How Much Income Do You Need To Buy a Condo or Co-op?

Many aspire to purchase real estate in New York City, but navigating the financial intricacies of this competitive market can feel like running a marathon. Whether you’re eyeing a sleek Manhattan condo or a historic co-op on the Upper West Side, understanding the income and liquidity requirements is essential before signing the dotted line.

Beyond securing a mortgage, buyers face unique challenges in New York’s real estate market, mainly when dealing with co-op boards or adjusting to recent legal changes affecting real estate commissions. This article breaks down the financial requirements for purchasing a condo or co-op, compares the two, and explains how new commission rules complicate home-buying.

Co-ops: Stricter Standards, Higher Barriers

In New York City, co-ops make up roughly 75% of the housing stock, especially in Manhattan. This means most buyers will need to navigate the intricate—and often intimidating—co-op board approval process. While co-ops foster a sense of community and give owners control over building operations, they come with much stricter financial requirements than condos.

The most critical financial benchmark for buying a co-op is the debt-to-income (DTI) ratio, which represents how much of your monthly income is spent on housing and other debt obligations. Co-op boards typically cap the DTI ratio between 25% and 30%, but some more exclusive buildings may set this even lower.

Debt-to-Income Ratio (DTI): A Key Measure

A significant financial benchmark for purchasing a co-op is the debt-to-income (DTI) ratio. This figure measures how much your monthly income is allocated to housing and debt obligations. Co-op boards typically cap this ratio between 25% and 30%.

For example, if you’re purchasing a $1 million co-op with a 20% down payment, you’ll take out a mortgage for $800,000. Assuming a 30-year fixed-rate mortgage at 6%, your monthly payment would be around $4,796. Add $2,500 for maintenance fees, and your total monthly housing expenses would be $7,296. If the co-op board requires these expenses not to exceed 30% of your gross income, you’d need a monthly income of $24,320, translating to an annual income of about $292,000.

Some co-ops have even stricter requirements, reducing the DTI to 20% or less, especially in prestigious buildings.

Post-Closing Liquidity: More Than Just a Down Payment

In addition to meeting the DTI ratio, co-op boards often require buyers to maintain significant liquid assets after the closing. It’s not enough to cover the down payment and mortgage; co-op buyers must have one to two years’ worth of maintenance fees in reserve to ensure financial stability.

Down Payment: A High Barrier to Entry

While most condos in the U.S. require a 10% to 20% down payment, co-ops typically demand more. In New York, a 20% to 30% down payment is the norm for co-ops, with some prestigious buildings requiring buyers to purchase in all cash—effectively locking out many prospective buyers who rely on financing.

Condos: Greater Flexibility, But Still High Expectations

Condos present an alternative for buyers seeking more flexibility. While condos don’t require board approval as strictly as co-ops, they still have stringent financial requirements. Lenders usually allow a more generous DTI ratio ranging from 36% to 43%, making them somewhat more accessible. However, buyers must still demonstrate financial stability through adequate reserves, down payments, and other liquidity benchmarks.

Even with these more lenient standards, condos still demand careful financial planning, especially when considering ongoing costs like common charges, property taxes, and potential changes in the real estate market.

Debt-to-Income Ratio: Looser Standards

Lenders typically require condo buyers to meet a 36% to 43% DTI ratio, which is more flexible than co-op standards. For a $1 million condo with common charges and taxes amounting to around $1,800 per month, your monthly housing expenses could be around $6,530, assuming a 6% interest rate on a $800,000 mortgage. In this case, you would need a monthly income of about $15,186—or an annual income of approximately $182,232—to satisfy the DTI requirements.

While this makes condos somewhat more accessible than co-ops, buyers must demonstrate that they can comfortably handle their mortgage and maintenance obligations.

Down Payments: More Flexibility

While most condos across the U.S. require a down payment of 10% to 20%, co-ops in New York typically demand more. A 20% to 30% down payment is standard, though some exclusive buildings may even require all-cash purchases, creating an additional barrier for buyers who rely on financing.

Post-Closing Liquidity: Important, But Less Strict

While condos don’t enforce liquidity standards as strictly as co-ops, lenders may expect buyers to have 3 to 6 months’ worth of common charges in reserves to ensure financial stability. Having these funds available could also help buyers qualify for better mortgage rates.

How Lenders Determine Affordability: Key Criteria

• Income and Debt-to-Income Ratio (DTI): Lenders assess a buyer’s ability to afford a home using the DTI ratio, which compares monthly debt payments to gross monthly income. They typically prefer a front-end DTI of 28%-31% for housing costs and a back-end DTI of up to 43% for total debts.
• Down Payment: Conventional loans typically require a down payment of at least 20% for NYC homes. For a $1 million home, that’s a $200,000 down payment.
• Closing Costs: Closing costs generally range from 2% to 5% of the purchase price, depending on the loan type, lender fees, and taxes. For a $1 million property, expect to pay between $20,000 and $50,000 in closing costs.
• Post-Closing Reserves: Co-ops may require 12 to 24 months of post-closing reserves to cover future maintenance costs and emergencies.

