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New York City is known as the city that never sleeps — but it also seems to be the city that never stops growing. The population of the Big Apple and the surrounding boroughs now tops 8.6 million people.
That means there’s plenty of competition for housing. New York City has some of the most expensive real estate in the country, with median prices in Manhattan topping $1 million. However, many sellers have cut prices on their homes in recent years as inventory has increased, giving buyers more choices and negotiating power.
Median home prices vary widely by borough. Manhattan median prices dropped 4.3% year over year to $1,119,183 in February 2019, with the Upper West Side leading the decline. Brooklyn’s median price dropped to $713,513, while Queens was the only growing market, with a median price increase of 4% to $523,592.
Queens buyers especially have to move quickly, with homes moving in 67 days on average.
Brooklyn buyers have a little more time, with homes staying on the market an average of 90 days. That’s two weeks longer than last year, as the inventory of homes on the market up nearly 22%. Buyers have even more time to search in Manhattan, at 117 days average time on market.
Buying a home in New York City requires patience and in many cases, a very large cash cushion. Because the process involves an attorney, there is more legal paperwork to fill out and more processes to go through. That means longer closing times and extra costs along the way.
Financing can be especially challenging in cities like Manhattan, where the median pricing often puts traditional financing out of reach, and many buildings don’t meet the qualifications for low down payment mortgage programs like FHA loans.
Besides being expensive, New York City real estate transactions can be very complicated. Having an attorney is essential to navigating not only the complex task of writing up a purchase contract, but also ensuring the property is clear of liens and the title history is valid. Ownership histories in a city like New York can go back 100 years or more, in some cases. Attorneys are also helpful in dealing with more delicate issues like reviewing a co-op’s finances and the minutes of a board meeting.
Cooperative housing, or co-ops as they are more commonly called, are a unique form of ownership that’s common in New York. Rather than actually owning real estate, you own a part of the corporation that owns the building. In addition to loan approval and seller approval, the board must approve your purchase, and having an attorney familiar with the politics and finances of co-ops is valuable to ensuring you have the best chance of getting approved, and aren’t walking into a money-pit building that needs repairs.
New York is a judicial foreclosure state, meaning any foreclosure has to go through a court procedure that on average takes 120 days. Deficiency judgements are allowed, which means the lender can sue after the foreclosure to recoup losses it incurred.
New York is an equitable distribution state, and marital assets have to be divided in an equitable and fair manner. This is important to keep in mind in the event of a divorce — the percentage of real estate going to each spouse will need to be clearly identified in the property settlement agreement by both parties, and is not automatically 50/50.
New York used to be a “caveat emptor” state, meaning sellers couldn’t be held liable for failing to provide information about their home. New laws require a Property Condition Disclosure statement to be provided answering detailed questions about the condition of the property.
New York state requires transfer taxes to be paid when a home is sold, and New York City transfer taxes are among the highest in the country. In addition, anyone purchasing a property in a transaction over $1 million will also have to pay a mansion tax, which gets incrementally higher as the sales price climbs into the multi-millions. The transfer and mansion tax is charged by the city, county or state’s tax authority simply for changing ownership in real estate.
In New York City and surrounding boroughs, the transfer tax ranges from 1% to 1.425% of the purchase price. As mentioned above, on applicable properties, a mansion tax is applicable over $1 million and the percentage ranges from 1% for a $1 million property to more than 3% for a property over $25 million.
The median transfer tax in New York City was $4,822 in 2017, according to the U.S. Census Bureau.
There is a way to avoid the transfer tax in a purchase using something called a purchase consolidation extension modification agreement, more commonly known as a purchase CEMA. This is a complicated transaction that involves you assuming responsibility for the seller’s current mortgage and then getting a new mortgage for the difference between the balance of the seller’s mortgage and the sales price.
With transfer taxes in New York City over 2% in many cases, on a $1 million purchase, this could save a buyer $20,000 in closing costs. However, you’ll definitely need the help of a real estate attorney and title company that are experienced with this type of purchase to ensure all the proper steps are followed.
