This is a complete guide on how to buy an apartment in NYC, from doing an initial rent vs own analysis to what to expect on closing day.
Jump to any section through our table of contents below, or read the entire guide from top to bottom. This is a great primer for first time home buyers in New York City, and even seasoned real estate professionals will enjoy this as an in depth refresher of the apartment buying process in NYC.
Table of Contents:
The very first thing you should do before reading further about how to buy an apartment in NYC is to determine whether it even makes sense for you to buy vs rent. That’s because some New Yorkers have such great deals when it comes to their rent that it simply doesn’t make sense to plop down a hefty down payment and deal with all of the hidden costs of home ownership.
For example, do you live in a rent controlled or rent stabilized apartment? If so, you’re likely paying way below market for the apartment you currently live in. Since the median rent for a rent controlled apartment in NYC is roughly $1,020 a month1, there’s no reason for you to buy vs rent.
Or what if you frugally only pay $1,200 a month for the smallest room in an apartment you share with 3 other roommates?
Perhaps your bedroom is actually a corner of the living room, constructed with temporary walls. You could absolutely see this happening with younger people in areas such as Murray Hill or the Lower East Side. In this situation, the total rent for the entire apartment may be $8,000 with your friend in the master bedroom paying $3,000 a month.
Since the 3 bedroom apartment is already priced at market, you won’t have as significant a risk of a big rent increase especially if you’ve got a two year lease. In this example, it may simply make too much sense to continue renting, especially if there is a chance that you may move or leave the city altogether in a few years.
The math is easy in these previous examples because it’s very common to see maintenance for 1 bedroom co-op apartments or common charges plus taxes for 1 bedroom condos be significantly higher than $1,000 a month. Therefore, assuming you didn’t have mortgage payments to worry about, you’d still be paying the same or more per month to buy.
Furthermore, as a renter your monthly liability is capped at your rent, you wouldn’t have to worry about repairs and broken appliances.
As a home owner however, you’ll have to factor in the cost of unexpected repairs and maintenance. Lastly, don’t forget about the cost of a home owner’s insurance policy which can run you $2,000 or more per year.
You’ll also have to factor in closing costs and closing related NYC real estate taxes you’ll have to pay in order to buy a home. The most significant of these include the Mansion Tax, the Mortgage Recording Tax and title insurance.
Lastly, you’ll have to calculate whether the projected return you’ll make on your home equity will outweigh what you could be earning in another asset class. While this could be fun to think about, we recommend not including this as part of your analysis as there is truly no way for anyone to predict the direction of home prices or any other asset class.
Furthermore, you should not be purchasing a home based purely on expectations of rising sale prices. This is what caused the Great Financial Crisis when too many under qualified borrowers purchased homes they couldn’t afford in order to speculate on rising home prices.
1Per the 2014 HPD survey which is conducted every three years. The report for 2017 will become available in June 2018.
The beauty of New York City is its great diversity in people and neighborhoods. Walk 40 blocks in Manhattan and you’ll see both the hustle and bustle of Midtown as well as the quiet charm and small town feel of the West Village.
If you’re already living in the city, then you’ll simply need to figure out what you’re looking for in your new neighborhood. Are you looking to move because you’ll have kids and need to be close to the park? Do you need your new home to be in a specific school district?
Perhaps you bike to work on the bike path adjacent to the beautifully renovated Hudson River Park. Or perhaps you need to be centrally located so you can either walk to or easily take the subway to your job in Midtown. Maybe you want to be close to grocery store that has sane and rational prices like Trader’s Joes.
Or perhaps you care more about being adjacent to the beating pulse of New York City nightlife in the Meatpacking District.
If you don’t already live in New York City, we highly recommend you visit the city first. Take your time to stroll across the various neighborhoods in the city to see where you can really see yourself at home. The neighborhood has to feel right for you. Even better, connect with one of neighborhood experts for a personal overview of the city. If you’re serious about buying in the city and don’t live here, you’ll need the assistance of an experienced real estate agent on the ground.
Read our guide on how to find a real estate agent in NYC as your next step! We’ll explain what factors are important in choosing a buyer’s agent for the most important purchase of your life.
Take a realistic look at your monthly income. Is it relatively stable W-2 income or does it fluctuate because you are a freelancer? You’ll want to be comfortable in being able to cover your monthly housing expenses with enough left over for discretionary spending and savings.
When you look at your monthly pay stub, remember to take your income after tax withholding as your starting point. Your housing expenses will come from your post tax money, so that’s where you should start. For example, assume you make $120,000 a year paid bi-weekly, then your total monthly salary is $10,000. Let’s say your tax withholding is set at 28%, so you only get $7,200 post tax withholding every month. For simplicity, we’ll ignore the fact that you might get a tax refund (or owe additional taxes) on April 15th the following year.
