Welcome to Blooming Sky's First Time Home Buyer Guide, your best resource to learn more about how the apartment buying process works in New York City.
We'll be covering the following:
Step 1: Your real estate team
Step 2: Your apartment wish list
Step 3: Mortgage pre-approval
Step 4: Condo vs. co-op
Step 5: Previewing properties across NYC
Step 6: Making an offer
Step 7: The counter offer and negotiating
Step 8: Deal sheet
Step 9: Working with your real estate lawyer
Step 10: Financing
Step 11: Board application process
Step 12: The apartment closing
Introduction to Buying your First Apartment in New York City
So you’re a first-time home buyer ready to start looking for an apartment in New York City. You’ve found the right resource for you. At Blooming Sky, we remove the complexity from the apartment hunt and put everything into terms that are easily understood. Whether you are looking to purchase a residence you will call home or an apartment that you rent out, we work with you to identify opportunities that suit your needs.
With interest rates still at record lows and demand for properties across large cities peaking, it comes to no surprise that NYC is one of the most competitive real estate markets out there. Median sales price for apartments in Manhattan are hovering over $1,000,000, and the property market in Manhattan and Brooklyn is showing little signs of slowing down.
So what does this mean for you, as a first-time home buyer? You have to be more prepared than ever. You have to be educated about the process, so you don’t miss out, and you have to surround yourself with a great team of people that will make sure you are getting a good investment and also help you get the deal done.
Step 1: Assemble Your Real Estate Team
Generally, the best place to start is to connect with a buyer’s broker. This is your opportunity to start voicing your interests to somebody who will represent you from start to finish. You might already have a very strong opinion of what type of apartment you want as well as the price range and location. Or you might be open to exploring different neighborhoods across the boroughs. Manhattan, Brooklyn and parts of Queens are seeing the majority of apartment sales in NYC and offer great options for first-time home buyers.
At Blooming Sky, we act as your exclusive buyer's brokers to exclusively represent you in the purchase of your property. Buyer’s brokers cost their clients absolutely nothing, and their work comes free of charge. They are compensated by commission which is taken from the apartment seller when a transaction takes place.
We also will help you assemble your complete team by providing access to reputable mortgage brokers from large financial institutions as well as real estate lawyers needed to negotiate your contract of purchase.
Step 2: Create a Wish List What You Desire in a NYC Apartment
As a first-time home buyer in NYC, it’s imperative that you begin building a wish list of things that you want for your NYC apartment. Some important things to consider:
- Primary Residence vs. Investment Property
New Development vs. Resale
Quality of interior finishes
Views and light exposure
Carrying costs (maintenance and taxes)
Full-service luxury vs. boutique building
Amenities (lobby, doorman, fitness center, lounge, roof deck)
It’s evident that the wish list can get quite extensive, and you may not have answers to everything immediately, and that is perfectly normal. This is where your real estate team comes into play. Your buyer’s broker will be there along the way to provide you with guidance and clarity around what you may be seeking.
Step 3: Get Pre-Approved for a Mortgage
The only way that you will be able to truly see what you can afford is to get a mortgage pre-approval. This will help educate you on the price range that you should be focusing on for your NYC apartment. Pre-approvals can be done with any major bank or even boutique credit union. If you already have relationship with a mortgage broker, shoot them an email or give them a call. If not, Blooming Sky can provide you with numerous options.
Pre-approvals usually take 1-2 days max, and provide you with the top range of financing that you can get. Generally in NYC, apartment buyers will put down 20% for their down payment and finance the other 80%. However, there are also opportunities to put down as little as 10%
To get the pre-approval, you may be asked to submit your pay stubs and tax returns to verify your income. Additionally, you will be asked about your current assets, such as liquid cash savings, brokerage accounts and retirement funds. Pre-approvals are usually done free of charge. Once you have the pre-approval in hand, it’s a great time to start consulting with your real estate broker about potential apartment opportunities.
With the pre-approval process, you will also get a taste for what interest rates are and what types of financing products are right for you. For instance, you may want a traditional 30-year fixed, or you may choose to go for something like mortgage that adjusts after the first 7 years. The benefit of the adjustable rates is that they initially carry lower interest.
In addition to paying your mortgage (principal and interest), you will also need to pay common charges, taxes and insurance. All these costs go into the calculation to factor how much apartment you’ll be able to buy in NYC.
Here are current interest rates offered by Wells Fargo, as of March, 2017.
|Conforming and Government Loans|
|30-Year Fixed Rate||4.25%||4.31%|
|30-Year Fixed-Rate FHA||4.38%||5.43%|
|30-Year Fixed-Rate VA||4.13%||4.42%|
|15-Year Fixed Rate||3.63%||3.71%|
|5/1 ARM VA||4.13%||3.56%|
|Jumbo Loans Amounts that exceed conforming loan limits|
|30-Year Fixed-Rate Jumbo||4.13%||4.14%|
|15-Year Fixed-Rate Jumbo||4.00%||4.01%|
|7/1 ARM Jumbo||3.50%||3.84%|
Step 4: Condo vs. Co-op
In NYC, the condo vs. co-op distinction is a significant to consider. We’ve had the chance to write a guide about it in the condo vs. co-op guide, but here is a short recap.
