Getting a Mortgage in New York City

Many people dream of homeownership, especially in New York City. However, unless you have piles of money, you will need a home loan to achieve it. It can seem like a tricky and confusing road to navigate if you’ve never applied for a mortgage. To help you with this, we’ve put together this step-by-step guide on getting a mortgage in NYC.

How to Get a Mortgage in NYC

As you will soon see, the process is pretty straightforward once you understand each step.

Strengthen Your Credit Score

The first thing to start with is your credit score. Your credit score is essentially the gatekeeper to getting any loan. It will determine whether you’re eligible for a mortgage, what kind of loan you can apply for, and the interest rate you will receive. While there isn’t any official minimum credit score to get a mortgage, a score of 700 is what you’ll want to aim for. Anything less than 600 can be problematic, but an FHA loan could be an option.

It is worth taking some time to boost your credit score if it’s not in the best shape. You can do this in several ways, such as reducing your credit card debt, ensuring no late payments, and asking for a higher credit limit. You can request a free copy of your credit score once a year from the three leading credit reporting agencies, Equifax, Experian, and Transunion.

Determine Your Debt-to-Income Ratio (DTI)

Along with your credit score, your debt-to-income – DTI will be another critical factor determining your eligibility for a mortgage. Your DTI, Debt to income, is a percentage of your gross yearly income that manages your debt payments, such as credit cards, student loans, and car loan payments. To calculate your DTI, divide your gross income by the sum of your annual debt payments. The general rule of thumb is to aim for a DTI of no more than 43%. The lower it is, the more flexible your loan options will be.

Choose a Mortgage Lender

When you’re in the market for a mortgage, your first inclination might be to go with the financial institution where you usually do your banking. After all, they know you best and should already have most of your information. But while this can be a good idea, it won’t always mean you’ll get the best rates or service. Lenders can vary wildly in their rates, closing costs, and customer service levels. Therefore, shopping around is worthwhile and seeing what other banks and private lenders can offer you.

Also, consider what home you plan to buy when shopping for a lender. For instance, if you’re considering buying a co-op, ensure your chosen lender has experience dealing with these properties.

Get Prequalified and Pre-approved

Once you’ve found a lender, the following essential step will be getting yourself prequalified and pre-approved for a mortgage. Sellers like to see offers with a pre-approval letter, which means there’s less chance the deal will fall through. You’ll want to get this done before you start looking at properties, as it will impact how a seller perceives your offer.

Be aware also of the differences between pre-qualification and pre-approval. Pre-qualification is just an estimate of how much you will likely be approved for. Pre-approval is a more inadept assessment that looks closely at your financials and supporting documents and outlines how much you will be approved. Work closely with your real estate attorney and broker to ensure you understand the exact terms of your mortgage pre-approval. Note also that a loan guarantee isn’t always ironclad. There might be conditions that allow the lender a way out, such as “subject to appraisal” or “subject to underwriting review.” Also important if you decide to drop the mortgage contingency in your offer.

Choose a Loan Option

Loans, like houses, come in many different shapes and sizes. You must choose the right one for your circumstances. Some of the most common types of home loans include:

• Conventional Loan – The standard home loan – is usually available with 15 or 30 years terms with either adjustable or fixed rates. A 30-year fixed-rate loan tends to be the most popular choice for cash-strapped buyers.
• FHA Loan – A federally backed loan for borrowers who don’t meet the requirements for a conventional loan. Usually available with down payments as low as 3.5%. Note that co-ops, fixer-uppers, and other property types are not eligible for FHA loans.
• V.A. Loan – Available for current and former military members and backed by the Department of Veteran Affairs. V.A. loans can allow you to buy a home with zero money down, no mortgage insurance, and desirable interest rates. However, you must meet the requirements set out by the V.A. Co-ops, and a few condos don’t allow for V.A. loan purchases.
• Jumbo Loan – A type of conventional loan that exceeds the loan limits of those backed by Freddie Mack and Fannie Mae. Usually comes with stringent requirements as they are riskier for the lender.

Find a Home and Make an Offer

With your pre-approval letter now in hand, it’s time to start looking at properties for sale. If you haven’t already, now would be a good time to enlist the services of a qualified real estate buyer’s agent. They can help you find the right property for your budget by writing an offer letter, negotiating, and walking you through the closing process. When you have your buyer’s agent, you’ll feel more secure when dealing with sellers and their listing agents.

