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Xemu
September 11th, 2006, 10:30 PM
Hello. I've been lurking around this forum for a long time and I think you all could help me with my question. I'm looking into buying an apartment in the city (probably Brooklyn) and I'm trying to figure out if I really have enough money to afford a place. Specifically a place in a coop building. I read that most coops require that your gross income exceed 25% of the annual carrying cost of the apartment (mortgage + maintenance). Is this a hard and fast rule? I have enough money to put 30-35% down on a $300,000 place but from what I figure my carrying cost would be around 30-35% of my gross income. I'm also pretty young, which I doubt makes me a very good coop canidate. Am I SOL?

TipsyMcStagger
September 12th, 2006, 12:07 PM
Hello. I've been lurking around this forum for a long time and I think you all could help me with my question. I'm looking into buying an apartment in the city (probably Brooklyn) and I'm trying to figure out if I really have enough money to afford a place. Specifically a place in a coop building. I read that most coops require that your gross income exceed 25% of the annual carrying cost of the apartment (mortgage + maintenance). Is this a hard and fast rule? I have enough money to put 30-35% down on a $300,000 place but from what I figure my carrying cost would be around 30-35% of my gross income. I'm also pretty young, which I doubt makes me a very good coop canidate. Am I SOL?
The short answer is, it depends. You've already passed one major hurdle...having the requisite down payment. Most co-op's require 20% down, but not all (my building required 33%). Every board makes their own rules.

Be prepared for a very intrusive application process. You will be required to disclose EVERY penny you have whether it be in checking, savings, retirement, investments, assets, etc. You will also have to fully document your current and past earnings.

One thing to bear in mind is that most young people do not meet the board's qualifications on their own, but are still approved with a guarantor. A guarantor (usually your parents) is someone who will bear the responsibility of paying your maintenance should you default. As long as you pay your bills, your guarantor has no financial obligations.

The best thing you can do is start shopping and if you find something you like, make an offer (and a low-ball offer at that...it's a buyers market). Once an offer is accepted your "package" will be presented to the board for review. If the board grants you an interview, you're as good as in. Most of the time, if they don't want you in the building they won't grant the board interview.

Hops this helps.

Tipsy

Xemu
September 12th, 2006, 12:57 PM
Thanks Tipsy, this is very helpful. So if I understand what your saying it seems like most coop buildings will accept a guarantor in the event that the buyer doesn't meet the income requirements. I assume the guarantor would have to be submitted to the same rigorous and intrusive financial inspection as the buyer right? Does anyone think that offering to pay 30% down when the building might require only 20% makes one a more attractive canidate to the coop board?

TipsyMcStagger
September 12th, 2006, 01:15 PM
Thanks Tipsy, this is very helpful. So if I understand what your saying it seems like most coop buildings will accept a guarantor in the event that the buyer doesn't meet the income requirements. I assume the guarantor would have to be submitted to the same rigorous and intrusive financial inspection as the buyer right? Does anyone think that offering to pay 30% down when the building might require only 20% makes one a more attractive canidate to the coop board?Yes, the guarantor will also have to disclose all of their assets and earnings. Essentially, they have to fill out virtually all of the paperwork that you do as the purchaser. Like I said, it's an incredibly intrusive process.

I really can't answer your last question, but I'd be inclined to say no. Many boards require a certain amount of liquidity after making your down payment. In other words, a board might stipulate that you have to have $500,000 in liquid assets after you've made your down payment (for example). If increasing your down payment would significantly reduce your total liquid assets, I would think that would work against you.

Your broker could give you a better answer.

Tipsy

musicial
September 12th, 2006, 04:16 PM
Hello, I read what is written here. I am also interested in buying an apartment in New York. Actually what I think is that I should visit New York one time and spend there one month. I am gonna stay in a hotel and try to get an understing what is going on about real estate prices there. I read from the papers that real estate prices in USA is at the 15years' low. That is why buying an apartment or two is for me is an investment is nothing more.

I am not an American and is not living in America. I have to learn lots of things about USA and specifically about New York. I do not understand some phrases used in USA. What is "down payment"? What is "coop" building? Thanks for simple replies.

Front_Porch
September 12th, 2006, 04:27 PM
A simple definition: a co-op is a corporation formed for purposes of owning a building. When you buy an apartment in the building, you're not buying the walls (the way you do with a condo) but rather shares in the corporation that owns the building. Along with your shares you get a proprietary lease, which allows you to live in the unit you're "buying."

To get granted your shares and lease you have to pass the co-op board, which usually means you put together an application (known as a "package") and are often subject to an interview.

