So, your team is assembled, you’ve been pre-approved by the bank, have a decent understanding of the current housing market, and have gone to a number of open houses. What happens when you stumble upon your dream apartment (or at least one that you would be pretty happy to live in for a long time)? You probably want to make an offer quickly, considering this is New York City, the rent is too damn high, and housing is always in demand.
But before you throw all of your money on the table and bare your soul to the sellers, you need to make sure you’ve hammered out the numbers.
Do you have enough money to make the down payment? Could you possibly make a more competitive offer of down payment (i.e. 25% or 30%). Applicants who are stronger financially may have a leg up, because they are more likely to be approved by a coop board (if they’re strict) as well as convince the sellers that you are confident about buying their place. Depending on the sellers’ motivations, a higher down payment means more money up front for them to make their next moves. When all is said and done, the sellers are the ones who have to pay the realtors and a bunch of other fees (more than the buyers, at least), and maybe even a flip tax, in order to pass their place on to you. If they are still living in the apartment, they might be waiting to sell their place in order to buy a new place. A higher down payment gives them more freedom to make their own moves.
This may be obvious, but don’t wipe out your savings to pay the down payment. You’ll need some of that cash for closing costs and later on for when you move in and want to make the home yours (home improvements, surprise costs, etc.). Keep a sizable portion on hand. The bank might even have requirements for this, so be sure to check with them, but do consider that closing costs can hit around 2-4% of your purchase price. Closing costs include your UCC-1 filing fee, your attorney fee, payment to the managing company, coop attorney, move-in deposit, the list goes on… Many of these will have to be paid with separate cashiers checks, which creates another annoying fee (though obviously much smaller). As mentioned earlier, also consider the work you want to do on the place once it’s yours. Small things like replacing window panes, painting the walls, cleaning up wear and tear, making the home yours so you don’t feel like you’re squatting in someone else’s life, all of these add up so keep a nice nest egg for those items.
With the mortgage offers that you have, what does your monthly mortgage payment look like? Is this a manageable monthly expense for you? The NYT mortgage calculator is a fun (or potentially tragic) tool to also compare mortgage costs to costs of renting a similar place. Calculate conservatively, always. There’s a good chance interest rates will rise before you lock something in, so give yourself a buffer when calculating mortgage costs.
Once you’ve calculated mortgage costs, trust me, you are NOT done yet. Now it’s time to factor in monthly maintenance. Depending on your coop’s amenities (doorman, pool, gym, elevator, roof, age), maintenance fees vary widely. Within each coop, though, maintenance fees are determined by square footage and “shares” that you’ll own. Also, probably, if you have more than one bathroom or other things like that. Maintenance fees will generally cover heat, water, and electricity in common places, as well as paying the employees of the building, upkeep of common spaces, the coop’s own mortgage, and property taxes. These are all general operating costs. Because it includes property taxes, you will also get a tax deductible at the end of the year, but I wouldn’t factor that into your monthly costs. Think of that more as a bonus. In a condo, maintenance might be cheaper but you will be paying your own property taxes on top of that. This is unconfirmed, but I also heard that maintenance fees increase the higher up you are in the building, so an apartment on the ground floor will have a lower maintenance than than the same layout on the 6th floor.
So, now, with your down payment, monthly mortgage costs, and maintenance, do you have enough money to survive on a monthly basis? With these costs, will you have to adjust your lifestyle? Will you have enough money for your utility bills (electricity, internet, gas), increasing maintenance costs, as well as buffer in case the coop levies an emergency assessment? Side note on assessments: these are for capital projects like a new roof or other large expenses not included in the maintenance costs. If there is an ongoing assessment, find out when it will end and if the coop is planning any other projects and/or if it seems this project will end on time and on budget.
With these numbers firmly calculated, you have a better sense of what kind of offer you can make, where you can negotiate, and whether or not you need to adjust your dreams and find something in a lower price range. A good rule to follow is to make sure that your housing costs are less than half of your take-home paycheck. Of course, this varies widely depending on how much you actually take home, but it’s a good place to start when asking yourself, “Am I spending too much on this?”. The better you understand your limitations, the stronger you are moving into the next round: Making an Offer.
This is part V of a series (mostly anecdotal) about purchasing a coop in Queens. For the rest of the series, click here.