Forum
« Affording a Brownstone Do you pay mansion tax if the purchase price is over $1M or is it the mortgage »
May 25, 2007
Affording a Brownstone
In response to a comment in another post, I have some questions. I know I could speak to a mortgage broker or bank but at this time I am quite a bit away from buying so thought I would ask the knowledgable people here.
What kind of income do you think you need and downpayment to buy a brownstone around $900k?
I make about $150k but due to some family medical issues a few years ago, I have little cash saved right now - about $25k - and saving as much I can. I have zero other debt.
I guess I would need a minumum of $100k in cash to buy something for $900k with a $150k salary? Actually, I guess even more when taking into closing costs, plus some left over cash in the bank for emergencies, etc.
But the ones in the $1.5m range, I would need either double salary or a good $600k down to be able to make the payments, and that is assuming around $2k a month in rental income as well.
It seems the ones in the lower price range, say around $700k, need a lot of work and that means I would need more cash to fix/renovate.
I am wondering how others do it, are there that many making $300k+ ? Actually, I guess there are quite a few $300k income two-earned households around.
I know the basic answer is right now I am not in the right financial position to buy one, but wonder what people think is possible for me to do, in say 1 to 2 years?
Comments
Call a mortgage broker. He/she will be able to answer all those questions, and it won't cost you anything. That's what I did 6 months ago (and I'm closing next week on a house in bed-stuy!). When I called the broker I said I was not sure if I was ready to buy, and I just wanted to know what I could afford, or how much i needed to save before even considering buying something... And they were very nice and helpful. I've been working with Trachman and Bach and they have been very good. They have an office in Manhattan and one in Brooklyn. You have a good income and no debt... If you have a decent credit history you will be able to buy with a small down payment (5% or less, maybe even 0%). But keep in mind that the closing costs can be up to 5%. In some cases you might be able to finance the closing costs by obtaining a seller's concession. With less than 20% downpayment you will have to pay PMI, or do two loans if you want to avoid PMI. But you should be able to get a 30 year fixed with a good rate. The rate on the second loan will be higher, but that will probably still be better than paying PMI. I think a $900k house might be a stretch with your income. But it really depends whether you are buying a 1, 2 or 3 family... My income is 120k (and my girlfriend is in school) and I'm buying a 2 family for 600k, in good condition, needing only cosmetic work. I've spend a lot of time working on a budget, which include the mortgage payment, insurance, city tax, heating, etc, and also the tax savings, and I made a decision only after being confortable with the actual net cost for owning the house. And I know my mortgage payment will be the same for 30 years. And yes you want to have money left in the bank after closing because their could always be emergencies. There will be unexpected cost once you own a house.
So talk to a mortgage broker, learn about all the costs associated with owning a house (heating, insurance, maintenance, etc), make a budget, and then you will know what you can afford. If I were you I would keep saving. With your income you should be able to save a good amount in a year or two. I did it, it just takes discipline. You will be able to own a nice house in Brooklyn. Not in Park Slope or Fort Greene. But in Bed-Stuy (or other neighbohoods that are less often mentioned on this site). I would say save as much money as you can, and go for it in a year or two. In the meantime, explore Brooklyn to see where you would like to live. Then go to LOTS of open houses. You will find a nice place, but it will take some efforts (but it can be fun).
I hope this helps, and good luck!
Posted by: anon at May 25, 2007 9:50 PM
9:50, thanks for the detailed response. I will give a broker a call when I get some time and discuss with them.
Another good point you mentioned was about the neighborhood. I am currently renting in the south end of sunset park and haven't had much time to explore that much of the rest of Brooklyn. I have heard many good things about Bed-Stuy lately, will take the subway up there maybe next Saturday to take a look around.
Congratulations on your purchase, I hope it all goes well for you. Sounds like you got a pretty good deal for the money. I would be much more comfortable around that price, I didnt know you could still find ones around that price. Good news!
Thanks again.
Posted by: Anonymous at May 25, 2007 10:10 PM
Um, just for another perspective on this...
My husband and I make oh, maybe 85-100K a year if we are lucky, and we came into some family money (less than 100K).
We are both self-employed, as artists no less. No guaranteed income, no nothing.
But we are very handy!!!
We got an illegal 3-family in Bed-Stuy that we are renovating ourselves. We are going to rent most of it out for a few years while we get under our feet again.
And we did not tap all of our savings, and are making our mortgage okay.
This is not your situation, but I wanted you to know that if you are creative and daring, you can do whatever you want. You just can't do it in Park Slope, and you might get nasty surprises that you have to be able to roll with and stuff.
But you can get a real mortgage (NOT an ARM~!!!!!) even if you don't make any money at all and have no guaranteed income. I understand that the bar swings both ways--if you have guarnteed income, you probably don't need much down (but stay away from the ARM).
Don't be afraid to reach a little bit, and good luck!