Believe it or not, while most new buyers tend to have a preference towards condos, they only represent roughly 25% of all apartment inventory in Manhattan. Most building pre-dating the 1980s were co-ops, while most buildings that have been built since have been turned into condos. So what’s the difference between the two?
In a NYC condo, the property purchaser owns apartment outright. When you buy it, you are buying that space inside your apartment. It is 100% yours.
In a NYC co-op, the apartment buyer is not actually buying the apartment. Rather they are purchasing shares from the co-op corporation that gives them an easement (access) to that specific unit. While on paper, this may not seem so straight forward, it is actually a nuance and something people in NYC are quite alright with accepting.
There are some major differences between condos and coop. They go as follows:
Getting approved for a coop is much more challenging than getting approved for a condo in New York City. Coops are generally, but not always, run by strict coop boards who have the ability to accept and refuse purchase applications on a multitude of reasons.
Things that coop boards look at include:
Sales price of property
Financial background of individual(s) purchasing
Income to debt ratio
Cash on hand
Personal and professional references
In-person co-op interview
Does this sound more like a job application to you? It may surely feel like it. There is often prestige associated with making it through the co-op board and getting approved. It’s important to note that the same process stands on the resale side of the deal, so this can have a direct impact on your liquidity.
Co-ops have always been slightly cheaper than condos in NYC. The reason for this is that co-ops generally have less liquidity (as per above) and condos are also usually much newer construction. One thing to note though is that foreign investors have played a large role in keeping prices of condos high, since condos are generally favored by investors because they are less restrictive for the purposes of renting them out.
Based on the Q4 2016 report, developed by Douglas Elliman, the sales price average for a co-op in Manhattan was $1,202,354. The average price per square foot (PSF) was $1,195.
Manhattan condos had an average sales price of $3,086,676, with an average price per square foot of $2,209. The average sales price of condos is also heavily influenced by the super high-end. In Q4 of 2015, the average sales price was $2,662,100. That’s nearly a 16% increase, year over year. The median sales price for Q4 2016 came in at $1,707,500, which demonstrates the influence of the luxury high-end market on the average. Additionally, the new development market has skewed many of these numbers significantly upward. Resales (when another owner resells the apartment) trend significantly lower in price averages as compared to sponsor sales (new developments). Don’t let these numbers scare you. There are many condos across New York City, including in Manhattan and Brooklyn that are significantly lower in price.
Comparatively, Brooklyn condos have averaged a price of $1,141,570 while the median sales price averaged $895,000 in Q4 2016. Brooklyn prices are significantly cheaper on average than in Manhattan, while there are some neighborhoods that are outliers.
Rules and Regulations
Co-ops are usually much stricter than condos. Co-ops in many cases have house rules with strict fine structures. Condos are generally much more lax. However, many co-ops are working to become more attractive to all buyers and have moved away from being as strict. Some co-ops are even investor friendly, which makes them similar to condos.
For condos, you can finance as much as 90% of the purchase price. Generally, it’s fairly common to put down 20% cash for an apartment.
For co-ops, a 20% down payment is standard, but some co-ops may expect their buyers to put between 25% and 30% down.
Step 5: Previewing Apartments across New York City
Previewing properties is an important component of learning about the market. For first-time apartment buyers, it is not unusual to feel the need to see several dozen apartments before really getting a feel for what you are looking for.
You will be able to work with your broker to set up private apartment showings as well as plan for open houses. These are great opportunities to reevaluate your apartment wish list. Also, this is a great way to ask your broker questions you might have. It’s okay to feel somewhat overwhelmed when you get started in the NYC apartment buying process, but over time you will be able to narrow down and focus on what you really want.
Step 6: Making an Offer on a New York City Apartment
Once you’ve found the apartment that fits your criteria, it’s time to submit an offer. You and your broker will have some time to discuss pricing strategy and where you want to come in at and where you are comfortable ending up. Ultimately, negotiating an apartment purchase in NYC is a bit like a dance, and you want to be prepared for your next move.
Your broker will help you understand the market pricing of the surrounding properties to make sure that the offer is in line with where the market is. Additionally, at Blooming Sky, we help our clients find good deals, so we make sure that the apartment comps in the neighborhood truly indicate that this apartment would be a worthy purchase.
Once you and your broker have decided on a number, your broker will communicate to the seller’s broker verbally. Also, to present a strong offer, it’s important to send the pre-approval you’ve received from your mortgage broker as well as proof of funds.
