How Much Do You Need to Buy an Apartment in NYC?

There’s a lot to consider when buying a home. Foremost among these will be money; how much do you need to buy an apartment? If you’re like most people, you’ll need a mortgage to have any chance of becoming a homeowner. But to get a mortgage, you’ll need enough savings for a down payment. How much money you can put down will have a crucial impact on your monthly mortgage payments. The higher your down payment, the less you’ll pay each month. A higher down payment also provides more options in the type of loan programs available to you.

So, how much do you need? Below we’ve provided a cheat sheet on the different loan programs and the minimum down payment requirements for each one. Be sure to familiarize yourself with each one as you move towards your goal of homeownership.

0% Down Payment

Sounds too good to be true, right? Well, unfortunately, it is for most people. The Department of Veteran’s Affairs allows military personal (and their spouses) to take advantage of a 0% down home loan. This comes with no private mortgage insurance (PMI), no pre-payment penalties, and a higher debt-to-income ratio (DTI) than normal. You don’t even have to have served overseas to be applicable for this. So long as you’ve served 181 days of active service in peacetime (90 days in wartime) or six years in the National Guard or Reserves, you can apply for a VA loan.

That said, it may not always be in your interests to apply for a VA loan, even if you meet the requirements for one. Zero downpayment loans can only be used to purchase primary residences, not second homes or investment properties. Also, if you can, it’s always better to put money down when buying a home. Doing so immediately gives you a stake in the home and provides base equity to build upon. With more equity, your home investment will grow. Plus, you’ll be able to take advantage of home equity loans to fund renovations and other home projects.

3.5% Down Payment

Down payment at this level is typically associated with FHA 203K loans. Available through the Federal Housing Administration, these loans are meant to help low-income earners and those with low credit scores achieve homeownership. The beauty with these loans is that since the federal government backs them, any defaults will be covered by the fed. This removes much of the risk for lenders, making FHA loan applications far more palatable.

However, as expected, they come with some disadvantages that have to be weighed against the advantages. One key downside is the loan limits. FHA loans place a limit on how much you can borrow, depending on the type of home and where you’re buying. In costly markets like NYC, this can be a major stopgap. There’s also an unpleasant additional monthly payment through the Mortgage Insurance Premium (MIP). It’s almost double what you’d pay with PMI on a conventional loan. It’s also a continued charge throughout the loan’s length, unlike PMI, which terminates after you reach 20% equity.

3.5-10% Down Payment

Previously, it was possible to get loan approvals with down payments in this range. Typically, only in under-developed areas or new constructions in some areas. But due to the ongoing pandemic, it’s now tough to find lenders that will approve anything below 20% down. The reasons being a softening of sales prices and the current economic instability brought on by the pandemic. Lenders are more concerned than ever now about borrowers losing their jobs, which has led to an increase in mortgage requirements.

20% Down Payment

This is the sweet spot and the one you’ll hear most often when talking about down payment requirements. A 20% down payment removes the need for PMI, gives you good equity to start with, and makes you look like a safe bet in the eyes of a lender. Just being able to raise 20% demonstrates good financial planning, which is exactly what you’ll need when becoming a homeowner. Raising this much may be a challenge, but it’s well worth it in the long run.

The only real drawbacks to a 20% down payment are that it may take you longer to enter the market. In a market where prices are rising rapidly, this might not work in your favor. Stretching the limits of your ability to raise this much can also have blowbacks, especially if you dip into your 401(K) plan. By putting everything you’ve got into your down payment, you leave less for a reserve fund and other investment goals.

30% Down Payment

A 20% down payment may be considered the minimum, but don’t stop there if you believe you can put more down. Making a larger down payment than necessary can go a long way in making your offer stand. It also increases your starting equity, reduces your interest rate, and improves your chances of being approved by your lender. If you’re really eager to close and confident in your ability to receive financing, you could even drop the mortgage contingency in your offer. Just make sure you understand the risks; this involves talking with your buyer’s agent to get their thoughts on this approach.

For anyone looking to buy an investment property to rent out, 20% down should be your minimum, but 30% is safer. Keep in mind also that your interest rates will be higher when purchasing a second home.

100% Down Payment

Nothing says confidence quite like an all-cash offer. For buyers, it means getting a home with no strings attached. For sellers, it means a fast closing as there’s no mortgage approval process. It’s such an attractive option that many sellers are prepared to accept one even when the offer price is lower than other potential buyers.

But even if you can afford an all-cash offer, it might not always be the best option. Older buyers close to retirement will benefit the most from all-cash offers as they won’t have to pay a large debt on a reduced income. But for anyone who’s younger or in a higher tax bracket, a mortgage might make more sense. Home loans come with tax deductions that can offset your taxable income. Plus, you may prefer to hold onto your liquid assets so that you can take advantage of higher-yielding investments.