Posted by: Anonymous at May 25, 2007 10:27 PM
9:50 here. I also thought there was nothing nice for 600 or 700k. After seeing my first 4 open houses in that price range in Bed-Stuy, all I had seen were places that needed a gut renovation(which I couldn't afford), and I thought I should just forget about it. But as I said, you have to do some work, and eventually you will find something nice. First, in Brooklyn don't expect a broker to work for you. You will have to do the search yourself: look at NYtime.com listings every week. And other places such as craigslist. And just walk arounf looking for "for sale" signs. Some places are sold by smaller brokers that can't affort the NYTimes online listings. There are still good houses for that price in nice areas (if your definition of nice areas is not limited to PS, FG, and CH). For example did you see the house of the day on Macon street earlier this week? Very cute house, althought it has some issues (no cellar and awkward layout with small rooms). The house I'm buying is similar, but better and cheaper. Again, you can find something nice but you will have to do our homework. I also like Sunset Park, but I don't know if there are such houses there for this price.
Posted by: Anonymous at May 25, 2007 10:38 PM
We make about $125K (give or take) as a couple. Parents helped us with the down payment for a N. Slope condo in 2004. Selling that a couple of months ago let us come away with $215K profit. Using that for the down payment on a 1M brownstone in S. Slope that needs cosmetics - also getting a 100K HELOC for the renovations. Interest only mortgage (our last one was a 5 yr ARM) as we will only stay here less than 5 yrs - monthly payment $2900 after $1300 rental income. We have very little savings and sometimes live paycheck to paycheck, but having done the exact same thing budget-wise with the condo, we know it is worth it. I think you either have to work your way up, starting with an apt purchase or else do what other posters are saying and look in other neighborhoods.
Posted by: Anonymous at May 26, 2007 11:39 AM
While I agree with the above posters that this can be done, it is also worth asking if it SHOULD be.
Do the math--is it cheaper to rent a couple of floors in a brownstone than buy? I'm guessing it is.
Say you buy a place for $900K and you put down 10%. You'll pay almost $5k a month. You can get an awfully nice apartment for $5k in rent.
Posted by: Anonymous at May 27, 2007 10:54 PM
If you want a conventional 30 year fixed and are only putting down 5% you will need an income of around 300k to make the 28% income expense ratio.
Posted by: AnnaBee at May 28, 2007 10:26 AM
Buy a condo you can afford now, then later you'll at least you have a chunk of money from the profits of that sale. It's true there are some neighborhoods in Brooklyn quickly becoming unaffordable for most people, which is making everyone believe they need to overextend themselves and buy now or it'll never happen. But there are certain neighborhoods whose climb has been going more slowly, so in 5 years they may very well still be affordable for you with the proceeds from the sale of a condo. Also, I would tell anybody who is even thinking about buying a house but who doesn't have much money for renovations, if you aren't handy enough to do at last half the renovations yourself, don't buy an old house in Brooklyn. Everyone underestimates how much money they'll need to pour into these places. The repairs are constant.
Posted by: Anonymous at May 28, 2007 3:34 PM
10:54 here again.
Whatever you do, please do NOT assume you will have a "chunk of money from the profits" of a condo or brownstone sale in a couple of years.
There is very good reason to believe the market will not continue in the way it has, even here in NYC. Believe it or don't, but either way, don't make your financial calculations based on some pre-supposed windfall outcome.
Posted by: Anonymous at May 28, 2007 4:21 PM
Yeah, but do make financial calculations based on what is actually happening.
Right now we are paying $4K to live in an entire brownstone in Bed Stuy, and that sounds silly!
BUT...
...because we are doing the work ourselves, our *very complete* renovation should cost under, oh, 35K. And then we will have a nice duplex and a nice garden apartment to rent out in like six months.
Worst case scenario: we rent out the duplex and live in the garden. We make 2500 in rent and wind up paying what we were paying to live in a crappy apartment in Greenpoint in 2006.
Best case scenario: rents keep going up, amenities keep happening. We wind up charging about that much rent in a few years for the *garden* and living in two nice floors instead of a crappy little apartment in Greenpoint...
I don't know why anyone would trust the real estate market to give them a *windfall*, but the bottom line is that rents go up, mortage stays same. Anything with a rental property is going to increase in value as long as folks keep moving here.
There is no reason for folks to stop moving here.
Posted by: Anonymous at May 28, 2007 11:05 PM
I know you said you are ways away from buying. But I have a Loan Consultant that helped me in preparing for my first purchase. I took almost 9 months before I made my purchase and he helped me by answering any question I had. He also help me secure a loan that was very affordable. Even if you arent ready, give him a call. He will help you with any mortgage related question. His name and info:
Rahsaan Cummings
Fairfield Financial Mortgage Group, Inc.
(917)454-8429
Call him, he is really knowledgeable about the entire mortgage industry
Posted by: anon at July 19, 2007 2:14 PM
Post a comment
Please be patient while your comment is published. It may take a moment.