entity and less than 20 percent of the square footage is used for commercial space. Warrantable buildings are deemed to have more price stability because many of the units have already been sold. Some lenders won’t lend to buyers in non-warrantable buildings, due to the concerns over the price stability, until those buildings receive warrantable status.

Keep in mind; however, that many warrantable buildings were once non-warrantable—and buying a condo or co-op in a non-warrantable building that eventually becomes warrantable could be a savvy financial decision. Non-warrantable buildings are also generally newer constructions, which may be appealing to buyers who want more updated features and less initial  maintenance.

When buying property in New York, it’s essential to be financially prepared. Your Relationship Manager can guide you through the financial evaluation and pre-approval or pre-qualifying steps; including helping assess your debt-to-income ratio, credit score, post-loan liquidity and other factors that could affect the buying process. Additionally, your Relationship Manager can help make sure you’re prepared to move forward when your dream home comes along.

The information contained in this article is provided to you “AS IS”, does not constitute legal advice, is governed by our Terms and Conditions of Use, and we are not acting as your attorney. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained in or linked to this web site and its associated sites. The views expressed in this articles are those of the writer, and do not necessarily represent the views of First Republic Bank.

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