Of this hypothetical $7,200, you’ll likely also have to deduct your health insurance premiums, as well as any contributions to your 401K plan. Say you contribute 5% of your pre-tax income to your 401K every month because that’s what your employer will match. After that $500 401K contribution, you’re left with $6,700 in post tax income. Even though the burden of health insurance premiums have started shifting more to workers vs employers in recent years, for the sake of simplicity let’s assume your monthly insurance premiums are $200. That means you’re now left with $6,500 post tax income every month. Now assuming you’re very frugal and try to eat at home as much as possible, you’ll still have to factor in $500 for groceries every month. Assuming you’re not saving anything additional, not taking any fun trips and not eating out or buying expensive drinks at bars and restaurants, you’ll have $6,000 left to budget for housing expenses.
Think long and hard about what you’d like as well as what you absolutely can and cannot have in your next home. For example, do you need the open air charm and high ceilings of a loft (typically characterized as studios due to the lack of legal bedrooms)? Or do you absolutely need distinct bedrooms because you have children?
Even if you need a set number of bedrooms for your family, you should still consider lofts (i.e. studios) and apartments with fewer bedrooms simply because many of them can be easily converted to have additional bedrooms. Do you have a preference between co ops vs condos?
Most investors and foreign buyers will skip over co ops due to restrictions on subletting and the lack of real property rights.
However, many local New Yorkers will end up buying a co op simply because they are typically 10% to 40% cheaper than condos of comparable size and quality.
Keep in mind that co ops also require a lengthier purchase approval process. You’ll have to submit an intrusive co op board package as well as pass a coop board interview. The thought of your neighbors having control over your life and knowing every detail about your personal and financial history is too much to stomach for many people.
Try to keep your search criteria as broad as possible so you won’t miss listings that might have forgotten to include a detail that you’ve screened for. For example, almost all listings with the exception of some houses and multi-family properties will list the number of bedrooms. Every listing will definitely have a price. However, not all listings will state a square footage, and this is especially the case with coops. Therefore, if you naively screen for only listings that are 1,000 sq ft or larger, you’ll miss a ton of co op apartments that don’t have square footage listed because the seller simply doesn’t know.
Once you’ve saved your search on a popular real estate search website, you’ll start automatically receiving alerts about new listings that come to market that fit your criteria. Better yet, speak with one of our experienced partner brokers about what you want in your ideal home, and they’ll set up a search alert for you in the NYC Multiple Listing Service. They’ll typically see listings a day or so before public, consumer facing real estate websites, so you’ll always be the first to know!
Getting a proper pre-approval letter vs a pre-qualification letter is a very important next step in how to buy an apartment in NYC. A pre-approval letter is much more credible than a pre-qualification letter. That’s because a pre-approval letter involves a lengthier interaction, document submission and partial underwriting. In contrast, a pre-qualification letter can be produced with a 15 minute phone call with a mortgage broker or bank with zero document verification.
A pre-approval letter will be important to have so your buyer’s agent can vouch for your credibility when requesting a private showing or making an offer. In fact, a pre-approval letter is necessary when submitting an offer in NYC unless you choose to waive the mortgage contingency clause.
However, another important reason for why you should get a mortgage pre-approval letter is simply to have your lender give a second opinion on what your budget and maximum purchase price should be. You may think that your income qualifies you to purchase a multi-million dollar apartment with only 20% down, but your bank may think otherwise. It’s extremely important to get a sanity check from a mortgage lender on how much they think you can borrow. There’s no point in continuing in your search if you need a mortgage to buy and banks won’t lend to you!
This is one of the most often overlooked steps in how to buy an apartment in NYC. People inevitably forget this step until they’ve stumbled into a signed contract, and suddenly need to come up with the contract deposit (typically 10% of the purchase price, held in escrow by the seller’s attorney).
If you have a finite amount of savings for the down payment, you may want to consider taking the money out of the stock market so you won’t run the risk of not having enough to for your down payment should the market turn south.
This will be especially important if you barely have enough money saved for the down payment. In this situation, you definitely don’t want to risk losing your contract deposit because you decided to gamble the rest of your down payment by keeping it in the stock market a few weeks longer.
Alternatively, if you haven’t given your contract deposit yet, you don’t want to have to come up with the contract deposit should the stock market crash and you’re still invested. In that situation, you’ll have a difficult decision to make. Should you send in your contract deposit anyway and lock in some losses or should you give up on your dream home?
Please remember that this article is not a substitute for financial advice and you should consult your financial adviser regarding this matter. You should also consult an experienced buyer’s broker about what folks generally do in these situations.
