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January 27, 2009
First-Timer Questions
Please help me avoid Wednesday night's "Homebuying for Hipsters" event! A few things I've realized I don't know but should:
1. What's the general time-frame for buying? For instance, if I'm looking to move in somewhere by the time my lease runs out in September, have I already missed the boat?
2. I know 20% is a standard down payment amount, but how often are 10% or 15% accepted? What are the disadvantages of putting down less up front?
3. I know people don't use brokers much anymore for renting; is the same true for buying? What risks do you face not using a broker?
4. What costs are affiliated with buying that I might not think about?
5. Generally, how long do you need to live somewhere for buying to be a sound investment?
6. Any low-cost neighborhoods you think are a solid investment?
Thoughts about any of these questions would be greatly appreciated!
Comments
Mine is not the last word but:
1. What are you looking for? Townhouse? Condo/coop? How picky are you about neighborhood? Give yourself between 6-10 weeks on closing from teh time you sign a contract. Give yourself about 1-2 weeks from the time you agree on a price to the time you sign. You need to get an inspector in in the mean time. The rest of the length of time you need is the time you spend looking, making offers and sometimes being outbid. Give yourself lots more time for a townhouse than a coop/condo.
2. Can't answer that one.
3. There aren't raelly buyers' brokers. Brokers will show you properties, but they are seller's agents. See anything that strikes your fancy in any ad. Don't limit yourself to a broker out of loyalty; no broker has access to all of the inventory.
4. Inspectors, mortgage tax, other closing costs (bank or mortgage broker can give you estimates). Also, the cost of any work (painting or more serious renovation) you will want to do after the place is yours.
5. Anyone who can answer that accurately is clairvoyant. You have to compare what you are buying to what you would be renting and do some thumbnail calculations. There are two issues, a comaprison of monthly costs owning vs. renting, and what kind of equity you will or won't build over the time you own vs. what you would have done with your down payment money if you continued to rent.
6. Depends what you mean by investment. Others will chime in on inexpensive neighborhoods that might hold or gain value over time.
You will get better answers if you tell us what you are looking for and how long you intend to live there.
Posted by: slopefarm at January 26, 2009 3:39 PM
I'll give it a shot...
1. What's the general time-frame for buying? For instance, if I'm looking to move in somewhere by the time my lease runs out in September, have I already missed the boat?
- It's never to early to start looking. I would say plan at least 3 months from the time you see a place and put in an offer to the time you close. It could be more or less, but I'd give yourself 3 months minimum. And you might want to overlap a bit so you don't have to immediately move out of one and in to another (if your closing gets delayed a day you don't want to sleep in the moving truck with all the stuff you just moved out of your rental). If you are out of your rental I'd back up 3 months from August 1. That gives you some wiggle room.
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2. I know 20% is a standard down payment amount, but how often are 10% or 15% accepted? What are the disadvantages of putting down less up front?
- 20% is/was the norm. These days who knows what people will be willing to accept, or require. I'd try to plan on 20%, but know it also comes down to financing. If you find a place you like and your salary gets you more than 80% financing it might not be an issue, but the 80/20 split is common enough that 10 or 15% down is rare.
Disadvantage to putting down less? A larger monthly payment/more money financed.
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3. I know people don't use brokers much anymore for renting; is the same true for buying? What risks do you face not using a broker?
- Using a broker to buy is different than renting. The seller pays the fee, not the buyer. Use a broker, but do some of your own open house looking and FSBO. Using a broker to buy helps a lot with the legwork and paper work when you make the offer and move toward closing.
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4. What costs are affiliated with buying that I might not think about?
- Closing costs. Call a mortgage broker and get pre-qualified. You'll get a sense of what financing you can get and what'll cost you a month. Once you make an offer you can get an approval from the mortgage wiht a breakdown of closing costs (it depends on the size of the loan).
Beyond that, inspection costs, moving costs, improvement costs (paint, renovation, etc), lawyer fees...
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5. Generally, how long do you need to live somewhere for buying to be a sound investment?
- I think it depends. A few years ago people bought pre-construction DUMBO lofts that they sold for double within 18 months due to the hype/buzz/whatever. For them it was 18 months. My family owns property that took 7 years to get ahead on, but closer to 20 to bring a profit. Sound investment for us, not sure how others would see it. If you are planning to live there forever it doesn't matter. If you are planning to leave after a few years you have to hope the market changes and your place increases in value. I think now, things being what they are, it is a sound investment if you plan to stay for a few years and like the place you buy. Sometimes "sound investment" isn't measured in dollars alone.
