Down Payment Requirements in New York

With the price of rent increasing, a monthly mortgage payment can often cost less when purchasing a home. New York City real estate is better equipped, renovated, and in your name. But before you can move into that dream apartment that you own, there’s one pretty significant obstacle standing in your way: the down payment for apartments and townhouses in New York City.

In a recent study, New York State ranked third in the country among the highest average down payments by amount, behind California and Washington, DC. New York City skewed New York State’s results into the top three with apartment listing prices in the millions.

We break down what you need to know, how much you need to have in cash, and ready to purchase your apartment.

How much is the down payment for a home in NYC?

The short answer is you’ll need a downpayment of about 10 to 30 percent, depending on the property it is a condo, co-op, townhouse, or house. It can be more nuanced based on the building, what you can afford monthly vs. have in cash now, and the bank you are working with for your mortgage.

What’s the minimum amount I need for a downpayment?

Before getting to the specifics, an ethical principle to consider is the more money you put down upfront while purchasing your apartment, the less you’ll pay monthly.

But, the less you’re willing or able to put down upfront increases the more risk your mortgage lender sees in you. This, in turn, means you’ll have to pay a higher interest rate and other potential fees while paying off your mortgage.

So what’s the actual minimum you can put down? While in some parts of the country, you might be able to put zero percent down, that won’t be the case here in New York City. Lenders and sellers will turn you away.

FHA loans

If you plan to use a Federal Housing Authority (FHA loan), you could put 3.5 percent of the total cost down. But this means you’ll be limited to buying in FHA-compliant buildings; and will likely be forced to purchase in the outer boroughs.

In the 10 to 15 percent-down range, you may find a lender open to give you a mortgage, but sellers will often be hesitant to accept an offer with that much financing involved. A downpayment of this size will only seem attractive if there is low interest in the apartment overall.

If you can only put down 10 to 15 percent, focus your buying search on condos. Condos do often have minimum financing requirements, but they are usually less than co-ops. However, condos can also be more expensive to buy, so while the downpayment would only be 10 percent, the amount of ash is more than 10 percent of a co-op.

If you plan to put down any amount less than 20 percent, you’ll likely also need Private Mortgage Insurance (PMI) to guarantee the loan in case of default. Having a PMI will increase your total monthly payment.

What is the standard downpayment for an apartment?

The standard downpayment to buy an apartment in New York City is 20 percent and is often required in most cooperatives. Most sellers expect the threshold and will normalize your interest rates with lenders, as they will see you as less risky.

Offering 20 percent down is required by most properties and will help put your offer in the running of being accepted.

If you want to increase your odds of having your offer accepted and lower your interest rates further, offering 30 percent down.

If you’re purchasing the apartment as an investment property rather than a primary residence, 30 percent down is the standard accepted amount. But expect your interest rates on the mortgage to be higher than that of a primary residence mortgage.

Can I make an all-cash offer?

First off, if you have enough money to make an all-cash offer on an apartment in New York City — congratulations! You did a great job saving.

If you have the cash and don’t want the monthly payment, you can make a 100 percent all-cash offer. Most sellers dream of this, as it speeds up the closing. Your offer will be taken seriously and often may even be accepted at a slightly lower price threshold because the seller knows the offer won’t fall through because of financing concerns.

What other factors determine the size of the downpayment I need?

Unfortunately, how much cash you have saved is not the only factor determining the size of the downpayment you need. The building and the seller will affect your downpayment.

A co-op apartment building will usually require at least 20 percent down. Some co-op buildings are more investor-friendly that require an all-cash offer. Some apartments will also need 30 to 50 percent down. Usually, the listing will indicate a minimum downpayment, so look for this before you tour the apartment.

If you’re buying in a co-op, the co-op board will review your proposed downpayment, as well as your debt-to-income ratio.

Even if a building allows your downpayment, that does not mean the seller will accept it. Sellers are attracted to all-cash or non-contingent offers because of the likelihood the proposal will go through.

In general, offering a 20 percent down payment will get you a reasonable mortgage rate and increase a seller’s desire to accept your offer in most apartments in New York City.

Deciding on a downpayment to strengthen your offer

It is tempting to place as small a down payment as possible. Perhaps you would like not even to put any money down. After all, you may not have adequate liquid assets, or you would instead use these assets to earn a return while you pay down the mortgage over the years. How Much Should You Put Down on a Home?
There is a myriad of considerations, however. In New York City, the situation is complicated by a board’s influence (particularly in the case of a co-op). Although you should remember that the decision is not entirely in your hands, we go through your options.

All cash

A more substantial offer you make; Cash is king since sellers do not have to worry about getting a lender’s approval for both you and the building. They also know your financials are more likely to get the board’s approval. Many co-op boards insist upon a sizeable down payment, even as much as 50%. He or she also knows you can accommodate a quick closing if that is appealing for the seller.

