Everything a First-Time Homebuyer Needs to Know About How to Buy a House in NYC
Is your internet browser history filled with searches for “homes for sale” or neighborhood real estate stats? If so, then you should be aware that there are a few more things besides open houses and downpayment that you want to be aware of in the home buying process. In this article, we will walk you through all the essential steps, from searching for property with outdoor space to closing, of buying a house in the 5 boroughs housing market. The goal is that you leave reading this article understanding exactly how to buy a house in NYC.
Understanding the NYC Real Estate Market
The NYC real estate market is one of the most competitive and expensive in the world. The demand for housing in the city is high, and the supply is limited, which drives up prices. An article published by Kiplinger in April 2023 revealed that the median home price in Manhattan was the highest of any neighborhood in the United States. There are still opportunities, however, for first-time homebuyers to find affordable homes in the right neighborhoods.
When researching the market, there’s going to be a lot of real estate listing data to sort through to help you find the right neighborhood, such as proximity to public transportation, schools, parks, and amenities. This can be especially overwhelming if you’re a first-time home buyer, so preparing yourself with a plan will be important.
Preparing for the Homebuying Process
Before you start the homebuying process, you should prepare a plan. This plan should assess your financial readiness, narrow down the kind of property type you are looking for, and professionals to work with to guide you through all your questions about properties, contract and closing. and understand the mortgage application process. To help you get started, below is a brief roadmap of the homebuying process, and some of the professionals you will need on your team.
Navigating the Homebuying Process in NYC
It can be easy to get sidetracked by the excitement of buying a home, but also can be overwhelming with all the information and decisions that have to be made. As mentioned above, having a plan in place can help make things easier.
Step 1: Getting pre-approved for a mortgage
Once you’ve decided to buy a home, one of the first things you should really do is figure out your budget. For many people, buying a home is the largest major purchase they will ever make. Unfortunately, the payments of that largest major purchase will often be for 30 years, so you need to make sure that your monthly income will be sufficient to cover all your expenses for a long time, including when property taxes and insurance costs increase.
The professional you will want to connect with first will be a mortgage broker or loan officer. They will be in the best position to review your financial situation, estimate your budget, reviewing potential closing costs, and determine what your purchase price range looks like. Your mortgage broker will also be able to issue you a pre-approval letter, which is a brief statement that, based on an initial examination of your finances, the mortgage lender is potentially willing to lend you up to a certain amount stated in the letter.
Step 2: Working with a real estate agent to find your home
When it comes to housing, New York City is pretty unique in that there are all kinds of property types available in such a small area. Whether it’s a single-family home, condo buildings, or a co-op building, you can probably find available listings of each type within the same neighborhood. To help you find what’s available for sale and how to get an opportunity to view these homes, you will want to work with a real estate salesperson.
A real estate salesperson will be able to provide you with information about the property, as well as the neighborhood. You should make your priorities known so that you don’t waste time or energy on properties don’t match what you’re looking for. If having an elementary school nearby is important to you, make that known to your agent. If you’re only interested in fully detached homes, you should make that known. If you want to know more about certain co-op boards, your real estate agent will be your best resource. Most importantly, your real estate will be negotiating the purchase price and some other terms with the listing broker on your behalf, so you want to feel comfortable that you have a trusted advocate on your side.
As a result, when it comes to selecting a real estate agent to work with, someone you communicate well with will be really important. You should be very comfortable having conversations of all kinds with your agent, and feel confident that the answers they are sharing with you are competent.
Real estate agents will often have other professionals that they work with on a regular basis, including mortgage brokers and real estate lawyers. While you could choose to work with their referral partners, keep in mind that under no circumstances should you be obligated to use someone’s loan officer or real estate attorney. If you find yourself in this situation, you may want to walk away from that possible transaction as early as possible.
Once you have found a property that you are ready to submit an offer on, it is highly advisable to request an inspection of the property before going into contract. Generally, you are buying a property as-is, so unless there is an agreement about repairs, a seller will not be responsible for any defects or issues with the property. A home inspection can reveal items that may need repair, and your real estate agent can negotiate those items for you. Keep in mind, however, that if you are checking out hot homes where there are several interested buyers, a seller may decline to allow a home inspection, or other buyers may offer to waive any inspection to get the contract.
