Though New York City has its fair share of wealthy buyers purchasing homes in cash, most NYC buyers will need a mortgage. You may think there’s only one type of home loan — the 30-year fixed-rate mortgage — but there are actually many to choose from. What are they, and how do you pick the right one for you? Here’s a breakdown of the most common home loan options, and the variables that will help determine the best type of mortgage for your NYC home purchase. Plus, learn about federal, state, and local mortgage assistance programs that New Yorkers like you may qualify for.
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Home Loans for First-Time Buyers
Home prices are higher here in NYC than in other parts of the county, and saving up for a down payment can seem impossible. Thankfully, there are several types of home loans specifically aimed at helping first-time home buyers. Qualifying New Yorkers can take advantage of these federal, state, and city programs offering down payment assistance, lower rates, and other benefits.
Federal Loan Options
The US Department of Housing and Urban Development offers FHA loan and VA loan programs.
- FHA loan: A Federal Housing Administration (FHA) loan is a government-backed mortgage that allows borrowers to put down as little as 3.5%. But they tend to have more aggressive lending guidelines. “Lenders get insurance protection from the FHA (part of HUD),” says Melissa Cohn, Regional Vice President at William Raveis Mortgage. “But they require mortgage insurance. That cost can be paid upfront or financed into the loan amount, which is more common.”
- VA loan: The Department of Veterans Affairs (VA) offers the benefit of 100% financing (meaning no down payment required) for eligible military members and veterans. The VA guarantees these loans. A downside is that they are generally limited to conforming loan amounts (more on this in the section on conventional mortgages), but a few lenders will go as high as $1.5 million.
It’s important to note that jumbo, interest-only, and balloon mortgages are not government-insured.
New York City and State Loans for First-Time Buyers
In addition to federal loan programs, there are several city and state programs available for first-time buyers.
- HomeFirst: Qualified first-time buyers who make up to 80% of the Area Median Income (AMI) can receive up to $100,000 toward their down payment or closing costs through New York City’s Department of Housing Preservation and Development (HPD).
- Achieving the Dream: Lower income first-time homebuyers can get a low down payment, a discounted interest rate, and other benefits.
- SONYMA’s Low Interest Rate program: The State of New York Mortgage Agency (SONYMA)’s low interest rate mortgage program for first-time buyers has down payment requirements as low as 3% and competitive interest rates.
- SONYMA’s Conventional Plus program: This program combines 30-year fixed rate mortgages with SONYMA’s down payment assistance, for both first-time buyers and previous homeowners.
- Homes for Veterans: Qualified military veterans and active-duty US military personnel can apply for any SONYMA program and get even more favorable terms.
- RemodelNY: This add-on program allows first-time buyers to purchase a home and finance the cost of renovations with one low, fixed-rate mortgage.
- Down Payment Assistance Loan: Another add-on program that can give you up to $15,000 toward your down payment or mortgage insurance premiums.
- Give Us Credit: This program expands the criteria for eligible first-time home buyers by including those who rely on non-traditional savings and sources of income, or who have overcome past financial hardships.
Fixed-Rate Mortgages
A fixed-rate mortgage is one of the most common types of home loans. As the name implies, a fixed-rate mortgage’s interest rate remains the same for the life of the loan. They can be for any length of time, but are commonly offered in 15, 20, 25, and 30-year terms, with the 30-year option being the most popular.
Pros
Because the interest rate is fixed for the duration of a fixed-rate mortgage, the monthly payments will remain the same each month. “It offers predictability and stability for a housing budget,” says Alan Rosenbaum, CEO and founder of GuardHill Financial Corp — in a market that is ever-changing.
Cons
When you pay a loan back over a more extended period — the standard 30 years, for example — your monthly payment may be lower, but you might also pay more interest over the life of the loan. A shorter-term loan, such as a 15-year fixed, usually has a lower interest rate. This allows you to pay less interest over the life of the loan, but the monthly payments are higher, because the loan principal is paid back over fewer years.
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Adjustable-Rate Mortgages
For adjustable-rate mortgages (ARMs), the interest rate remains set for a pre-specified period, and then the rate adjusts after that. The different types of ARMs depend on the number of years the interest rate stays fixed. Common examples are 3/1, 5/1, 7/1, and 10/1. The first number is the number of fixed years, and the second number is how often the rate adjusts in years. So, a 10/1 ARM is fixed for 10 years, then adjusts every year after that.