Try to be patient during the home search process. Real estate in NYC can be incredibly competitive, and it may take some time before you find a home that ticks most of the boxes. Even with an accepted offer, a lot can still go wrong and derail the deal before closing. Know the pitfalls ahead and how to avoid them.

Apply for Your Mortgage Loan

Pre-approval is not the same as a mortgage application. The mortgage application process will require a more inadept review of your finances through the underwriting process. There will also be an independent appraisal to determine the property’s market value. If the property appraises significantly less than what you offered, you’ll need to make the difference or renegotiate with the sellers. In NYC, the mortgage application process typically takes about 30 days, sometimes longer, depending on your loan type. When submitting your mortgage application, you’ll need different documents. Additional conditions when self-employed may apply. At a minimum, these will include:

• W-2 forms for the last two years
• Pay stubs going back at least 30 days
• Federal tax returns for the past two years
• Proof of income
• Bank statements
• Personal ID and Social Security Number
• Additional documents as requested

It’s worth noting that you don’t necessarily have to go with the lender you received your pre-approval letter from. You can still shop around for another lender, ideally, one that has approved loans in the past for the building you’re buying in.

Post Closing Liquidity

To satisfy your lender, aim to have six months to one year of post-closing liquidity when buying a townhouse or house. However, when purchasing a condo, it varies by building, and 24 months could be required, or even up to 3 years in the case of a co-op. Have your buyer’s agent confirm the building’s post-closing requirements before submitting an offer.

Complete the Closing on Your New Home

Once your mortgage application has been fully approved, you can move ahead with the closing process. Your real estate attorney will negotiate with the seller’s attorney to agree on a date for the closing. There, you will sign the documents officially giving you home ownership. Your lender representative will also be present to receive your signature on the loan documents and disburse the funds to the seller. You’re almost at the finish line.

Congratulations, you’re now officially an NYC homeowner. All that’s left to do now is start making your monthly mortgage payments. Make sure you always have enough cash in reserve to keep up with your payments; otherwise, you risk going into foreclosure.

Final Thoughts

Home buying can be challenging, even in a buyer’s market. However, it is also one of the most exciting things you can experience and represents a major milestone in your life. Your buyer’s agent can guide you, but you’ll make things easier if you also understand how it works. A firm understanding of the mortgage approval process will ensure everything goes smoothly. Try our mortgage calculator to help you plan.

What you need to Qualify for a Mortgage for U.S. Residents and Resident Aliens

Please find below the information data and supporting documents your lender will request. Please note that bank requirements vary, but this should position you well once you approach a bank to proceed with your mortgage.

U.S. Residents

Personal data

Full name, address, and Social Security number.

Income

The amount and source(s) of revenue for all borrowers.

• Most recent checking and savings bank statements
• Two years of tax returns
• An employment letter verifying your start date, annual salary including bonus
• If self-employed – a letter from your CPA or attorney confirming your salary and net worth

Assets

Information on all assets such as checking and savings accounts, stocks and bonds, retirement plans, and other real estate.

• List of other liquid or non-liquid assets
• Most recent asset portfolio statements (if applicable)
• Most recent 401K or retirement fund statements (if relevant)

Debts and obligations

Information on all outstanding debts and any other financial obligations.

Credit references

Payment information – loans or debts.

Reserves

Six months of the mortgage payment for loans <$650k

Mortgage Loan Programs

• 30 Years Fixed
• 3/1, 5/1, 7/1, 10/1 ARM
• 20% – 35% down payment required

Foreign Nationals

Financing

Tourists, Visitors, Residents of other Countries, No U.S. address, No job in the U.S.

Documents Required

• Valid (unexpired) Foreign Passport
• I-94 (Required only when the Foreign National is in the U.S. at the time of application or closing)
• International Credit Report

Income and Asset Documentation Requirements

• Proof of Income – Tax returns, pay stubs, etc.
• Stated income available
• Verification of Deposit
• U.S. institutions must verify down payment and closing costs
• Reserves can be, verified in a foreign institution with six months of history
• Statement accounts required

Reserves

• Six months of a mortgage payment for loans <$650k
• 12 months of mortgage payments for loans >$650k

Mortgage Loan Programs

• 30 Years Fixed
• 3/1, 5/1, 7/1, 10/1 ARM
• 30% – 70% down payment required

Note: The information above is a general overview for foreigners seeking financing for the purchase. Requirements for funding can vary from bank to bank, depending on individual home buyer qualifications.