Planning to Buy a Home in NYC? Here's What You Need to Know

Photo by Emily Xie

​By Colin R. O'Leary
November 16th, 2021

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Buying real estate in NYC for the first time can be a complicated process. It can be a frustrating one too. After all, you don't know what you don't know. It's a major financial decision that should not be taken lightly. The decisions you make will have long-lasting impacts on your future. Buying real estate doesn't have to be complicated or stressful though. The key is to educate yourself before starting the home buying process. If you do this you can save yourself precious time, money, and peace of mind. 

The real estate market in NYC is always competitive in one way or another. There's a good chance you will be competing with more than one buyer for the same home. You will be competing with sellers & listing agents too, who will be trying to get the upper hand on you. This is why it's so important to educate yourself on the home buying process before you get started. Knowledge is power. I've put together a list of a few things that you want to know before starting your home search in NYC. 


The neighborhood 

The first point here is obvious. You need to know where you want to live. A lot of buyers start the process without thinking this over though. They waste their time looking in neighborhoods that are not a good fit. It's best to figure what neighborhood you want to live in before you start your search. If you can't do this, at least try to narrow it down. This can help you save a lot of time. It's a big city after all. There are a lot of great boroughs in this city to consider. There are lot of great neighborhoods so it's not always easy settling on one. Make sure you choose wisely though. The neighborhood you choose will define you. 

You have to figure out which neighborhood is best for you. There are a lot of awesome neighborhoods in this city to consider. You can get easily get distracted by the plethora of options available to you. There are always a new development somewhere luring people to different parts of the city. The neighborhood is more important than the building though. You want to live in a neighborhood that fits your lifestyle. Here's a simple suggestion to help you narrow down your home search - start by writing down a list of your top 10 neighborhoods. Then narrow your list down to the top three. Once you figure out what your top three neighborhoods are you can begin from there. You can always add one or two neighborhoods to the search later on. Here's another suggestion. Think about the pros and cons of each neighborhood on your list. Write the pros and cons down on a piece of paper. This will help crystalize you're thinking. 


Property Type

The type of property that you purchase is also something that you want to consider before you begin the home buying process. There are a lot of different types of homes here in NYC. There are single-family homes and there are multi-family homes. Some of these homes are fully attached. Some of these homes are fully detached or semi-detached. There are mixed-use buildings (retail on ground level & apartments above). There are high rise condo and co-op buildings. There are low rise condo and co-op buildings. There are prewar and postwar buildings. There's lots of brand-new construction. Believe it or not, there are even houseboats in the city. 

The city also has income-restricted buildings that you might not be familiar with. For example, there are HDFC Cooperatives (which are income-restricted co-ops). There are Mitchell-Lama buildings (both income-restricted rentals & co-ops). The Mitchell-Lama program was a program created by the city decades ago to make homeownership affordable for the working class (teachers, firemen, police officers, etc.). The Mitchell-Lama buildings are also income-restricted. The main difference between the HDFC Cooperatives and the Mitchell-Lama buildings is that the Mitchell-Lama units can't be resold. There are a lot of choices when it comes to different property types in NYC. Take some time to think this over before you start the search. There may be more options than you realize. 


Financing Options

It's best to speak with a qualified lender before you start the home buying process. This way you can figure out what your budget is. Also, how much you are pre-approved for in terms of the loan amount. Getting pre-approved only takes a few days. Your lender will ask you to complete an application and also for some basic financial information. Your lender will determine the loan amount you qualify for based on things like your personal assets and income. They will also help you figure out how much money you will need to put aside for the closing costs. 

Also keep in mind interest rates are always changing. Generally speaking, when interest rates rise, the purchasing power of a buyer decreases. On the other hand, when interest rates decrease, the purchasing power of a buyer increases. A lot of banks will allow you to lock in a rate for a few months so that your rate will be protected if rates rise. The lender you choose to work with will play an instrumental role in the home buying process so make sure to choose wisely. They will be there to help with the important financing aspects of your home search from start to finish. For this reason, you want to hire a lender with excellent customer service skills.

It's important to speak to a lender before you start the home buying process. You don't want to waste your time looking at homes you can't afford. On the flip side, you might be surprised by the amount you qualify for. There are also a lot of programs available for first-time homebuyers you may not be aware of. There are all kinds of loans, grants, and programs available so it's worth looking into. Make sure to speak with a qualified lender before you start the home buying process. This way you will be prepared to take action on the home you fall in love with. 


