Can you actually buy a home in NYC with less than 20% down?
It may seem like a pipe dream. But technically, it isn’t.
You can actually purchase a home even in a place like NYC with less than 20% down. In fact, many condos will permit you to do 10% down (and sometimes less if it’s FHA approved). And there’s no set amount required for a single family house. It’s all about what the bank is comfortable with lending and what the seller is comfortable with accepting.
But the reason why it’s not done as often as in other places is because it’s so much harder to pull it off here.
Let’s check out why that’s the case.
This is by far the biggest reason why it’s so difficult. New York City is one of the most competitive real estate markets in the country. The pool of buyers tends to be highly qualified. So this means they also tend to have far more money than just the down payment! Sellers will almost always choose a buyer with a strong overall financial position. Especially over someone who (in their mind) is just barely able to qualify to buy their home.
If you’re in a less competitive neighborhood, you have a much better chance. You’re more likely to get them to accept an offer with 10% or 15% down if there’s less competition. So the key here is to understand the playing field and who is (and isn’t) on it.
In a lot of co-ops, you’re simply not permitted to do less than a 20% down payment. In fact, some might require even more than 20%. Sometimes buildings want 25%, 30% or more (but more than 30% tends to be rare). And on top of the down payment, you’ll be required to have money left over after your down payment (i.e. “post closing liquidity”). Anywhere from 6 months to 2 years’ worth of mortgage and/or maintenance.
However, there are co-ops (especially in the outer boroughs) which allow buyers to do a down payment of 10% or 15%. And some are also less stringent when it comes to the post closing liquidity requirement. Some will actually allow you to include your retirement accounts in the calculation. But these buildings are increasingly becoming less numerous. So be prepared to have to search a bit longer and a bit harder to find them.
If you find a lender who’s willing to allow you to do a 10% down payment, you’re likely going to have to pay what’s known as private mortgage insurance (“PMI”). Except, it’s not insurance to benefit you – it’s for your lender to guard them against a possible default on your end. For you, it’s an added cost that increases your overall cost of homeownership over the life of your loan that can really add up. Sometimes a lender will waive PMI. But this usually only happens if you have stellar credit and/or you have a very good long term history with your lender.
Another reason why doing less than 20% is so challenging in New York City is the fact that the city doesn’t have a lot of FHA eligible buildings. In many other cities, lots of inventory meets FHA eligibility requirements, meaning that homebuyers can potentially put down as little as 3.5% of the price. That’s a huge difference. Again, these buildings aren’t completely non-existent here. They do exist! But even so, competition is still likely to be stiff for them, especially if the neighborhood has solid demand.
For all the reasons above, having a down payment of at least 20% is really the target to aim for if you want to have the most options available to you during your search. Sometimes it may make financial sense to put down less, but often only if you have solid credit, can get a great interest rate and your overall monthly carrying costs are still easily manageable for you.
Not sure what options make the most sense for you? Contact a mortgage professional! They can help you sort things out. And if you don’t know anyone to contact, just ask me. I’m happy to provide a referral! Click here to contact me.
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