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6. Any low-cost neighborhoods you think are a solid investment?
- Depends on the person and what you want in a neighborhood and the neighborhoods ability to grow. Sometimes a few dollars more for a smaller place in an established neighborhood goes a lot further and is a much better financial investment then a bigger, less expensive place in a "low cost neighborhood". Sometimes they are "low-cost" for a very good reason. But you can get lucky.
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apologies for the long reply, hope something os use is buried in there...
Posted by: christopher at January 26, 2009 3:48 PM
take the class!
Posted by: karo25 at January 26, 2009 4:17 PM
Thanks so much for your thoughtful replies.
Per slopefarm's question, if it helps, we're a young couple looking at the very low end of the market (below 300k). A 2-bedroom would be ideal since kids might be in the future, but a 1-bedroom could suffice.
We like NYC and think we'll definitely be around for another two years or so, but after that, moving closer to our families is a possibility. Could go either way.
We'll have at most 40k for a down payment. We both have above 750 credit scores but pretty low salaries.
We're okay with being far out as long as the commute to Midtown isn't more than an hour.
We never thought buying would be an option for us financially but have recently noticed some 2-bedrooms in Sunset Park and Flatbush that we like and that are in our price range, so we're thinking about it...
Posted by: alsawo at January 26, 2009 4:25 PM
The time to buy in low-cost neighborhoods is when the bubble is expanding. When the bubble is bursting, you'd be advised to stick to the tried and true.
Posted by: denton at January 26, 2009 4:26 PM
A couple of comments to add:
Your best bet is to get in touch with a Mortgage broker - they'll tell you how much you qualify for and estimate fees for you (no charge for this.) Manhattan Mortgage is recommended by many, but do a search here and you'll find others. 10% probably won't be an problem--- however, it means you will have to pay PMI, mortgage insurance, which will add 100-200 dollars/mo to your payment.
Many coops will put a 20% restriction down, but in the neighborhoods you mention, I doubt that will be the case.
Buyer's brokers seem to be very common everywhere except NYC. We had a couple of brokers look for us, but we were able to find more things on our own via nytimes, craigslist, streeteasy. They are probably more motivated at a higher price point.
Posted by: squaredrive at January 26, 2009 4:55 PM
No one has a crystal ball, but you won't recover your purchasing costs in two years in this market. You are better off renting if you plan on moving in two years.
Posted by: nosleeptil at January 26, 2009 5:02 PM
I am not going to go down the list, but I can speak to neighborhoods. I live near the Myrtle stop on the JMZ, in Bed Stuy near Bushwick border, and this I think is a high-value neighborhood for a few reasons:
1. It is definitely cheap! You can get a perfectly decent whole house around these parts for less than $600K
2. The JMZ is a great train line. My commute to Union square is 35-40 minutes.
3. Not in a hip spot in and of itself, but within a brisk walk/short bike ride of all things Bushwick to the northeast, Tiny Cup/Von King Park to the west, the shops/restaurant on Lewis near the A train to the south.
4. Mr. Kiwi is an excellent grocery store.
5. People are really nice here.
Posted by: StuyStone at January 26, 2009 6:06 PM
Your options include coops in Jackson Heights and condos and coops in Bushwick. Many coops require 20 percent down, condos do not. There are even some single-family houses in Bushwick for sale for $300,000 but I wouldn't recommend buying one. (They require cash and work.)
Posted by: mopar at January 26, 2009 10:41 PM
StuyStone, any thoughts on the JMZ at Halsey? We're about to buy a place there.
Posted by: mopar at January 26, 2009 10:43 PM
Hi ya kitten
that'd hipster for hello
Posted by: Ysabelle at January 27, 2009 12:32 AM
if youre only thinking 2 years in the future, you should be renting.
Longer term, I'd vote for one of the landmarked buildings in Jackson Heights.
Posted by: slick at January 27, 2009 5:36 AM
Yes, take that class! Or go to neighbors helping neighbors and find out how you can get a grant to cover closing cost, and all kinds of info.
http://www.nhnhome.org/
Great info, and no hipster complaints!
Posted by: zapzap at January 27, 2009 11:25 AM
before buying my first house I created a excel sheet with rows representing monthly cash flow for next 50 years. I factored numbers by inflation of 4%. I included my projected tax brackets :) to account tax deductions. Then I calculated NPV. And applied the same model for renting apartment, getting multifamily or getting single family. And then came November 2008 and all my calculations went hiwire. In other words you cannot much predict future prices.
good luck.