Negotiating 

After you identify a home that you love, now it's time to start the negotiation process. This is a critical stage of the home buying process. Your actions here can result in either securing the home of your dreams or losing it to a more prepared buyer. The first thing to consider is the current state of the market. Is it a buyers market? If so you will have less competition for inventory. Is it a hot seller's market? If so you will likely be competing with multiple buyers over limited inventory. Sometimes the market is more neutral. Whatever the current situation is, you want to be prepared either way.

If it's a buyer's market, you will typically have more leverage over the seller in the negotiating process. In a buyers' market, there is less competition and more inventory. When considering an offer in a buyer's market, it's important to look at recent sales of comparable homes in the area. Make sure the sales you are looking at are recent. If it's past six months, the data is no longer relevant. The more recent the sale the better (and more accurate). Make sure you are looking at sales of similar homes too. Don't try to compare condo sales to co-op sales. Don't try to compare single-family home sales to multi-family home sales. Don't try to compare new construction sales to prewar sales. The recent comparable sales will help you make an informed decision when it comes time to make an offer. You will know exactly how much similar homes are selling for in the area so it will take out the guesswork when it comes time to make an offer. 

You never want to overpay for a home in a buyer's market where there is lots of inventory. You want to secure the home at the best possible price. On the other hand, if it's a hot seller's market, you will have less leverage over the negotiating process. There will be more competition and less inventory to choose from. If it's a seller's market, in addition to recent sales of comparable homes, you want to look at in-contract listings. This will give you a better idea of how to bid. You may have to contact listing agents to find out this information because the sale price won't be made public until after the closing. 

In a hot seller's market, it's not uncommon for homes to sell above the asking price. Make sure to consider that when it comes time to submit an offer. No one likes to pay above the asking price for a home, however, in a seller's market, it may be the only way to secure a home. Just make sure that it's something you are comfortable with financially. If not, then it might be better to wait until market conditions favor buyers more. 


The Contract

Now that you secured a deal for that dream home, it's time to get to work on the contract process. It's a good idea to start familiarizing yourself with the contract process before you start the home buying process. There are certain terms you want to start familiarizing yourself with - such as contract contingencies, inspections, surveys, and appraisals. In New York State, both the buyer & seller are required to hire an attorney in the sale of a home. When you are ready to buy a home it's important to hire an attorney who specializes in real estate law. The seller's attorney typically drafts the purchase agreement. The buyer's attorney helps the purchaser review the contract and make any necessary changes. 

Once the contract has been reviewed and approved by the purchaser, the purchaser will sign the contract and submit it to the seller's attorney along with the contract deposit. The contract deposit will be held in an escrow account by the seller's attorney. Once the seller signs the contract, you will have what we call a "fully executed contract." This means the listing is no longer active on the market because is "in-contract." This also means the seller can no longer entertain offers for the home, even if the offer is at a higher price than what you offered. For this reason, once you find a home you should move quickly to have the contract fully executed. 


Closing Costs

When buying a home, it's important to consider all the costs involved before getting started. This way there will be no surprises. Buying a home is one of the largest purchases that a person ever makes. There are a lot of fees you may not be aware of. The biggest closing cost involved in purchasing a home is typically the down payment. The down payment can be anywhere from 0-50 %, or more. The VA loan is currently the only loan available with no down payment. There are some loans available with a down payment of less than 5%, such as the FHA loans. A conventional loan typically requires a down payment of 10% or more. If you are getting a loan for an investment property, you're probably going to need to come up with closer to 20-30% of the purchase price for the down payment. The contract deposit, or the money a buyer puts down to secure the contract, is part of the down payment. You typically don't need to put down the entire down payment at contract signing. For example, if your total down payment was 30%, you can put down 10% at contract signing, and pay the remaining 20% at the closing.

Other closing costs to consider are attorney and lender fees. Attorneys typically charge a flat-rate fee. Lenders often charge application fees, origination fees, and a fee known as "points" which is a fee calculated on the loan amount. There may be fees from the title company as well. Real estate agents are typically paid by the seller so it's not a typical closing cost for a buyer. However, in some situations, buyers do pay brokerage fees. Also, if you are buying a home in NYC worth over $1 million, there is an additional tax at closing known as a "mansion tax." The mansion tax is a percentage of the sale price. For example, the mansion tax for a home purchased between $1,000,000 to $1,999,000 is 1%. The mansion tax for a home purchased between $2,000,000 to $2,999,000 is 1.25%. Make sure you are prepared in advance for all the closing costs so there is nothing unexpected. 


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