It is tempting to place as small a down payment as possible. Perhaps you would like to not even put any money down. After all, you may not have adequate liquid assets, or you would rather use these assets to earn a return while you pay down the mortgage over the years.
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). We go through your options, although you should remember that the decision is not entirely in your hands.
This is the strongest offer you make. Cash is king since sellers do not have to worry about you 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 large 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 important since you do not have to pay personal mortgage insurance (PMI) at this point. This is 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. This may work for a condo or if you are willing to purchase a unit in a less desirable neighborhood, though.
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 very special, limited circumstances. One such case might be a developer offering deals with a 5% down payment in certain 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 certain financial ratios.
If this type of loan interests you, the tricky part is finding a building willing to accept these conditions. So, you need to prepare yourself that you may restrict your housing choices.
You should expect to make a minimum down payment if you are purchasing a property in the city, though. Obtaining 100% financing is not a realistic option.
There is a balancing act when you are deciding how much money to put down — placing a sizeable down payment results in a stronger 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.