Buying A Home In New York City
Buying a home can be a very intimidating process, especially if you've never done it before.
So the first thing you should do before you start the home buying process is to figure out whether owning a home is right for you. It may or may not be and this decision depends on you and what your circumstances are.
Once you have the right mortgage lender, make sure you at least get a pre-approval. Pre-qualifications are only a guess based on what you tell the lender and are no guarantee, whereas a pre-approval will give you a better idea of how big a loan you qualify for. The lender will actually pull your credit and get more information about you. However, you could even take it one step further by getting an actual approval before you start home shopping. That way, when you're ready to make an offer, it will make the sale go much quicker. Besides, your offer will look more appealing than other buyers since your financing is guaranteed.
Here is what you need to understand about New York City real estate
Cooperatives and Condominiums
New York is a city comprised mainly of cooperative and condominium apartments with a smaller selection of private homes, called townhouses or brownstones. Most important is understanding the differences between the two types of apartments you will find in Manhattan.
Structure of a Cooperative
Cooperatives are not a new concept, although they seem to be a type of ownership that is more common in New York City than elsewhere in the United States. In New York City, 85% of our apartments available for purchase are in cooperative buildings, while 15% are in condominiums. This means two very simple things to potential buyers in New York City:
- There is more inventory to choose from if the buyer includes co-ops into the mix of properties, and
- Prices are, in general, more attractive for cooperatives — simple supply and demand.
An apartment corporation owns cooperatives. Individual tenants do not actually own their apartments as they would in the case of real property. One owns shares in the corporation, which entitles them to a long-term proprietary lease. The corporation pays the total amount of the building’s mortgage (importantly, a cooperative may have an underlying mortgage on the entire building, whereas a condominium must be owned outright), real estate taxes, employee salaries, and other expenses for the upkeep of the building. The tenant-owner, in turn, pays a share of these expenses as determined by the number of shares the tenant owns in the corporation. Share amounts are dictated by apartment size and floor level.
Considerations When Buying A Co-op
- The tenant-owners have the right to approve or disapprove of any potential owner. The Board of Directors, which is elected by all of the tenantowners of the co-op, interviews all prospective owners. They have the responsibility of protecting the interests of their fellow tenant-owners by selecting well-qualified candidates.
- The quality of services and the security of the building are kept at high standards.
- Portions of the monthly maintenance are tax deductible. Each building has its own tax structure, but all co-ops offer a tax advantage. Shareholders can deduct their portion of the building’s real estate taxes, as well as the interest on the building's mortgage.
- The amount of money that may be financed is determined by each cooperative. Some buildings require substantial down payments. Generally speaking, in Manhattan prospective purchasers should be prepared to put down at least 20 to 25% of the purchase price. Importantly, this could be considerably higher in some of the more exclusive buildings.
- The Board of Directors of the cooperative must approve subleasing a co-op. Each corporation has its own rules, and they should be examined if a potential owner intends to sublet.
With this in mind, it is important to remember that co-ops are the norm here in Manhattan, not the exception. However, before beginning a search for a cooperative apartment, think about the financing limitations and the application and interview process; as well as the fact that the board will dictate to whom you can sell and rent your apartment.
Structure of a Condominum (condo)
While condominiums are quite common throughout the country, they are a rather new concept for New York City. A condominium apartment in Manhattan is real property. The buyer gets a deed just as though you were buying a house. Since this is real property, there is a separate tax lot for each apartment. Hence, this means you pay your own real estate taxes for your property. An owner will also pay common charges on a monthly basis. Common charges are similar to maintenance in a cooperative. However, they will not include real estate taxes since these are paid separately, nor will it include the building’s mortgage and interest given that a condominium, by law, cannot have an underlying mortgage.
Condominiums are more atractive for a variety of reasons:
- Financing the purchase of a condominium apartment is much more flexible than in a cooperative. Generally, a buyer can finance up to 90% of the purchase price.
- While there is an application process, this is not as formal as in a cooperative. The likelihood of rejection is minimal.
- There is greater flexibility in sub-leasing your apartment. This makes condominiums the choice for investment property.
- They are the ideal choice for non-U.S. citizens or for those with their assets held outside of the United States given that co-ops are unlikely to approve a buyer whose funds are not in the U.S.