Therefore, an all-cash offer should provide you with some negotiating leverage. On the flip side, you are tying up a significant amount of cash instead of investing it.

Between 20% and 30%

The 20% threshold is essential since you do not have to pay personal mortgage insurance (PMI) at this point. Also, the standard down payment when you are buying a New York City property. You also receive a more favorable interest rate at this point than at lower percentage down payments.

Less than 20%

There are certain circumstances where you can places less than 20% down, however. If you are looking to make a 10% to 15% down payment, you may very well pass muster with your lenders. However, you may face challenges with the sellers and the co-op board. May work for a condo or be willing to purchase a unit in a less desirable neighborhood.

Anything less than 10% is a tough sell in New York City. Lenders are boards likely to balk. It is also an uphill battle to get a seller to take your offer seriously. It will likely only work under exceptional, limited circumstances. One such case might be a developer offering deals with a 5% down payment in specific neighborhoods.

Although difficult to find, you may find a building where you can place as little as 3.5% down. The Federal Housing Administration insures these loans, known as FHA loans. There are certain conditions, such as a 580 minimum credit score.

The FHA imposes other requirements, such as solid employment history and specific financial ratios.

If this type of loan interests you, the tricky part is finding a building willing to accept these conditions. So, it would help if you prepared yourself that you may restrict your housing choices.

You should expect to make a minimum down payment if you purchase a property in the city, though. Obtaining 100% financing is not a realistic option.

How to Save for a Down Payment on a Home

So you’ve finally settled on it. You want your dream home in NYC. Or maybe you’re just looking for something a little larger than your current apartment or closer to work. Whatever your reason for wanting to buy an apartment in NYC, like every buyer, you’ll need enough saved for a down payment. Maybe you’ve already found the right apartment but are just a bit short on the minimum required for the down payment. Read on to learn how you can help save for homeownership.

Why down payments matter

Your down payment is the money you bring to seal a purchase contract and show that you’re serious about buying. If you’re applying for a mortgage, it shows lenders that you’re financially capable of coming up with the money. Plus, the more you can put on your down payment, the lower your monthly payments will be. In NYC, the minimum down payment is 10% of the purchase price. But not many buyers will be thrilled by this and are unlikely to take it seriously unless there is very little demand for the property.

20% is far more common and is the standard threshold for co-ops. Any down payment below 20% will require the buyer to pay extra Private Mortgage insurance (PMI). It is an insurance policy that ensures that the insurance bails you out and pays the lender in the event of a default. Should that happen, your credit will still be, ruined and you’ll face the consequences of default.

So it makes sense to try everything to save that 20%. Sometimes buyers turn to family for gift funds to help them reach that magic number. Whether you choose to do that or not, you’ll still want to work to save as much as you can. Saving money for a down payment is just like saving for anything else. Have a plan and stick to it.

Create a monthly budget

It is better to get the annoying part out of the way first. You can’t save without a budget. Figure out how much you need to keep and what expenses you can cut to help you reach that goal. No one likes having to make sacrifices, but that’s what it takes. Sites like Mint and You Need a Budget can help you stay on track. To make things easier, set up a savings account and put part of your salary in there every month.

Cut one bill, then another.

While working on your budget, look for bills that you can cut. Start with one bill for the first month, and next month find another that you can do without. Then put the money you save into your savings account. Trim is a great app to help you monitor your spending and find subscriptions you can cancel.

Start a side hustle

You don’t necessarily need to get a second job to save more money. It is possible to earn something on the side, usually by monetizing a skill you already have. For instance, if you do photography, you could start doing photos for weddings, parties, or family portraits. Other side hustles that can be a good source of income include freelance writing, dog walking, and selling handmade crafts online through Etsy sites. Instead of spending your money from the side, hustle put it all in your savings account.

Tap into your 401K

It can be risky, but it’s one of the fastest ways of obtaining cash for your down payment. However, it’s not to be done without a clear understanding of the tax repercussions from taking a loan out on or withdrawing money from your 401K. If you’re still a long way off from retirement age and can replace the withdrawn funds before then, tapping into your 401K can be a great option.

Sell things you don’t need

Make use of sites like eBay, Craigslist, and OfferUp. Almost every household has clutter lying around that hasn’t been used in months or years. Go through your entire home and find anything that you can sell. Doing this also means you’ll have fewer things to move when it comes time for moving day.

Final thoughts

There is a balancing act when you are deciding how much money to put down — placing a sizeable down payment results in a firmer offer and lower mortgage payment. But, you are tying up capital. Less of a down payment is tempting but also means more substantial monthly payments. Sellers and the board are also like to frown upon your offer if the amount is too small.