Step 3: Contract Signing with your Real Estate Lawyer
Once you have an accepted offer on a property, the next step will be reviewing and signing the contract. The real estate agents will often put together a simple 1 or 2 page deal sheet that includes the major terms of the deal, such as purchase price, amount to be financed, any repair issues to be addressed, as well as the contact information of the parties.
The seller attorney will generally be the party to prepare and send out the contract. Similar to working with a real estate agent, you’ll want to work with a real estate attorney that you have good communication with. Remember, you have the right to work with any attorney of your choosing.
Once you’ve agreed for an attorney to represent you, they will review the contract. Often times there are a few edits that go back and forth between the attorney. Once the attorneys agree on a final version, you will meet with your attorney to review the contract, sign, and give the downpayment. The contract along with the downpayment will be sent to the seller attorney for the seller to sign.
Step 4: Getting a commitment letter and title report
After the seller signs, you have a fully executed contract. The timelines in the contract are generally triggered as of the date the contract is fully signed. Two major things happen at this point. The first is that you, the buyer, will be working with your loan officer or mortgage broker to obtain a commitment letter.
After you submit a formal loan application with your mortgage lender, the bank will review the application along with your financial proofs, including tax returns, paystubs, bank statements, as well as credit scores and credit check to determine whether you qualify for your loan. If after this initial submission the lender believes you qualify, the bank will issue a commitment letter that provides that they will lend you the loan amount, provided that you can satisfy certain conditions outlined in the commitment.
At the same time while the purchaser is working on getting a commitment letter, your real estate attorney will order a title report. A title report is a compilation of searches against the property, the seller and the buyers to confirm there are no issues that may impact the buyer taking clean title. Moreover, the lender requires title insurance to insure that there are no liens that would take priority over their mortgage when filed after closing.
Step 5: The Mortgage Lender Appraisal and Possible Survey
Assuming a commitment letter is issued, the next step for the lender would be obtaining an appraisal of the property. An appraisal is done by the mortgage bank to confirm that the value of the property is at least as much as the purchase price. If the appraisal falls short, the lender will reduce the amount it is willing to lend. At this point, negotiations need to be had with the seller to either reduce the purchase price, or cancel the deal unless the buyer is willing and able to come up with the additional funds.
One other item that you would want to check off your to-do list at this point would be to obtain a survey of the property. While this doesn’t apply to condo and co-op units, it would be advisable in the purchase of a home that occupies its own lot. A survey is a map of the property, and will show whether there are any objects, such as fences, encroaching on the property from neighboring properties. You will be paying taxes on your house, so you want to make sure that any boundaries are in line with the actual lot lines.
Step 6: Final Approval and Scheduling Closing
Once the bank issues final approval of the mortgage and clears the file to close, the parties can work towards scheduling a closing. If the seller is ready to close, the parties will work with the bank’s attorney to schedule closing on a mutually convenient time for the bank attorney, the title company, the seller side and the buyer side. If you are buying a co-op or possibly a condo in some cases, the building management must also be present at closing, and so you would need to coordinate closing with them as well.
A closing disclosure is issued by the lender (which has to be at least 3 days before the scheduled closing date) which itemizes the cost of the loan of the buyer, as well as any additional closing costs. At closing, the buyer generally does the majority of signing, as they are reviewing and signing the bank closing package. The seller will usually have to sign a couple of documents for the lender, as well as title documents, the deed and/or transfer documents.
The title company ensure that all items that need to be paid off are, in fact paid off, as well as costs like mortgage recording tax and transfer taxes are paid for at the closing. Additionally, if there were issues affecting title, the seller would have to clear them at the closing.
If there are any post-closing issues, such as the seller needing to stay in possession after closing, or issues with permits or violations, the attorneys may have discussed the same prior to closing. If not, the parties will discuss the issues at closing and try to work something out.
Conclusion: Achieving Your Dream of Homeownership in NYC
Buying a house in NYC can be a daunting task, but it doesn’t have to be. As a first-time homebuyer, you have the opportunity to invest in your future, build equity, and enjoy the benefits of homeownership in one of the most vibrant and diverse cities in the world.
By creating a plan and assembling a team of professionals that you communicate well with, you can achieve your dream of homeownership in NYC fairly seamlessly. If you are thinking about buying a home in New York City, be sure to sign up for the Home Buyers’ Course. If you still have questions, or if you have an accepted offer and you want the Law Office of Richard Kistnen to represent you, please reach out by calling (718) 738-2324, emailing [email protected], or schedule your no-obligation virtual consultation here.