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 estimated that 22,000 newly constructed units will be released in 2019, 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 firstA 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 costsFamiliarize yourself with costs before you get serious about your home search. New York levies certain taxes on homebuyers that aren’t common in other cities. For example, all buyers in New York state must pay a 1% “mansion tax” on homes costing $1 million or more. Properties sold in New York City costing $2 million or more, however, have an increased mansion tax. This incremental tax is 1.25% for properties $2 million to $3 million and caps out at 3.90% for properties more than $25 million. The city also charges a mortgage tax of 2.05% to 2.175%, depending on the size of the loan. The good news for buyers? Lenders typically cover 0.25% of the mortgage tax. It’s essential to estimate your costs in advance. Save up and get preapproved or prequalified 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 preapproved or prequalified 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 a condo. There are several key differences.
Co-ops comprise about 85% 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.