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January 19, 2009
How To Buy a Brownstone?
I am a first time buyer...I have over 750 credit...can I qualify to buy a home over $850,000 with less than $150,000 income? How do you buy a home based on potential rental income?
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The bank takes account of some anticipated rental income on a multi-family house. With our house it was roughly 3/4 of market rate rents at the time we purchased, to account for time off the market between tenants. I would expect any bank dealing with this sort of loan now to be even more strict though, but I'm sure you could assume half the market rate.
You really need to ask some brokers. Big, unusual loans are hard to come by these days.
Posted by: corolla at January 19, 2009 8:34 AM
A more important question is what size loan you are looking for based on how much you can put down. This is referred to as the "Loan To Value" ratio and, in this environment, will be tough to find a loan >80%.
Additionally, a potential problem could arise if the house appraises out at less than what you are buying it for. That means you'd have to put up more money to get the LTV down to 80%, or whatever your lender agrees to.
You also have to document where you are getting the downpayment from. It can't just all of a sudden appear as if your parents lent it to you or you borrowed it from somewhere else.
Posted by: daveinbedstuy at January 19, 2009 9:17 AM
As DIBS mentioned, it's difficult to answer this question without knowing how much of a down-payment the OP has saved up.
The credit score's fantastic, but if you're trying to finance all $850k, I'm not sure the monthly payment's going to be low enough for less than $150k/yr in income. It might be in the "you can make this if you really stretch" range, but I'm of the opinion that one shouldn't make things that tight, financially. It leaves you no maneuvering room for emergencies, repairs, and similar -- and if you're buying a 100 year old house, there's going to be repairs. :P
If, however, you've got 20% or more to put down, that changes things substantially.
Posted by: cwbuecheler at January 19, 2009 11:31 AM
Most brownstones in Brooklyn are still over a million so if you have 150-200K and want to finance 850K you should be good. If you looking to move to Crown Heights or South Bedford Stuyvesant where you can get a brownstone for that price you should put 10% down. It would make life easy for you.
Posted by: Amzi Hill at January 19, 2009 11:50 AM
Good advice from Amzi. If you put 10 percent down on $800,000 and there is also one or more rental apartments, you will probably just qualify. But all you have to do is tell a broker you want to be prequalified and they will tell you what the bank will lend you. It's free. Or go to Manhattan Mortgage's site and use their calculator.
Posted by: mopar at January 19, 2009 11:59 AM
Thanks for the advice guys.
Posted by: boofer at January 19, 2009 2:07 PM
You would also need to consider the operating cost of a Brownstone, and if the idea of spending the next 2 million years of your life working on the place is appealing good luck to you.
Condos are cheap and new right now.
Posted by: Gross at January 19, 2009 2:38 PM
I would never even entertain the idea of buying a condo. I don't particularly care for new. The idea of spending years restoring a brownstone is actually very appealing to me. That's why I read this site.
Posted by: boofer at January 19, 2009 3:05 PM
The biggest problem I have with condos is: I don't want the guy who lives below me hammering on the ceiling every time I walk across my living room without taking off my shoes or every time my cats decide to chase each other around, a problem which happens in the apartment I currently rent. Similarly, I don't want to have to listen to people tromping around above me.
Apartment life sucks. The whole reason I want to buy is to get away from sharing a building with other people.
Posted by: cwbuecheler at January 19, 2009 3:42 PM
We make more than you and I don't think we can afford $500K... so... I guess my advice would be no, you can't. And you shouldn't.
Posted by: Heather at January 19, 2009 4:38 PM
We don't miss all the noise from upstairs above us in our old coop either, but keep in mind with brownstones you can get noise from adjacent neighbors next door. It can be more noise than you'd think depending on the neighbors and on how the houses were built and if they were built together at the same time which leaves gaps and shared joists for sound to travel through.
Posted by: traditionalmod at January 19, 2009 4:39 PM
If you make more than $150k and can't afford a $500k mortgage, you're probably doing something wrong. Or have kids. Kids are really expensive.
Posted by: cwbuecheler at January 19, 2009 5:06 PM
Maybe I'm just cheap.
Posted by: Heather at January 19, 2009 5:30 PM
Between the two of us, our family unit makes about 100K (more like 85K reliable) and we are easily paying a $500K mortgage and paying for a renovation with cash (until very recently).
Which makes me think that *we* are the cheap ones. We don't buy other things very much. We eat well, but buy used clothes, don't travel much, etc.