Posted by: bobjohn at January 27, 2009 11:37 AM
bushwick can be researched by checking out: http://bushwickbk.com
there's so much to do in bushwick vs. jackson heights. a quick hop on the L to east williamsburg too.
Posted by: wine lover at January 27, 2009 12:05 PM
i think you should definitely go to the meeting btw. you'll hear things that you haven't thought of yet too.
Posted by: wine lover at January 27, 2009 12:09 PM
I second all of slick's comments...
Posted by: wasder at January 27, 2009 12:09 PM
Thanks everyone. You're right, we probably should go to the meeting, and to one of the Neighbors Helping Neighbors workshops, too. Thanks for the suggestion! Still would appreciate to hear any more words of wisdom you have, though...
Posted by: alsawo at January 27, 2009 12:18 PM
You should take a look at the coops in Prospect Lefferts. 125 Ocean and 50 Lefferts usually have places in your price range. Like this prewar one bedroom for $255k: http://www.bhsbrooklyn.com/detail.asp?id=988239
that's a block from the park and a block from the express train, 20 minutes to union square and a ten minute walk from Grand Army Plaza. PLG has--for various reasons--been a decade or so behind the price curve for neighborhoods surrounding the park. Properties go for 1/2 to 1/3 of comparably sized places across the park in Park Slope.
Posted by: Frederick Law Homestead at January 27, 2009 12:21 PM
You should go to Barnes & Noble and check out Home Buying for Dummies to get general information. It will explain the different mortgages, what you are actually paying for in closing costs, etc.
In addition to the other neighborhoods mentioned, you may want to look into Ditmas Park.
Posted by: SIB at January 27, 2009 12:40 PM
There are buyers agents in NYC. I worked with one back when I bought a coop. If they are knowledgeable they can really help out. A good one will have the inside scoop on different buildings and keep you from wasting too much time running around and seeing places that are not right for you. And if it is a coop, they can help you navigate the board stuff. Also, the usual arrangement is that the SELLER pays the broker. If there is a buyer working with you and one working with the seller, they will split the fee. So it is actually no cost to you.
Posted by: Carol Gardens at January 27, 2009 1:04 PM
1. Agreed. No way to know for sure. But, condo/coop will likely take less time than house/townhouse. Yes, it will take at least 60 days for everyone else to get their act together (title search, inspection, etc.) and have a closing.
2. Putting less down now means paying out more in monthly payment and definitely the amount you will pay out over time. But, you have more in your pocket now to do improvements. Besides mortgage broker (I recommend calling Wells Fargo) also speak to your tax consultant about your particular situation. It is that time of year anyways.
3. Agreed. Let multiple brokers work for you b/c they are really working for the seller. Never forget that.
4. Again, speak with a mortgage company.
5. How long to live in a home depends on the market and your financing situation. It is a crystal ball question.
6. I agree with looking for bargains in established neighborhoods in the current economic climate. If you are really planning to leave NYC within 2 years, I strongly encourage renting and saving your money to buy something when you land where you want to be.
If you REALLY want to buy, go to the class. Good luck.
Posted by: RandiZ at January 27, 2009 1:06 PM
just to add to the unexpected cost and timeline for selling questions (and perhaps these are obvious if you've read the buying a house for dummies, but just in case): when you are looking, be sure to find out what the rules and regulations of the co-op are when it comes to renting and selling. some places are extremely restrictive and if you're having trouble selling, but want to move to another city, you may need to rent it out for a period--find out the policy. also, many places charge a flip tax-- find out how much it is, because in this market, it may erase whatever modest profit you might make in two-three years time.
other questions to ask in the "unexpected cost" category: find out when the last time the roof/boiler/etc were replaced, whether assessments have been made in recent years, if any are expected, and be sure to have money in reserve to pay one if it happens. in other words, if all you have is $40k, i woudln't plan on putting it all into the down payment. they'll show you the financials for the last two years, and i'd pay special attention to how the reserve has changed in the last year-- i know multiple people who are dealing with suddenly jobless residents in their co-ops/condos who aren't paying their share, causing the reserve to be drawn down until it can be resolved. not good!