Steps to finding the perfect home:
1.-Seek pre-approval for a mortgage
Typical time frame: same day - 2 days. You must know how much you can spend before you spend it. Condominium apartments require at least 10% down; cooperative apartments generally require at least 20% down. However, every building is different. 15% of Manhattan’s buildings are condominium buildings and the other 85% are cooperatives.
2. Find and apartment
Typical time frame from home search to closing: 60-90 days. Offers are made orally in New York City. When you have found the right property, a bid or offer will be paced through your agent. They will convey your offer to either the seller’s agent or to the seller directly. The seller may counter your offer. This will begin a negotiation process that will eventually lead to a meeting of the minds. Depending on what you are looking for; the length of your search will vary. The average person sees 20-25 apartments before deciding on one. Internet-savvy buyers save time by doing their homework before their search.
3.Negotiate on the apartment
Typical time frame: 3 days to 2 weeks. Everything is negotiable so inquire about assessments, fixtures, window replacements, air conditioners, rugs, floors, curtains, appliances, working fireplaces, washer dryers, etc. Apartments are delivered swept clean.
4.Sign a contract
Typical time frame: 1-3 weeks. A New York City real estate attorney is required to represent each buyer and seller in all sales transactions. Contact an attorney
familiar with real estate in Manhattan to represent you. The seller’s attorney draws up the contract for the buyer’s attorney; the buyer’s attorney does ‘due diligence’ reading minutes, financial statements of buildings etc.. Your real estate agent can assist you in finding experienced attorneys. The buyers sign the contract and forward the contract with a 10% deposit; the sellers execute the contract. Possible contingencies: Financing, Board Approval, closing dates. (See our list of closing costs associated with buying and selling condominiums and cooperatives.) This money will be held in the seller’s attorney’s escrow account until closing. It is important to note that until all parties have signed the contract, and it has been delivered, the seller can still entertain and accept other offers. The quicker the contract can be signed, the better. A contract is binding only after both parties sign it.
5. Apply for a mortgage
Receive Commitment Letter from Lender. Typical time frame: 6 - 9 weeks. Mortgage applications cannot be processed without an executed contract. If an apartment is being financed, the board requires a commitment letter from a lender. These letters are generally the last items to complete a board package/condo application.
6. Complete a CO-OP Board Package for Condominium application
Typical time frame: 3 - 9 weeks. You will, by now have received from your real estate agent the board requirements and application materials. Cooperative apartment buildings require board approval before a closing can take place. Condominiums require an information packet to be completed before a closing can take place. In order to review a potential purchaser, the Board of Directors for a Coop demand extensive information in a Board Package. Most Boards request the following information: A financial statement signed by a CPA, all requisite support of your financial statement, three years of tax returns, bank statements, letters of personal and financial reference, letters of professional reference, the contract of sale, bank documents (if financing) indicating that your loan is in place etc.. Condominiums requirements are much less invasive but you still must supply basic salary requirements and or a mortgage approval to prove your eligibility. Board packages/Condo applications are given to potential purchasers to fill out after a contract has been executed. If there is no financing, it usually takes about 2-4 weeks to gather the information for the board condominium application.
7. Submit CO-OP Board Package or Condo Application For The Managing Agent's Review
Typical time frame: 1-4 weeks. After the buyer’s real estate agent completes the Board package, he/she will forward the package to the managing agent of the building. The managing agent will inspect the package to ensure it is complete. The package will then be forwarded to the Board of Director’s of the Co-op. After the Board reviews the package, they will decide if they would like to meet the potential purchaser. Condominiums the owner dictates the process if owner approves in most cases the managing agent and board follow suit
8. Meet the CO-OP board for an Interview
TTypical time frame: 30 minutes - 1 hour. This is a serious matter and not to be taken lightly. It should be treated as a business meeting. Co-op Boards typically meet once a month and some Boards do not meet in August. Every Board is different, but generally a Board Meeting will be held in the evening on a weeknight. Although a board interview may be granted, this does not guarantee board approval. Condos do not usually require an interview.
9. Receive board approval from board
Typical time frame: 1 day - 1 week after board interview. The managing agent will generally alert the seller’s broker whether a potential purchaser has passed the board. Condominiums your broker will inform you if your application has been approved.
10. Schedule closing
Typical time frame: 1-2 weeks after board approval. Managing agents generally set the date for closings, and lawyers for sellers and buyers coordinate with the appropriate banks on available dates and times.
Typical Time Frame from the time an apartment is found to closing: 2-3 months