Posted by: vanburenproud at January 19, 2009 5:42 PM
Err, sorry Heather, that came out way more accusatory than I meant it. I just meant that presuming you're relatively debt-free and such, it should be possible to make the payments on a $500k mortgage, on $150k/yr or more, and still have money for things like clothes and food.
I guess it comes down to the definition of "afford". :)
Posted by: cwbuecheler at January 19, 2009 5:50 PM
I was just estimating what the bank will loan the OP. How comfortable you personally feel like spending on housing is an entirely different question.
Posted by: mopar at January 19, 2009 6:06 PM
On a 150K salary with zero other recurring debts, a 36% debt to income would be $4500 per month for total housing expenses -the old/new lending standard. A 500K mortgage for 30 years at 6% would be right at 3K, not including taxes and insurance, so theoretically if there was no other debt it could be approved - if you also meet their new reserve holding requirements that most lenders are now requiring. If you have other debts, then the old 28% DTI for mortgage applies which is $3500 not including taxes and insurance, so you'd be pushing it once you ad those in. If your total debt payments with the new mortgage would exceed 36% of your monthly income, then good luck, you'll need it in today's lending market. They would float a little higher in a 2 family, but you are saying you don't want to live with anyone in your house, like an apartment (don't blame you - why pay $4K a month to live in a closet), so the 36% generally will apply.
Posted by: williamsburgguy at January 19, 2009 8:09 PM
The bank takes into account how much the apartments rent for, minus two months of rent per year, and subtracts that from your total costs. However, be warned that if the bank is lending you a mortgage that takes into account rental income, the apartments have to be rented at that price when you take possession. But you might be able qualify for the whole thing without taking into account the rental income.
Posted by: mopar at January 19, 2009 9:20 PM
I understand where Heather is coming from. Paying for the house and buying clothes and food and having little left over would not a happy dittoburg make. I need at least one spectacular vacation a year (after all, how many vacations can you fit into four-score years, not many compared to the number of places in the World to go), I need a trip back to the old country, with the family, to see the parents each year, I'm helping out my own family, charitable contributions, weekends away at the beach, skiiing, hiking, northern-lights watching, a little splash on some art, some good eating out (some expensive, some not), shows, a decent barolo or a chateauneuf etc etc. It all adds up. Plus savings for the unknown. 25% income on housing for me.
Posted by: dittoburg at January 20, 2009 8:49 AM
Yes, exactly, ditto. Quality of life vs. home ownership... when I can get a monthly payment closer to my rent we might buy. But paying almost twice as much, plus maintenance costs... I just don't see the point.
That being said, I'd love to buy. I just don't want to sacrifice everything to do it. I'm not so sure that's crazy-talk either. I remember in the early nineties my co-workers who made about 130K were buying houses and co-ops in the 90-200K range. Yes, real estate was a different thing then and interest rates were higher, but still, if you make a nice income, isn't it good to actually HAVE some of it left after paying your housing costs?
Posted by: Heather at January 20, 2009 11:03 AM
I'm certainly not accusing you of crazy-talk, Heather.
I bought for specific reasons. Our income expands and contracts a lot. We knew that we could afford the short-term push to renovate because the short-term situation was good, but that in a contraction it would be really good, financially, to have rental income, or even to be able to rent out our duplex if things *really* contract.
Over the long term, our house is going to help us take more risks and do more interesting things. But there's no such thing as a free lunch.
Posted by: vanburenproud at January 20, 2009 1:30 PM
earning 103K and buying at 200K. What a dream.
Posted by: dittoburg at January 20, 2009 1:31 PM
With all due respect some of the commentors are way off on their mortgage material. WAY OFF
45% is the max dti for Agency Jumbo loans and Freddie Mac loans. Fannie Mae still will allow above 45% depending on LTV, credit, reserves, etc..
You can count 75% of the other unit’s gross rental towards your income.
That said you need to be comfortable with the payments regardless of what any bank will lend to you. I would also recommend having some cash reserves if you have a bad tenant that stiffs you on the rent.
There are thousands of mortgage calculators on the web.
Posted by: Adam Dahill at January 20, 2009 3:06 PM
"I remember in the early nineties my co-workers who made about 130K were buying houses and co-ops in the 90-200K range."
That sounds exactly right. Has something changed?
Posted by: mopar at January 20, 2009 4:46 PM
Be patient and wait a few more months prices are just starting to come down in Brooklyn and the have a long way to go. You don't want to buy a condo because you are going to buy the maintance guy too! Why pay maintance costs that are more than your month morgatge costs?
Posted by: hannible at January 21, 2009 9:19 PM
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