Income Requirements for NYC Properties

Here is a table showing the income you would need to qualify for mortgages on homes ranging from $500,000 to $3 million+, factoring in the acceptable debt load and standard closing costs. These estimates assume a 20% down payment, a 30-year mortgage at a 6% interest rate, and that the buyer’s total debt-to-income ratio does not exceed 43%.

Example Breakdown: Purchasing a $1 Million Apartment in NYC

If you’re looking to purchase a $1 million property in New York City, here’s a more detailed view of what you’ll need financially:

• Down Payment: $200,000 (20%)
• Mortgage Amount: $800,000
• Monthly Mortgage Payment: $5,322 (assuming a 30-year fixed mortgage at 7% interest)
• Income Requirement: $240,000 (assuming a DTI limit of 43%)
• Closing Costs: Approximately $30,000 (3% of the purchase price)
• Total Upfront Costs: $230,000 (down payment + closing costs)
• Acceptable Debt Load: Around $8,600 monthly in total debt payments, including your mortgage, other loans, and credit card debt.

Co-ops and Condos: Additional Considerations

• Common Charges (Condos) or Maintenance Fees (Co-ops)
  • In addition to your mortgage, condo buyers must factor in common charges, while co-op owners must budget for monthly maintenance fees. Depending on the building’s amenities and size, these charges can range from $1,000 to $3,000+ per month.
  • For a $1 million condo, assuming common charges of $1,500 per month, your total monthly housing expense could increase to $6,822 ($5,322 mortgage + $1,500 common charges).
• Board Approval (Co-ops)
  • Co-op boards can be stringent. They often require buyers to show liquidity and reserve requirements—anywhere from 12 to 24 months’ worth of post-closing reserves, depending on the board’s criteria.
• Property Taxes
  • NYC property taxes vary widely based on location, building type, and exemptions. Condo and co-op owners can expect to pay between 0.8% and 1.2% of the property’s market value annually in property taxes. A $1 million property translates to about $8,000 to $12,000 per year.

Closing and Post-Closing Costs Explained

• Closing Costs
  • Typical closing costs include attorney fees, title insurance, mortgage recording tax (around 1.8% for loans above $500,000), and transfer taxes.
  • Condo buyers also pay New York City Real Property Transfer Taxes—1% on sales under $500,000 and 1.425% on sales above $500,000.
• Post-Closing Costs
  • Reserve requirements in co-ops can make a substantial difference. For example, if your mortgage payment is $5,322, and the co-op requires 12 months of reserves, you must set aside an additional $63,864 after closing.
  • You should also budget for potential home renovations, furnishing costs, and moving expenses.

Plan and Budget Wisely

Buying a home in New York City requires careful financial planning. Whether you’re eyeing a $500,000 starter apartment or a $5 million luxury residence, it’s essential to account for all the costs involved—from the down payment to the mortgage and the various closing and post-closing expenses.

Working with an experienced real estate agent, mortgage lender, and attorney can help you navigate the complexities of the NYC real estate market, ensuring you are well-prepared for the financial commitments of homeownership.

The Impact of New Commission Rules

Recent legal changes in the real estate commission structure add complexity for buyers and significantly impact how agents get paid in New York City. In the past, sellers typically paid commissions for both their agent and the buyer’s agent, 4-6%, which was co-brokered, allowing buyers to use an advocate at no direct cost. However, real estate commissions have decoupled after a legal settlement with the National Association of Realtors (NAR). Now, sellers no longer automatically pay the buyer’s agent’s commission, requiring buyers to sign a buyer’s agency agreement to formalize their relationship with their agent.

While many Manhattan sellers continue to view paying the buyer’s agent commission as part of their marketing strategy, allowing them to attract serious buyers, commission rates are trending downward. In Brooklyn and Queens, however, there are increasing signs that some sellers opt not to cover these costs. As a buyer, you may need to negotiate and pay for your agent’s commission out of pocket—an additional financial factor to consider.

Final Thoughts

They are buying a home in New York City, whether a co-op or a condo, requires meticulous financial planning. Co-ops offer stability and a sense of community but come with stringent financial standards, while condos provide more flexibility yet still demand severe financial consideration.

Before entering the market, assessing your debt-to-income ratio, down payment, and post-closing liquidity is essential. With recent changes in real estate commission structures, working closely with a knowledgeable agent, mortgage lender, and attorney is more important than ever to ensure you’re fully prepared for the financial commitments of buying property in New York City.