Step 7: The Counter Offer
Once an offer is received, there may be a day or two of silence between brokers. Once this quiet period passes, the seller’s broker will communicate to your broker and prove a counter offer. In some cases, this can all take place in a few hours from the initial offer. Also, if you offer the asking price or above, there may not be a counter offer. However, it’s more likely than not that the initial offer will be countered. During this process, price, terms and approximate closing date will all be agreed upon.
Step 8: The Deal Sheet
When the offer has been accepted by both parties, your broker and the seller’s broker will put together a deal sheet. The deal sheet will become the foundation for the contract of sale.
Step 9: Working with a Real Estate Attorney
In NYC, a real estate attorney is a must have. They will be the ones to iron out the paperwork when it comes apartment sales contracts. Once the deal sheet has been finalized, both the seller’s broker and your broker will contact their respective attorneys. Don’t worry if you don’t have one in your back pocket. At Blooming Sky, we have a network of numerous attorneys that we recommend working with, and we will be happy to pass the relationship to you.
When buying an apartment for the first time in NYC, it’s essential to have a good real estate attorney that ensures that you are fully protected in the transaction. The seller’s attorney will send over the contract of sale to your attorney, who will then review it and ensure that all the terms and conditions that were agreed to prior are properly represented. Additionally, your attorney may also include a rider that specifically outlines any of those pre-negotiated terms. This back and forth between attorneys generally takes about a week or so. Your attorney will also review the building’s financials and board minutes. Additionally, depending on the apartment, you may opt to do a home inspection to make sure things like electricals and plumbing are in good work order.
Once the contract has been finalized, you will need to meet with your attorney and sign the contract, in addition to bringing a check for your down payment. This is 10% of the purchase amount.
Step 10: Financing
First of all, congratulations on your signed contract. You are close to owning your first apartment in New York City. Assuming there are no terms in your contract for a late closing, you generally have about 30 to 45 days to get your financing in order.
Get in touch with your mortgage broker that you worked with to put together your pre-approval. At this point, the lender will ask you for all your documentation, including sales contract, apartment building offering plan, account statements, paystubs, tax returns and more. The list of documentation that your lender will want may seem endless, but it will all be worthwhile. Make sure to keep following up with your lender to see where they are in the process. Once you receive the mortgage commitment letter, you will be a position to close (assuming you’ve also received your board approval - see Step 11 below).
This is also the stage where you’ll need to choose what loan product you want. This is a good conversation to also have with your real estate broker, as a lot is dependent on how long you might expect to keep this apartment.
Step 11: Board Application Package
Similar to the application you are putting together for your loan, you will also need to complete the board application package for you NYC building. Management companies will require that you fill out the application in its entirety as well as providing all supporting documents. Condo applications are generally simpler than co-op applications. Either way, your broker will be able to take care of most the application for you. You will also be asked to submit an application processing fee.
Once the application has been completed, it will be submitted to the management company of the building. In a co-op, you will have an interview scheduled with the board. In a condo building, there are no interviews.
Once you’ve been approved, and you have received your mortgage commitment, you are ready to close on your apartment.
Step 12: Closing on your first NYC Apartment
You’re nearly there! The last step involved in purchasing your first apartment involves the actual closing. This will be setup and coordinated by your real estate attorney and the seller’s attorney. There are numerous parties that show up to the closing, so there are many schedules to accommodate.
Parties include the following:
Seller’s real estate broker
Buyer’s real estate broker
Representative from mortgage lender
Representative from land and title search company
Land and title search is something that your real estate attorney will coordinate. This insures that the title of the property you are purchasing has a clear record and isn’t legally owned by anyone else.
Prior to closing, your attorney will send you a record of all the bank checks that you will need to procure for closing. In addition to the other 10%, assuming 80% financing, there are several other checks you will need to bring. For instance, this will be the point at which you pay your real estate lawyer, the land and title company, mortgage origination fees and taxes.
So what are all the closing costs involved in purchasing your first apartment in NYC? You should expect to have 3% to 5.5% in cash set aside for closing on your property if it is a condo or a townhouse. The cost is slightly reduced when the property is a co-op.
The closing can be as short as an hour and can last as long as half a day. If everyone shows up on time, and everything goes smoothly, it’s a relatively quick process.
Last Step: Take a Breather
Congratulations. You have made it through the process of buying your first apartment in New York City. Now is the perfect time to take a step back and take a breather. Reward yourself by treating yourself to a nice meal to reflect on what you’ve just accomplished. You likely have spent the past 2 months going through the apartment buying process, so now is a great time to relax.
Do you want to start the conversation and see how we can help you find your first apartment in New York City? Or maybe you just have some questions you're curious about. Contact us below. We’re excited to hear from you.