So, you’re ready to dive into the exciting world of buying a home. But before you start scrolling through listings and picturing your perfect kitchen, there’s a big step to tackle first: securing financing. Navigating the mortgage world can be tricky, especially in the unique landscape of New York City real estate. Whether you are considering a condo, townhouse, or co-op, here’s what you need to know to get started.

Keep in mind that the list below discusses general guidelines to help you on your journey, but for personalized advice, consult a mortgage professional who can review your financial situation and lay out your best financing options. On the bright side, recent reports show mortgage rates have hit their lowest levels since early December. Plus, there’s chatter about potential rate cuts at the Federal level in June and possibly even later in the year.

Where to Apply for Financing

First things first, you need a lender. Here are a few options:

1. Banks: Your personal bank is a good place to start—speak with a lending officer to see what they offer. If you’re unsure where to begin, your real estate broker can help point you in the right direction.

2. Mortgage Brokers: Think of them as matchmakers for home buyers and lenders. They have relationships with various banks and financial institutions and can help you find the best deal. The best part? Most brokers get paid by the lender, meaning their services won’t cost you anything out of pocket.

3. Private Bankers: If you already have a relationship with a private bank or have a high-net-worth situation, this route might offer more flexibility. Private bankers aren’t always bound by standard Fannie Mae guidelines, which can be a game-changer for buyers with unique financial profiles.

Pro Tip: Don’t just take the first offer you get! Shop around and compare at least three lenders. Rates and terms vary; extra effort could mean better terms and smoother approval.

3 Key Things Lenders Consider

When applying for a mortgage, lenders focus on three significant factors: you (the buyer), the building, and the apartment itself. Let’s break it down:

1. You, the Buyer

Lenders want to know how financially stable you are. Here’s what they’ll check:

• Debt-to-Income Ratio: Most lenders prefer your total monthly debt (including the mortgage) to be no more than 43% of your gross income. Some may stretch to 50%, but co-ops are often stricter, allowing only 25-30%.
• Credit History: A solid credit score is crucial! Any dings on your report, such as late payments, bankruptcies, or tax liens can hurt your chances of approval. If you haven’t checked your credit lately, visit FreeCreditReport.com or AnnualCreditReport.com.
• Down Payment: In Manhattan, most lenders require at least 20% down, though this can be as high as 35%, depending on the property and your financial situation.
• Post-Purchase Liquid Assets: Lenders want to see you have enough cash reserves to cover at least a year of mortgage payments (possibly more, depending on the loan size). Co-ops often require more post-closing liquidity depending on the co-op.  In addition, co-ops generally do not count retirement funds as part of this cushion, so keep that in mind.
  

2. The Building

Lenders don’t just look at you, they scrutinize the building, too. Here’s what they’re checking:

• Owner Occupancy Rate: Buildings with more owner-occupied units (typically at least 51%, sometimes 70%) are favored. Too many renters could make mortgage approval trickier.
• Financial Health of the Building: Lenders will review the building’s financial statements, including its reserve fund (which should be at least 10% of the annual budget). Issues like pending litigation or budget deficits can be red flags.
• Proprietary Lease (For Co-ops): If you're buying a co-op, the proprietary lease must last longer than the mortgage term. If necessary, the building may need to extend the lease.
  
  

3. The Apartment

Finally, lenders will evaluate the apartment itself to determine its value and condition. Here’s what they consider:

• Appraisal: The apartment must appraise at or above the purchase price. In other words, lenders will finance the lower number of the purchase price or appraised value. For example, if you’re buying a $1M unit and want to borrow 75%, it needs to appraise for at least $1M. If it is appraised at $900K, you’ll only be able to borrow 75% of that amount.
• Legal Combinations: If the apartment is made up of two or more units that were combined, the lender will need to make sure the combination is legally approved. Sometimes, they’ll hold back part of the loan until all necessary paperwork is in order.
• Renovation Permits & Violations: Any outstanding renovation permits or violations must be closed before financing can proceed with the caveat that minor open permits/violations can be approved by exception. This is the seller’s responsibility. Typically, the seller’s real estate attorney or an architect will direct this process – which can take between one to several months to complete depending upon the complexity.
  
  

Final Thoughts

The mortgage process can feel overwhelming, but understanding these key factors and working with the right professionals will put you in a strong position. Professional, experienced real estate agents are invaluable resources for navigating specific building requirements, especially with complex properties like co-ops. And don’t forget, mortgage professionals are there to help you find the best financing solution for your unique situation.

Buying a home is a big step, but with the right guidance, you’ll be well on your way to securing your dream space. Happy house hunting!