It’s always free for buyers to work with a real estate agent. Buyer’s agents earn commission from a split of the commission paid by the seller. The seller pays a fixed, typical real estate commission in NYC of 5% to 6% of the purchase price. The seller will pay this commission regardless of whether you have a buyer’s agent or not. Therefore, if you waive your right to representation by an experienced buyer’s broker, you simply hand it all to the seller’s agent who will earn a windfall double commission (i.e. dual agency).
However, just because having a buyer’s agent is free doesn’t mean you should work with just anyone. This is especially important if you are considering working with a friend as a favor.
Keep in mind that this favor you are casually handing away is worth 3% of the sale price. What are you getting for it?
Not only should you work with an experienced and trustworthy buyer’s broker whom you can easily communicate with, you should also work with a broker who will discreetly rebate you a portion of the commission that he or she earns.
Hauseit’s brand name broker partners will rebate you $20,000 or more on average of the buyer’s broker commission at close. Best of all, since none of our broker partners openly discount or tarnish their reputations in any similar way, no one will know you’re getting a better deal! Skip the embarrassment and safely save money on your purchase without risking your deal!
Once you’re set up with a buyer’s broker, you should start attending open houses on your own. You can save your buyer’s agent some time by browsing on your own at open houses which you can simply walk in, unless it’s an open house by appointment only. If a listing doesn’t have an open house posted, or if you’re not sure it’s really available, please send a link of the property listing to your buyer’s agent. Your agent will find out the true status of the property and schedule a private showing for you if it’s available.
Please remember to sign in using your buyer’s broker’s contact information at open houses. This way, you’ll skip the hassle of being called by numerous brokers and being added to a multitude of newsletters.
If you’re new to the city, ask your buyer’s agent to set up several back to back showings for you on a day when you’re free. Having an open house tour set up for you is one of the great advantages of working with a buyer’s agent. Furthermore, you can learn more about the city from your very own personal tour guide!
It’s important to understand that real estate offers are not binding whether they are written or verbal. Even if you submit a very formal offer email consisting of a REBNY Financial Statement, a pre-approval letter, a home buyer offer letter, a bio and your attorney’s contact information and the seller accepts your offer, it is non-binding for both parties until contracts have been signed. An offer only becomes binding for the buyer once the buyer has signed the purchase contract and handed over a check for the contract deposit.
On the other hand, an offer only becomes binding for the seller once the seller has counter-signed and fully executed the purchase contract and sent a copy back to the buyer’s attorney.
As a result of this, the seller is the last to act and has the buyer in a very vulnerable position in the day or two before he or she counter-signs the contract. That’s because the buyer is locked in and cannot demand the contract and deposit to be returned unless the seller delays for an unreasonable amount of time. However, the seller can leverage the signed contract and shop the buyer’s offer and potentially sell it to someone else during this time period. The seller is under no obligation to counter-sign the contract and can back out of the deal at any time before counter-signing!
One of the most commonly misunderstood topics around how to buy an apartment in NYC is when to bring on a real estate attorney. Ideally, you should have a real estate attorney lined up before you’ve submitted an offer. This way, when your buyer’s agent submits an offer he or she can include your attorney’s contact information in the offer email. This will make your offer look that much more credible to the listing agent, because it demonstrates additional seriousness on your part.
However, if you’re a procrastinator or simply busy as most New Yorkers are, you may only get to this part after you have an accepted offer. At this stage, it’s imperative to quickly interview and hire a seasoned and professional real estate attorney so there are no delays. Read our guide on questions to ask your real estate attorney when interviewing different lawyers.
You’ll want to bring on an attorney ASAP after you have an accepted offer as the seller’s attorney will be waiting to send your attorney a draft of the purchase contract. Furthermore, the listing agent will need your lawyer’s contact information for the deal sheet. Circulating a deal sheet to the brokers and lawyers representing each party formalizes an accepted offer and puts all parties in touch with each other.
After your offer has been accepted, your lawyer will spearhead contract, legal and financial due diligence on your behalf. That means your lawyer will review and negotiate the contract on your behalf, and will thoroughly go over the original offering plan, building financial statements, board minutes, house rules, proprietary lease and other important documents. Your lawyer will also order a title search for condos and townhouses or a coop lien search for co-op apartments.
If you’re buying an entire building such as an attached or detached house or townhouse, you will want to order a home inspection before signing the contract. Your buyer’s agent can provide you with recommendations and also schedule this for you. A home inspection is typically not conducted for co-op and condo purchases in NYC, although it may be wise to do one anyway for buildings with few units or new construction.