Pros
You can often get a rate that is lower than a fixed-rate mortgage for the initial term, lowering your monthly payments and making it easier to qualify. In addition, it lets borrowers looking to own property for a short amount of time have access to lower rates for the same period they plan on owning.
Cons
The downside is that the rate can go up at the end of the first-rate adjustment, and thus the payment can increase. “Rates and payments can rise after the adjustment, which can be a shock to your budget,” says Rosenbaum. “Each ARM can have different caps, margins, and indexes, which can make it hard to understand what your rate could look like.”
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Conventional Mortgages
Conventional mortgages are available through private lenders. They’re also available through two government-sponsored entities: Fannie Mae (the Federal National Mortgage Association, or FNMA) and Freddie Mac (the Federal Home Loan Mortgage Corporation, or FHLMC). These loans must meet certain borrower and lender standards. They’re commonly called QM loans for the Consumer Financial Protection Bureau’s Qualified Mortgage (QM) rule. Conventional loans can be conforming or jumbo loans.
- Conforming loan: A conforming loan is a mortgage with a maximum amount set each year. Because NYC is considered a high-cost area, its conforming loan limit for 2024 is $1,149,825.
- Jumbo loan: A jumbo loan is any mortgage with a loan amount above the conforming loan maximum.
Pros
Home buyers tend to get lower interest rates with conventional mortgages. Because the rates are based on credit scores, you could get a very favorable rate if you have a high score. Plus, you can get fixed interest rates and higher loan limits than government-backed loans.
Cons
If you have a lower credit score, it’s more challenging to qualify. Also, a conventional mortgage does not have any government insurance, guarantee, or backing.
Jumbo Mortgages
As mentioned above, a jumbo loan mortgage is a type of conventional loan in which the loan amount is more than Fannie Mae’s conforming loan limits. New conforming and jumbo mortgage limits are announced every year. In high-cost counties, like those in New York City, the loan amount must be more than $1,149,825 as of 2024 to qualify as a jumbo loan. Jumbo loans can be used for single-family homes, condos, and co-ops with a fixed-rate or ARM program.
Pros
“A jumbo loan provides financing options for borrowers purchasing higher-value properties,” says Rosenbaum.
Cons
Qualifications for them can be more stringent. To qualify for a jumbo loan, you must meet the following criteria:
- Low debt-to-income (DTI) ratio
- Higher down payment
- Higher credit score
- Higher reserves and assets
- A second appraisal
Government-Insured Mortgages
Government-insured mortgages are types of home loans that the federal government guarantees. That includes the previously mentioned FHA and VA loans, and USDA loans. USDA loans are for borrowers in rural or low-population areas, so NYC doesn’t count.
Pros
It’s possible to buy a home with as little as a 3% down payment, and qualifications are more flexible (i.e. your credit score doesn’t have to be as high).
Cons
There are loan limits, meaning you can’t borrow as much as you could with a private lender. You’ll have to pay higher mortgage insurance for the life of the loan unless you can put more money down. Plus, there could be restrictions. For example, you might not be able to rent it out or lose benefits if you sell early.
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Interest-Only Mortgages
An interest-only mortgage is an adjustable-rate mortgage in which you only pay the interest for a period of time, then it begins to amortize. For example, you can get a 7/1 ARM, in which the payment is interest-only for seven years, and then the payments amortize over the remaining 23 years of the loan’s 30-year term.
Pros
The benefit of these types of home loans is a significantly lower payment for the interest-only period. You can also defer larger payments to a future date.
Cons
The downside is that the payment increases dramatically once the loan begins to amortize. As a result, it’s often more difficult to qualify for an interest-only loan, and loan-to-values are generally lower than those offered for an amortizing loan.
Balloon Mortgages
A balloon mortgage is a type of home loan in which you make standard monthly payments for a set period. After that, you must make a single large payment to cover the remaining balance of the loan. Payments are based on a 20 to 30-year amortization, but the loan’s actual term is 5 to 10 years.
Pros
A balloon mortgage typically has lower interest rates than fixed or ARMs. This helps those planning to move in a few years, because you can enjoy the low rates before the large payment becomes due.
Cons
You will owe a large lump sum in just a handful of years, and if you’re in a situation where you can’t pay, it can be tricky. Also, it can be difficult to refinance, especially if your home has decreased in value.
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