Posted by: ms_boerum at January 27, 2009 1:30 PM
2. Not putting 20% will force the bank to require to get a Personal Mortgage Insurance (PMI). This is an insurance just in case you fail to pay your mortgage for some reason. You can cancel PMI once your loan is less than the 80% of the purchase price or appraised value. PMI is about $200 a month for a $500k loan.
3. There is a big difference when you buy a new construction vs established. There are large taxes involve with new construction. For example a $500k new dev would have a TOTAL closing cost around $25,000. If that was not a new construction it would be under $10k.
Other than state taxes - there are bank fees (from $500-$2500), government related paperwork fees, appraiser, lawyers, etc.
5. Minimum of 5 years IMO. Unless you get lucky in a hot neighborhood. But the appreciation in value vs your upfront cost (especially closing) would not be recovered until the first 3-5 years. In this current market I would say 10 years.
National average is around 7 years.
Posted by: crimsonson at January 27, 2009 1:47 PM
Are banks still making mortgages with less than 20% down?
Posted by: NorthHeights at January 27, 2009 2:38 PM
Yes NorthHeights. Many banks where minimally effected by subprime. The requirements are tighter but having good credit and liquid assets can get you approved for less than 80/20 LTV.
Just to add...
3. $25k vs sub $10k is worst case vs best case. Established $500k unit can have a closing cost more than $10k. There are many variables involved to give you a solid number. The rule of thumb is 3%-4% for the value of the unit of an established home and 4%-6% of a new. 6% is usually for Jumbo/non-conforming loans and above $1 mill (the transfer tax rate changes - you get the 'mansion' rate).
5. My 10 years is based on buying at the peak of the boom (2006-2007). If you bought after the crash with heavily reduced price (5%-15%) you can probably recover that in 5-10 years. But that is just a guest. No one knows how the market will exactly be in 2010 (bottomed or getting out of bottom).
Posted by: crimsonson at January 27, 2009 3:04 PM
Bedstuy and bushwick lol that's why it's cheap people lol
Posted by: karo25 at January 27, 2009 3:25 PM
As for lower-cost neighborhoods, I'd recommend Kensington and Ditmas Park. Of the two Ditmas Park is nicer and has more amenities, but also is (or will soon be) more expensive.
Posted by: sixyearsandcounting at January 27, 2009 4:04 PM
I was going to suggest Kensington as well.
Posted by: Carol Gardens at January 27, 2009 7:11 PM
Id like to answer some of first timers questions from the perspective of the financing/mortgage part.
firstly in today’s market because the banks have so many refinance applications, their turn times have gone up dramatically, however they are prioritizing purchases first but know that it will take 3 to 6 weeks to get all the financing in place.
In regards to how much money you will have to put as the down payment, there are many variables,
Firstly Fannie and Freddie have added another hit to condos and coops above 75% financing so if you only put down 20% you might get a higher rate or have to pay points because of that.
also with good credit and enough income to qualify banks will lend 90% money to a buyer, yes you might have to pay pmi but if you can manage the payments and plan on staying long term in the house its definitely worth it then not having any savings left over at the end.
hidden costs that will not even show up on a good faith estimate are a few, firstly in ny most buyers have a lawyer that represent them in the purchase and this is something which you might pay the lawyer a month after closing when he sends you your final documents and the bill, most lawyers for such transactions charge in the area of 950 to 1500 dollars per transaction depending on how much work they do, and some just have a flat fee no matter how much work they put into the transaction, second item would be a home inspection, if you were buying a two family house and wanted to make sure its safe and sound, electricity, wiring, lead, asbestos floors, piping etc. this is not an appraisal as an appraisal is a fee quoted to you from the bank, and its not the same thing. There might be a few more but usually what costs you have associated the bank can outline in pretty black and white numbers.
when buying a new construction condo most developers require the buyer to pay their closing costs which can add upwards of 10k to your closing costs, but with prices dropping and developers looking to sell, i have seen many cases where the buyers were able to negotiate that the seller pays their own fees and saves the buyer a nice chunk of change.
buying a home is always a scary thing when your not guided correctly on all fronts, realtor and bank, so its very important to choose someone who is knowledgeable in their field, as they know the most up to date (or supposed to) guidelines and way to work, that being said there are bankers who know the realtor side very well as they work on both ends and vice versa, but make sure you are getting the correct information, that will be the crucial step in getting the best price, mortgage interest rate and closing costs for you.
If you have any more questions on this please feel free to contact me privately and i can lend more assistance to the matter, and help you get pre-approved etc...
Posted by: Blev9701 at January 28, 2009 1:30 PM
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