Even though your lawyer will be responsible for due diligence on your behalf, it’s still wise if you have time to be as involved as you can. Try to review some of the documents yourself, such as the house rules and sublet policy if you are buying a coop in NYC. When your lawyer makes an appointment to review the board minutes at the managing agent’s office, you should tag along if possible. The board minutes may provide valuable intel on whether the building is well run and whether your neighbors are actually insane!
Once your lawyer has satisfactorily reviewed and negotiated everything on your behalf, it’s time to schedule an appointment with your lawyer to have him or her explain everything to you before you sign the purchase contract. Traditionally, you would meet at your lawyer’s office to receive a summary of the due diligence conducted and the contract before you signed on the dotted line.
Remember to bring a personal check for the contract deposit so your lawyer can messenger both the signed contract and the check to the seller’s attorney!
Once you have a fully executed contract, it’s time to get a move on with your mortgage broker or bank. Provide them with all the documentation they need and have them order the appraisal if it hasn’t already been done. Once the bank has fully underwritten your loan, they will give you a mortgage commitment letter.
A mortgage commitment letter is a formal commitment by your lender to loan you money for your specific purchase. Keep in mind that your typical commitment letter has a myriad of outs that essentially make it non-binding for the lender in case something goes wrong.
If you’re buying a coop, you’ll need a loan commitment letter as well as Aztech Recognition Agreements in order to submit your co op purchase application.
Once you have your loan commitment letter, you can finish your co op board application which you should have started as soon as the seller counter-signed the contract. It’s a good idea to start on this early as some items such as personal and professional reference letters can take a while to collect.
You’ll typically receive a copy of the sales application as soon you have an accepted offer, but it may be a better idea to hold off on completing it until you’re sure you have a deal (i.e. signed contract).
Please remember to take this onerous application seriously. Remember to answer every question, including putting N/A for questions that would otherwise be left blank.
Everything should be typed, so you may need some additional software to edit a PDF. Please remember to follow the instructions on the purchase application to the letter. If they ask for 5 collated copies for each board member, then please do it. If they ask for everything to be put in 3 ring binders, then do it! Just remember to be thorough and include everything that is asked for. Please make sure to pay attention to detail and ensure that all your numbers add up (i.e. supporting bank statement numbers add up on your personal financial statement summary).
Please read our comprehensive guide on putting together a professional co op purchase board application to learn more!
Once your purchase application is submitted to and reviewed by the co op’s managing agent, it will be passed on to the board for review. The managing agent will only do a preliminary review to make sure you’re not missing any information. Once it has been checked for completeness, it will be handed out typically at the next board meeting for the board members to review.
Should your application be deemed satisfactory and you meet the co op’s financial requirements, your application will be conditionally approved and you will be sent an interview time. The co op board interview is an opportunity for the board to meet you in person and to make sure that you’re not completely different from the person presented in the application.
Since you’ve already been conditionally approved based on your qualifications, this is often just a courtesy meet and greet to rubber stamp your approval.
Please read our tips on how to ace a co op board interview for what to do and what not to do during this important meeting.
Ironically, this last step in how to buy an apartment in NYC is one of the most controversial. That’s because coop boards have the power to decline a purchaser for any reason, without ever having to disclose the reason. As a result, there are bound to be lots of angry sellers and buyers facing board rejections who think the turn down was for more nefarious reasons. However, it’s very hard to prove that a board turned down an applicant because they are discriminatory in some manner because they aren’t required to disclose the reason for the turn down, and it could be for a variety of legitimate reasons.
The final step for how to buy an apartment in NYC is typically the easiest. Everything should have been already negotiated, and you will have gotten a clear to close from your bank to proceed with the closing. The lawyers will schedule the closing, and it will typically take place at either the seller’s attorney’s office or the managing agent’s office.
There will be many parties in attendance on closing day including the banks’ attorneys, the buyer’s attorney, the seller’s attorney and a closing coordinator from the title company. The buyer’s broker and the seller’s broker may also be present, although they often only show up near the end if at all to pick up their commission checks1. That’s because brokers don’t have a role at closing, and if they’re there at all it’s for moral support only!
Your lawyer will guide you through all of the documents you’ll need to sign as well as handle all of the checks and necessary payments. Your lawyer will typically have provided you with a spreadsheet of all of your exact closing costs before closing day. This spreadsheet is typically called a closing statement for real estate transactions in NYC.
Once all of the necessary documents have been signed and checks have been distributed, it’s time for you to finally take the keys to your new home!
1Read our article to learn how much do Realtors make in NYC!
Disclosure: Hauseit and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. You should consult your own tax, legal, financial and accounting advisors before engaging in any transaction. The services marketed on Hauseit.com are provided by licensed real estate brokers and other third party professional service providers. Hauseit LLC is not a licensed real estate broker nor a member of any multiple listing service (MLS).