5 NYC Real Estate Financial Qualifications You MUST Meet

In this episode, John and Jonathan are covering NYC real estate financial qualifications and how different financial profiles can make purchasing NYC real estate easier or harder.

What Makes It Easier To Buy NYC Real Estate?

• W-2 Income
• Cash Buyer
• Purchasing a property as a primary residence

What Makes It Harder To Buy NYC Real Estate?

• Purchasing a property as a pied-a-terre
• Having a high debt-to-income ratio
• Having low post-purchase liquidity
• Having a largely fluctuating income
• Co-purchasing, guarantor, parents buying for children, etc.
• Being self-employed or an entrepreneur

If you’re looking to buy an apartment in NYC, you should know that the experience can be quite different from buying property in other parts of the country, particularly when it comes to co-ops. In most areas of the U.S., as long as you have good credit, a manageable amount of debt, and a down payment, you can typically make a purchase. The same can be said if you are purchasing a NYC condo.

But if you’re considering a co-op in NYC, you will typically face additional challenges such as post-purchase liquidity requirements and higher closing costs, which could impact your ability to buy. We’ve outlined everything you need to know about purchasing an NYC co-op below:

NYC Real Estate Financial Qualifications For Cooperatives

1. Credit Scores

Whether you’re in NYC or somewhere else in the country, your credit score will be a factor in determining your real estate purchasing power.

Both lenders and co-op boards will want to see that you have a good credit score. If you’re financing your purchase, your credit score directly impacts your interest rate – the higher your score, the lower your interest rate will be. If you’re not, your credit score is still a big indicator of your financial stability to any building’s cooperative board.

You and any co-purchasers over the age of 18 will need to know what your credit score is before you start down the path to buying your NYC co-op. If you’ve checked your credit score and it’s not where you’d like it to be, you’ll need to do what you can to get it up before you start apartment hunting.

2. NYC Cooperative Debt-to-Income Ratio

Whether you’re working with a lender or buying an apartment with cash, your debt-to-income ratio is another signifier of your financial qualifications. Banks and co-ops alike want assurance that monthly payments (mortgage payments or building fees) won’t be an undue burden on your income.

Your debt-to-income ratio is how much of your monthly gross income (before taxes) goes toward paying your debts. The general rule for banks is that you shouldn’t spend more than 43% of your monthly gross income on all your debts, but a good general rule of thumb for most co-ops is 25% or less, with some allowing up to 30%. This includes any other outgoing fixed expense tied to a liability – such as student loans, car loan or lease payments, mortgage/maintenance/real estate taxes (both on the subject property and any other properties owned), etc.

If you’re already close to the DTI limit without a mortgage payment or monthly maintenance fees, your household needs to focus on consolidating and paying down debt in order to meet the financial qualifications for a co-op.

3. NYC Cooperative and Condo Down Payments

While first-time buyers in the rest of the country may be able to put down less than 20%, in New York City, it’s very challenging to buy an apartment without putting at least 20% down.

Why? Because co-op boards simply will not accept a down payment lower than 20% of the purchase price due to the perceived risk to the building & its tenant shareholders. And if you’re thinking of purchasing a condo, down payments at or above 20% are still heavily preferred by sellers – so if you write an offer with less than that, or more accurately that you only have the funds in order to put down less than 20% of the purchase price, you will have nearly zero negotiating power and your offer is very likely to be rejected.

4. NYC Cooperative Post-Purchase Liquidity

Having a decent credit score, a good DTI ratio, and a significant down payment is a good start, but it’s not the whole story. There are still other qualifications that you need to meet in order to purchase an NYC cooperative.

Typically, co-op boards want to see that you have enough cash on hand to cover around 12-24 months of living expenses after closing. This is known as post-purchase liquidity. Co-ops make these requirements in order to protect themselves. Your household’s ability to stay afloat through a job loss, unexpected medical bills, or other income instability while still making your monthly fixed expense payments gives them peace of mind that they can still cover building expenses no matter what happens.

5. Closing Costs

You’ll also need to budget for your closing costs – and that’s true whether you are in a co-op or a condo. If you’d like to know more, consider reading our guide to closing costs, why they are assessed, and how much you can expect to pay:

We’ve broken the costs down into financed and non-financed purchases in both co-ops and condos, so you can have a very thorough understanding of what the closing costs are and how much to expect to pay.

Financial Red (& Green) Flags

If you have a good credit score, a substantial down payment, plenty of post-purchase liquidity, and enough cushion to cover your closing costs, congratulations! You will likely be able to purchase an apartment in Manhattan – provided your transaction doesn’t have one of these red flags:

• Purchasing a property as a pied-a-terre
• Having a largely fluctuating income
• Co-purchasing, guarantor, parents buying for children, etc.
• Being self-employed or an entrepreneur

Each of these factors can complicate your ability to prove your financial stability to a building’s board and/or your lender. Thankfully, you can avoid unwanted surprises by working with a qualified real estate broker. They will have the experience to know how to present your unique situation in the best light possible.

On the other hand, you may actually have an easier time buying an apartment if you have one or more of these green flags:

• W-2 Income
• Cash Buyer
• Purchasing a property as a primary residence

When a transaction is straightforward and uncomplicated, it benefits everyone involved. To make things as smooth as possible, it’s a good idea to work with a knowledgeable real estate broker from the start. They can help you figure out your budget, address any concerns the board may have beforehand, and streamline the process.

Not all NYC agents are created equal though – some may not have the experience needed to work with high-end buildings, so be sure to do your research before choosing a broker.

Thinking of starting the process? Give us a call. Our team can give you expert advice, whether you’re buying a studio in Midtown or a full-floor home on 5th Avenue.

Why We Host This Podcast:

We have been in this business long enough to know that knowledge is power. That’s why we conduct an in-depth analysis of the Manhattan real estate market every month, quarter, and year and provide an easy-to-understand synopsis of the full report in several different formats – all so you can stay informed.

Our team of experienced real estate professionals closely monitors market trends and provides our clients with the latest and most relevant information available. With this information, our clients are able to make informed decisions about buying and selling properties in Manhattan, which helps them stay ahead of the curve and make the most of their real estate investments.

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