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Homeownership Goals

At a time when affordable housing opportunities are limited and rents continue to rise in New York City, the security of owning a home can be incredibly valuable. I accomplished one of my biggest goals in 2017: I bought my first home in New York City. If this is one of your goals for 2018, I hope sharing what I learned through the process can be helpful to you.

Why homeownership has been important to me

As a native New Yorker, whose parents moved to this city from Puerto Rico and the Dominican Republic with nothing but dreams, it has been my goal to own in the city I have always called home. People from all over the world are attracted to this city and rising rents and the high cost of living make it challenging for those who have been here for a long time to stay. My parents experienced aspects of this city at its worst and they deserve to continue contributing to it. Homeownership is one way I wanted to ensure this.

Tips to get started

While this was a long time wish of mine, I did not know anything about the homeownership process before beginning this journey. I began most of my saving soon after graduating college when I started working full time.

1. Orient Yourself on the Process

I was completely new to this process and it took me over a year to learn the specific aspects of the New York City real estate market. Below are some of the actions that helped provide direction along the way.

I downloaded TruliaZillow, and StreetEasy mobile applications and attended as many open houses as I could, even before I was ready to buy. This was a good way to see what the market was like, learn from questions other buyers asked and this helped me determine what amenities and features were most important for my home.

I read articles online and attended workshops. Many brokers host free workshops or one-on-one consultations to orient you with hopes that you ultimately choose to work with them. This was how I learned about the general phases of the process: pre-approval, offering, contract, appraisal, and closing. It is important to learn about what questions to ask during each of these phases as well.

Note About Your Broker:

Note that in New York City, the buyer does not pay broker fees. The brokers are paid by the seller. Typically a percentage of the purchase price is split with the listing broker. When you are ready, pick a broker you feel very comfortable with. Make sure to let them know your priorities (e.g. borough or neighborhood preference, distance to the subway etc.). I loved working with my broker and would be happy to recommend her if you reach out to me.

2. Determine Your Timeline and What You Want

Plan ahead. Looking, planning and finding a place takes time. Know when you want to buy and start preparing six months to a year before your ideal purchase date.

As you start to look, you’ll realize there may be a lot of options (or not depending on your budget and preferences!). What features are most important to you? Having a minimum of two bedrooms or access to public transportation, for example? Are you focused on a particular neighborhood? Do you plan to make this your primary residence or will you rent it out? Do you want a condominium (condo), cooperative (co-op) or a house? Learn about the differences between each. Below is a start, though there are additional differences to note, particularly regarding closing costs.

  • Co-ops outnumber condos in New York City. In a co-op, buyers get shares in the corporation and a proprietary lease that outlines the rules and regulations of the building. There is usually a board that determines who is allowed to buy and rent in the building. They may also determine rules about renovations within units.There is a monthly maintenance charge to cover common areas in the building and this may also include the building’s property taxes.
  • Condo buyers receive a deed and have full ownership of the interior of the unit. They also have undivided interest in the common elements of the building. Typically, condos have a board of directors but they are generally less involved when it comes to rules and regulations. There is a monthly charge that does not include property taxes (typically called Homeowner Association, or HOA, fees).
  • I recommend learning more about the differences and what they mean for you. Start to read more about the differences here.

Get Advice

I sought advice from people who have owned or currently own in New York City, especially to determine whether a co-op or condo was right for me.

3. Get Pre-Approved

A pre-approval letter is a noncommittal letter from the bank that tells you how much you would be able to borrow. This indicates to brokers and sellers that you are serious about buying. In some cases, open houses are restricted to pre-approved prospective buyers. Pre-approval also gives you a realistic sense of what you should be targeting financially.

While this step is very important to move you along in the process, note, getting a pre-approval letter from the bank does require a hard check on your credit score. If you are still trying to build up your credit, I would recommend waiting to do this when you are almost ready to buy (around six months before your ideal purchase date).

When you do get the letter, seek a purchase price lower than what you have been pre-approved for. You want to make sure you are comfortable with all the financials of this investment and this is one way to limit the probability of foreclosure in the future.

You do not have to stick to the offer the first bank gives you. In fact, you should ask for a pre-approval from at least three banks to see what competitive rates are available. Ultimately, you will also want to make sure the bank of choice finances in the area or particular building you are looking at.

4. Determine Your Monthly Budget

In New York City, most co-ops and condominiums have monthly maintenance or HOA fees that have to be accounted for, in addition to the mortgage and property taxes. Make sure you factor this in to determine your maximum spending on your mortgage.

5. Strive for 20% Down

Saving for a 20% down payment is key. Even if you are ultimately willing to put less down and pay Private Mortgage Insurance (PMI)*, saving 20% of your ideal overall purchase price will keep options open for you and make you a more competitive buyer.

*PMI is a payment required by lenders if a borrower has less than a 20% down payment. Typically this is around 0.3 percent to about 1.5 percent of the original loan amount per year, depending on the size of the loan and the borrower’s credit score.

Make sure you still have an emergency fund with at least six months to a year of living expenses in addition to the down payment. Most banks will not approve financing without this.

6. Take Advantage of Being A First Time Homeowner

Saving for a 20% down payment is key. Even if you are ultimately willing to put less down and pay Private Mortgage Insurance (PMI)*, saving 20% of your ideal overall purchase price will keep options open for you and make you a more competitive buyer.

*PMI is a payment required by lenders if a borrower has less than a 20% down payment. Typically this is around 0.3 percent to about 1.5 percent of the original loan amount per year, depending on the size of the loan and the borrower’s credit score.

Make sure you still have an emergency fund with at least six months to a year of living expenses in addition to the down payment. Most banks will not approve financing without this.

Recommended Organization

Consider working with local organizations like Chhaya CDC. They were able to connect me with a recommended attorney and with Flagstar Bank, which is who I ultimately financed with.

Have Patience

This is a long process. There were many times my offer was turned down for others after initial agreements and during the contract phase there were challenges and continued negotiations. As a first time home buyer, it took a great dependable team (my broker, lawyer, bank agent and my family!) to get me through and to keep me reassured that it would all work out. After entering the contract phase, it took about three months until closing. It was a glorious day when we finally signed and I received the keys!

What about you?

Is homeownership important to you? If you have been through this process, are there any tips or resources you would add? Comment below.

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