For the second straight year, we decided to calculate how much home a “typical” first-time home buyer household could afford in New York City and identify which neighborhoods in 2016 would be the best bet for finding homes for sale within that budget.

For this year’s analysis, we are making certain assumptions about income, mortgage-to-income ratios, down payment and mortgage interest rates (all of which are outlined in the last section of this post). In 2016, we found that a typical first-time buyer can afford a home priced up to $524,050.

If that budget sounds impossibly low for New York City, you may be surprised to discover that there were homes for sale priced at or below $524,050 in virtually every neighborhood in 2015. There were 13,518 listings across the city that would be considered affordable to a first-time buyer with the greatest share located in Brooklyn (29.6 percent), followed by Manhattan (23.1 percent), Queens (22.9 percent), Staten Island (12.3 percent) and the Bronx (12.1 percent).

Use the map below to explore the neighborhoods that had the greatest (and least) inventory of affordable homes for first-time buyers based on unit type and size.

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Riverdale: First-time Buyer Territory

For the second year in a row, Riverdale beat out all other neighborhoods for the greatest inventory of first-time buyer-friendly homes. There were 1,087 affordable homes available in Riverdale, 98 percent of which were co-op units. See the list below of the top five neighborhoods with the most inventory available for first-time buyers in 2015:

These neighborhoods follow the common logic of buying in New York City: Affordable inventory increases with the distance from Midtown Manhattan. To find the home that fits a lower budget, first-time buyers should open up their search to large neighborhoods with plenty of inventory like Bay Ridge in Brooklyn and Forest Hills in Queens. Although these areas of the city require a slightly longer train commute to Manhattan, they are a far more friendly territory for those seeking starter homes.

To Increase Your Options, Search for Co-ops

It’s a simple truth in New York City: Co-op units cost less than condos. In fact, they are roughly one-third the price of condo units in Manhattan. According to the StreetEasy November 2015 Market Reports, the median recorded sale price was $679,500 for Manhattan co-op units and $1.8 million for Manhattan condo units. Home buyers who search for co-op units will likely find units in far more neighborhoods than if they search for strictly condo units. In Manhattan, for example, there were 35 neighborhoods with affordable co-op inventory in 2015, but just 10 with affordable condo inventory. Including co-op units in a home search opens up neighborhoods like Chelsea, Lower East Side, Park Slope and West Village.

All told, there were 9,028 co-op units affordable to first-time buyers throughout New York City last year and only 1,549 affordable condos. Including co-ops in your search expands your options by a factor of six.

For Larger Units, Head to South Brooklyn and East Queens

Families looking to make the switch from renting to owning should start their search in South Brooklyn and East Queens. Sheepshead Bay and Forest Hills had the greatest number of two-bedroom units in 2015 affordable to first-time buyers (312 and 169, respectively). Other neighborhoods with plenty of larger units priced below $524,050 included Jackson Heights (88 units), Central Harlem (73 units), Canarsie (70 units) and Rego Park (69 units).  Since most first-time buyers search for starter homes, we limited the size of units to two bedrooms.

How Did We Do It?

Now for the nuts and bolts of how we calculated the typical first-time home buyer’s budget in New York City. To determine the age of first-time home buyers, we analyzed census data to find out which age group had the greatest increase in homeownership. For the purpose of this study, we assume that most first-time home buyers in New York City are in this age group. According to census data, which was adjusted for 2016, the median household income for individuals aged 31 to 35 years old in New York City is $66,738. To find the maximum price of a home that would be affordable to this first-time buyer, we made the following assumptions:

• 40 percent cost-to-income ratio: Monthly housing costs (the combination of mortgage payment and estimated maintenance) will not exceed 40 percent of the buyers’ monthly income.
• 30-year fixed rate mortgage: The home buyer is able to get a standard fixed-rate mortgage using a 3.9 percent interest rate.
• 10 percent down payment: A down payment of 10 percent means that 90 percent of the home’s price needs to be financed by a mortgage.
• Maintenance of the home would amount to roughly 1 percent of the home’s value annually.