In answer to the original poster, most boards do have an income test, but it varies from board to board, and it's never stated. I lived in a building in the West Village where it was, indeed, 25%; in one of our Chelsea buildings, the unwritten standard is 31%.

I would totally advise against using a guarantor on a co-op purchase if you can possibly help it. It's three board packages, and three interviews, and generally a mess. If you can get money from your parents, have them gift it to you and use it towards the down payment (in that case, you'll put a "gift letter" in your board package.)

I speak as a realtor when I say whether a board will accept a 30%-35% cost, what kind of liquidity they'd like to see, and how they feel about parental gifts is something YOUR REALTOR SHOULD KNOW. While it's not impossible for you to put together a board package by yourself, this is totally one of those cases where you'll get better service by hiring someone experienced to do it.

Frequent readers of this board know I sell Chelsea and downtown, so I'm not pitching you here; get an agent who knows that area of Brooklyn, preferably one who has sold in that building, and let them clear your way.

ali r.

OmegaNYC
September 12th, 2006, 08:30 PM
And for some reason, I though you guys were talking about a car. :rolleyes:

Xemu
September 13th, 2006, 05:00 PM
Thanks Front_Porch. I haven't got a broker yet because I wanted to really figure out if had the money before I took that step. It's interesting that you recomend not using a guarantor becasue it would require extra interviews and an extra "package". Unfortuantly the "gift-letter" isn't an option for me because of the tax burden involved in transfering such money. It looks for me like getting under the 30% barrier will require a big down payment and a very low rate morgage. Which I understand is do-able, as low as 1% I'm told...

Front_Porch
September 14th, 2006, 10:35 AM
It's a hassle either way for first-time buyers, isn't it?

An individual can give an individual $11,000 a year without gift tax. So if your parents are in a position to help you, mom can give you $11K and dad can give you $11K. They could do this before Dec 31, and after Dec. 31, so by Jan. 10th you could have $44K, with no tax consequences to them.

Whether your family has the capacity and the will to do that is, of course, another story. (When I bought my first apartment, my mother tartly pointed out to me that I had a job, didn't I?)

As far as mortgage rates, I'm a realtor and not a mortgage guy, but I imagine you can get around 5.5% on a 3/1 ARM, which is a 30-year mortgage with rates locked in for the first three years. I really wouldn't recommend anything riskier for a first-time buyer . . .house-poor is fine, but mortgage-freaked-out is unacceptable!

GL!

ali r.

Xemu
September 14th, 2006, 12:43 PM
Yeah, I already do the $22,000 a year thing. That's the reason I'm interested in buying a place in the first place. I was talking with a morgage guy yesterday about an "interest only morgage" which suposedly will allow you rates as low as 1%. The catch is that you get zero equity ever, so basically you're renting your apartment from the bank. But for a person who plans to live in a place for 10 or 15 years, and in a market like NYC where a completely collapse is unlikely, it seems like a good deal. I mean how much riskyer is it than a regular morgage really?

Front_Porch
September 14th, 2006, 10:56 PM
I was talking with a morgage guy yesterday about an "interest only morgage" which suposedly will allow you rates as low as 1%. The catch is that you get zero equity ever, so basically you're renting your apartment from the bank. But for a person who plans to live in a place for 10 or 15 years, and in a market like NYC where a completely collapse is unlikely, it seems like a good deal. I mean how much riskyer is it than a regular morgage really?

Technically, I suppose, it's not that it's that much riskier -- you'll probably be putting more than 20% down anyway -- it's that the savings mechanism of the mortgage is stripped. On a 30-year that amortizes normally, around year 7 you start to chip away at the principal -- and add to your equity -- in a significant way, and in a way that doesn't take very much work on your part. The idea of not doing that for 10 or 15 years seems financially unsound.

With the caveat that I just sell 'em, I don't finance 'em, the only person I would recommend an I/O for is a Wall Street/salesperson type, who is trying to live on a salary during the year, and then would get variable bonuses that could be used to help pay down the principal.

ali r.

shocka
September 15th, 2006, 01:45 PM
From MY experience board vary from building to building.
I am currently in the process of looking for a coop in Manhattan, I have seen boards that accept "Parents buying with Working Children" and boards that do not accept any Guarantors, and a board which did not accept either. there are boards that allow you to sublet (with restrictions) most dont.

My advice is for a first time buyer is to look for an investor friendly board that is the easiest way into a building. There are also these so called "Condo-Ops" basically A co-op with condo like rules. Some will allow 10% down, Unlimited Sublet policy.

And when you find the right co-op broker they will ask you alot of these questions first hand which will help them with the search for apartments. My broker does all the board inquiries before I even see a unit.