Real Estate 101: Buying Your First Apartment

JUNE 5, 2013

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Editor’s Note:

Today we’re thrilled to post the first in a series of pieces from Kate Pelet, a Quarterlette real estate broker based in our hometown, New York City.  Kate started out in commercial real estate, then moved over to the residential side to combine her passion for New York real estate with her love of meeting new people.  In this first article, she gives advice on tackling the big question of whether you’re ready to buy a place. Keep checking back for more from Kate, and send your questions in through the Comments.

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Thinking of buying an apartment for the first time?   It’s such an exciting step, but it can also be stressful and intimidating! My goal is to help you make this process not only less stressful,  but enjoyable.

You may be starting to ask yourself things like:

Should I buy an apartment?

CAN I buy an apartment?

I keep hearing interest rates are low, and am I throwing money down the drain just renting?

How much do I need to buy a place?

Here I’ll give you a basic framework and some tips for how to think about this decision. I like to break it down into two parts: the economic and the personal. Let’s tackle the economic first because that’s more straightforward.

Down Payment:  The lowest down payment possible these days is generally 10% of the purchase price. If you live in NYC, and you are thinking about a starter co-op apartment, you should assume that you need 20%.

Mortgage: Since the housing crisis, mortgage underwriting standards have gotten much stricter.  So how much of a mortgage can you qualify for? A decent rule of thumb is to multiply your annual income by 5. If you want a more accurate number, there are some good online calculators like this one from Bankrate.com, or you can make a quick call to a mortgage banker. Mortgage rates are at historical lows, and that is definitely a benefit to buying in the current environment.

Monthly Costs:  In addition to monthly interest and principal on your mortgage, you will have monthly maintenance and real estate tax expenses. These costs vary widely depending on the apartment and the building. For example, a building with an elevator, doorman, gym and a pool will have higher monthly expenses than a no-frills walk-up building. Additionally, as a homeowner, all repairs to your apartment (and the building) are your expenses now.

Let’s take a $350,000 NYC co-op studio as an example:

– 20% Downpayment:   $70,000

– Mortgage Needed: $280,000 (Using Number 5 Rule of Thumb, you would need $56,000 in annual income)

– Monthly Costs:

– Mortgage Interest & Principal:  $1,277 (Assuming 30 –year fixed loan at 3.625%)

– Monthly Maintenance and Taxes: $800

Total Monthly Costs = $2,077

That being said, if everything looks doable economically, it’s time to look at the personal side of the equation.

Really ask yourself if you are ready to buy. It is a big commitment.  Are you in a stable job with a good future?  Do you plan to stay in New York for the foreseeable future or would you like to keep your options open to move?

Don’t assume that you can rent out your apartment; that’s not always the case, especially with co-ops. If you buy a studio today, are you going to be happy in that space for a few years or are you going to wish that you had waited until you could afford a one bedroom?  Do you want to put your savings into a down payment or do you want to keep it for a rainy day (or year in Paris)?

The important thing to remember is that whatever you decide, whatever you personally are most comfortable with, is a valid decision. Like most major decisions in life, you will know when it is the right time to buy.

If you have any questions or you want to discuss your personal situation with me, please feel free to contact me directly or post in the comments below!

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1 COMMENT

  • Ana Maria Retana De La Cruz 7 months ago

    Hi thank you for this. It was very helpful. I have a question. How many years of work does the bank consider before giving you a mortgage? I only have a year in my job, but it’s stable. Thank you.