First Time Home Buyer: Can I Afford to Buy A Home?

One of the questions I’m asked most frequently these days is whether there’s any room in the NYC market for aspiring home-buyers who can’t afford to pay all or mostly in cash.

Before the crash of 2008, it was very common for buyers to purchase a home with just 10% or even less down. Over the past two years, with mortgage banks tightening their practices and the market spiking yet again, we’ve seen a spate of news stories touting the fact that investors are gobbling up much of New York’s inventory in all-cash deals. This leads many potential buyers to wonder whether it’s still possible to purchase a home in New York City if you require financing.

The answer is yes, it’s definitely still possible—it just may take a little extra work.

First of all, it’s important to note that there’s a gap in what’s being reported about all-cash sales and what’s actually happening. As I mentioned in my last story about The Shifting Marketplace, there are still many big-ticket, all-cash deals at the top end of the luxury market, but that’s by no means the only thing going on. If strategically planned, prepared and organized, there’s always a place for qualified buyers to find financing.

In fact, because buyers who need financing are required to get all of their documents in order during the pre-approval process, they oftentimes have a leg up over all-cash buyers. I always encourage buyers to take the time to do this process correctly—to get everything in order, from tax returns and bank documents to your credit check, asset statement and your bank pre-approval—so that when the time to make an offer comes, you’ll be able to convey a sense of seriousness that other buyers may not have. Making it clear that you’re ready to transact can often be more attractive to a seller than just saying, “I’m paying all-cash.”

You can also help yourself out by bringing just a little more to the table. I have worked with plenty of sellers who would rather go with a financed buyer offering a slightly higher bid than with an all-cash buyer paying less. Just a little extra makes the difference.

Now, the days of putting down just 3% or 5% of the sales price are behind us (many would argue that’s a good thing). Co-ops in New York almost always require at least 20% down, but we are getting back to the place where qualified, prepared condo buyers can find financing, and make a deal, by putting as little as 10% down.

Additionally, a lot of creative banks have entered the market—First Republic, Homestead and Everbank, to name a few—that might loan you 85 or 90 percent, as opposed to a conventional bank that will often max out at 80 percent. Many buyers are finding favorable mortgage loans by turning to these smaller banks.

Bottom line: you’re still going to need a fair amount of cash for a down payment—at least 10%. However, a first-time buyer with $50,000 to $100,000 to put down certainly has a chance to secure financing and make a deal, particularly in condo-rich up-and-coming neighborhoods like Clinton Hill, for example.

The most important thing to remember is that getting an apartment with financing is a byproduct of being prepared. Get your ducks in a row, and you’ll be able to compete.