When it comes to buying a home in NYC, the basics apply: the higher your credit score, the lower your monthly payments. Most lenders have a minimum FICO credit score requirement between 660 and 680 for getting a mortgage. If you do happen to find a lender who can lend to borrowers in the 580-credit score range, you’re probably going to have a much higher interest rate and need a higher down payment to get the keys to your new front door.
The best mortgage interest rates, and therefore, the lowest monthly payments, are offered to those with scores over 720. Tackle the following home buying preparation tasks to make 2017 the year you buy your NYC home.z
Review Your Credit Reports
To avoid surprises and disappointment, borrowers should review their credit reports long before applying for a mortgage. You can order a free copy of your credit report once per year from each of the three major credit reporting bureaus: Experian, TransUnion, and Equifax. You can also use a service like CreditKarma.com to review your credit reports. Make sure everything on the report is accurate, and there are no old, paid, or settled debts affecting your score. If you find debts on your report that you do not recognize or have late payment penalties or other issues, follow the steps to report the error to the credit bureau and try to get your report updated.
Save for Down Payment and Closing Costs
If you don’t already have a sizeable amount of money stashed away, you will want to start saving money toward your down payment and closing costs. Depending on your credit and the type of financing you obtain, you’ll need between 10 and 20 percent of the home’s purchase price in the form of a down payment. Then you will need to cover closing costs, which vary depending on the lender you work with. To get a better idea, you can view average closing costs.
You can sometimes get assistance for the down payment from the seller or local or federal down payment assistance programs. First time home buyers looking to buy 1 to 4 family home, condo, or cooperative in one of the five boroughs of New York City can look into the HomeFirst Down Payment Assistance Program for up to $15,000 toward your down payment or closing costs.
If you can save 3 to 5 months of mortgage payments in addition to your closing costs and down payment, you will be much more attractive to lenders. Lenders want to feel secure in your ability to repay the debt, and having several months of reserves shows them that you are not living paycheck to paycheck.
Before applying for a mortgage, it’s also a good idea to decrease the amount of debt you have. For conventional loans, you typically need to keep home expenses below 28 percent of your gross monthly income. Lenders will also consider your other debt obligations to calculate your debt-to-income ratio and determine how much you can afford to borrow to buy a home. The lower your debt, the more you can afford to borrow according to home buying formulas.
While paying down debts, also stop applying for new credit. Lenders will see every company that pulls your credit report and score and the more inquiries you have for financing, the riskier you appear. If your goal is to buy an NYC home in 2017, do not apply for any other sources of credit or funding until after you close on your new home.
When your finances are in order, and you’re ready to start shopping for a home in NYC, choose a mortgage lender and get a preapproval. This will give you an idea of how much you should be able to borrow and help guide you to properties you can afford to buy.
Action Plan for Buying
Regardless of your price range, attractive, well-maintained properties never stay on the market long. You’ll want to develop a basic understanding of NYC’s tight inventory market before you even begin, though. This will help you negotiate the best price later down the road, and it will reduce your risk of losing out to other bidders.
- Prequalify for a mortgage or provide Proof of Funds if paying cash. Sellers are more willing to negotiate with buyers who have proven their ability to purchase a home.
- Talk to your buyer’s agent on a regular basis to stay on top of new listings as soon as they hit the market, and make time to visit properties you are interested in promptly.
- Be ready to make a decision. That means knowing exactly what you want and what you can afford so that you recognize, and can act on, an excellent opportunity when you see it.
- Compromise: Whether you reside in New York currently or you’re relocating from another state, most buyers experience a bit of sticker shock when they realize the usually modest size of condo or coop they can afford. For this reason, compromise is an integral part of the home-buying process in New York City. The question is, just how much should you compromise?
- You don’t want to overextend yourself by buying too big, but you also don’t want to be forced to sell down the road because you didn’t allow room for growth. In a buyer’s market, you should accept a place that satisfies 90 percent or more of your wish list. In a seller’s market, you should buy if a place has 80 percent or more of what you want. When you make out a list of pros and cons for the places you view, consider including a column for compromises, so you stay flexible in your demands.
- Even in a competitive market, protect your interests by insisting on the proper inspections.
- Before you make an offer, do due diligence on the property with your agent. Get sales data on the property you are interested in, as well as on comparable properties in the neighborhood. Develop a three-tiered price target: The lowest price you could reasonably offer without offending the seller, the price that you and your agent think the seller is most likely to accept, and the maximum price you are willing to pay for the property. Make your offer based on the lower price target, and stick to your limits if the negotiation takes the home price beyond your maximum amount.
- If financing, ask for a mortgage contingency clause, but if you are in a competitive bidding situation, consider dropping it; it may give you an advantage with the seller. Don’t place restrictions on the sale, such as a delayed closing date, or a contingency clause on the sale of your existing home. If your home hasn’t sold, talk to your lender about a bridge loan to cover both mortgages for a short period.
- Be accommodating to the seller by offering him the opportunity to choose a closing date at his convenience. Some sellers have not lined up a new place to live by the time their house sells.
- When it comes time to make an offer, don’t panic if your first offer is rejected, or if it turns out you are in a very competitive market. Some buyers are tempted to buy a property at any price if they’ve lost a bidding war in the past.
- While you want to make your offer as attractive as possible, don’t work against your interests. On the other hand, depending on market sentiment, it may also be worth paying a reasonable premium to win the property. For most buyers, their home is their most significant investment; whatever you choose to do, make sure your investment is a sound one.