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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.

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 from 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.

Reduce Debt

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 financing 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.


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