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As a first time buyer in NYC, it is important to know the real price tag on your purchase and create a realistic budget that will help narrow your search to properties you can afford and ensure you are able to make a competitive offer when you find "the one."
1. Downpayment
Most coops will require that buyers put down at least 20% of the purchase price as a downpayment (some may have higher requirements of 25%, 40%, or 50%). Condos have a lower threshold -- usually 10% -- but financing more than 80% will involve a surplus on the monthly mortgage payments so will amount to a costlier purchase. Especially in a tight market, buyers will be encouraged to put down at least 25% which decreases the risks of the deal falling through due to a lower-than-expected appraisal - it also difficult to be competitive in any kind of bidding war with an offer that includes less than a 20% downpayment.
2. Closing Costs
Closing costs vary based on whether you are buying a coop or a condo, and whether the purchase exceeds $1 million. Your attorney or real estate agent can provide you with detailed information on closing costs for your specific purchase, however, the most basic takeaway is that closing costs for coops up to $1 million is around $8000-$8500 regardless of their cost or amount financed. Condo closing costs are significantly higher, especially if you are financing (about 2% of the financed amount is due as a mortgage tax). Purchases over $1 million in both coops and condos are subject to a 1% mansion tax.
3. Reserves
Most coop boards will require buyers have some liquid funds remaining after closing, with the amount varying from 6 months to 2 years. This means that coop buyers must show that after deducting downpayment and closing costs, they have 6- to 24-months’ worth of their mortgage and maintenance remaining in their bank accounts. Condo boards have no reserve requirements though bear in mind that most lenders will require some reserves although they differ on whether those reserves can be liquid or illiquid (i.e. retirement accounts).
4. Monthly Carrying Costs
In addition to your monthly mortgage, you will be paying maintenance for a coop (includes your share of real estate taxes and common charges) or separately common charges and real estate taxes for a condo. In Manhattan, $2/square foot is considered a reasonable monthly total for these fees, in Brooklyn, monthlies tend to be lower. While these costs can fluctuate based on amenities, some smaller buildings have surprisingly high monthly charges since basic costs are shared by a smaller number of residents.
If these costs price you out of your desired area, I often advise my buyers to think outside the box and look at adjacent neighborhoods or areas that have the same look and feel as their ideal neighborhood. It's almost always better to opt for a larger apartment in a transitioning area rather than a smaller one in an established neighborhood. For Brooklyn buyers, this might mean Windsor Terrace or Greenwood Heights in lieu of Park Slope, Clinton Hill or Crown Heights rather than Fort Greene, or Prospect Park South or Kensington instead of Ditmas Park.
In Manhattan, the East Side has a lot of value: Midtown East, Murray Hill, and the far East reaches of the Upper East Side and Lower East Side provide great entry level apartments with room to grow. But for those with their heart set on the West Side, I suggest buyers look North: the West Side is beautiful all the way up the Hudson River, from Manhattan Valley through Hudson Heights.
Check out my quotes and ideas from my colleagues in this article in Brooklyn Underground to advise new buyers on which neighborhoods offer them the most opportunity, both in terms of price per square foot and return on investment in resale value after less than 10 years of ownership.