It is important to note that your mortgage lender is responsible for properly disclosing the correct transfer tax on a home once you’ve found it, or they could be subject to paying the entire expense on your behalf.
Who pays the transfer taxes is fully negotiable. There are also property tax exemptions available that allow for for senior citizens, veterans, persons with disabilities and homeowners in particular school districts to have their property tax bill reduced. You can check your eligibility for these exemptions at the New York State Department of Taxation and Finance website.
The tax changes enacted by the federal Tax Cuts and Jobs Act which Congress enacted in December of 2017, were reduced caps on the amount of mortgage interest that could be deduced, and reduced maximums on property tax deductions. The mortgage interest deduction was reduced from $1 million to $750,000 of interest paid, and the property tax deduction maximum is now $10,000.
This reduces the tax benefits of buying a home in the higher cost areas of New York City.
Conforming loan limits are the maximum loan amounts you can qualify for under a loan to be purchased by Fannie Mae and Freddie Mac. The benefits of getting preapproved under these parameters include more flexible approval guidelines, and more resources for financing than you’ll find with “jumbo” loans you need if you exceed the conforming loan limits.
Most counties of New York state have a maximum conforming loan limit of $484,350, while the higher-cost counties are allowed up to a maximum of $726,525. Many counties in Manhattan and Brooklyn are considered higher cost counties, but unless you have a 20% down payment or larger, you may not be able to squeeze your loan amount into these maximums.
That means jumbo loans may be in your financing future, which has its pros and cons. On the positive side, jumbo rates tend to be slightly lower than conforming high cost county loans, which is good from a monthly payment and interest rate perspective.
However, qualifying for a jumbo loan will vary from lender to lender, since the loans are not purchased by Fannie Mae or Freddie Mac. The debt-to-income ratios are more restrictive, and the minimum credit scores and down payment requirements are higher than what you would find for conventional conforming loans.
New York City has some aggressive programs for homebuyers to help reduce some of the burden of much higher prices, with some offering up to $40,000 in down payment assistance, as long as you meet the income and neighborhood requirements. We’ll highlight a few of them below.
For buyers trying to purchase a home in the expensive Greater New York City area, it can be especially hard to come up with a down payment . NYC Housing Preservation and Development offers up to $40,000 in down payment assistance to eligible first-time homebuyers.
The State of New York Mortgage Agency (SONYMA) provides a number of first-time homebuyer assistance programs Their Achieving the Dream program offers lower rates, down payment assistance up to $15,000, and unlike many traditional mortgage programs, the program does not have a credit score requirement. Here are some of the features:
NeighborhoodLIFT is a program sponsored by Wells Fargo and NeighborWorks® America. It provides eligible homebuyers in the New York City area with up to $20,000 to use toward a down payment and closing costs on qualified homes.
Each week LendingTree provides a weekly report that shows how much consumer can save during the mortgage rate shopping process. In many cases the savings amount to tens of thousands of dollars over the life of the loan. Here are a few quick tips to make the most of your mortgage shopping trip.
You should plan carve out enough time to contact at least three lenders to get interest rate and closing costs quotes from. Interest rates fluctuate just like stock prices in the market, so it’s important to make sure you are getting your quotes on the same market day so you are getting an apples-to-apples comparison.
The best thing to do is have a list of the following information that you give to each lender to ensure you get the same quotes. Keep in mind, if you don’t give the exact same information, you may get a quote that sounds low, only to be disappointed later when you find out there is an adjustment.
Don’t rely on an APR for your cost comparisons. Take the time to add up the lender origination, credit report, tax service, flood cert and application fees or points to be sure you’ve got the totals.
Ignore costs like title fees, and prepaid costs like property taxes, homeowners insurance — those fees will be the same regardless of the lender you choose. On your loan estimate, these will show up under the Closing Cost Details in section A and B.
If one rate looks significantly better than the others, be sure to ask for a lock in, and get the confirmation in writing.
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Editor’s note: The overall conclusions, recommendations and opinions are the author’s alone. The information in this article is accurate as of the date of publishing. BMO Harris was founded in …