How much apt can you afford?

you should definitely be able to swing a million dollar place. Figure 20% down = $200K (which you clearly have in the bank) with an $800,000 30-year mortgage at ~5% gives monthly payments of ~5k a month. No problem for someone making $200K (assuming you are not spending your money frivilously otherwise.

Can def afford a $1M apartment assuming monthlies aren't crazy and that person is confident that will continue to earn that amount of money going forward. The big thing there is the savings. Can put 30% down, which is a nice number, and still have 200k cushion.

Look at the calendar... if the year is anytime between 1900 and 2004, then you will probably borrow 3.3X your annual salary toward the purchase of a home, which would be 80% of the purchase price.

If the year is 2005-2008, borrow 6-8X your salary and do not make a down payment.

If its 2009, who knows... but that 1st one seems to make more sense.

So 225 X 3.3 = Approx $750k mortgage towards a $950k property.
But since you have a fairly sizable savings account, you can put down more than 20% if you want to step up to something a little pricier - But historically speaking, you can afford to borrow $750,000.

Without a full knowledge of your other debts, obligations, and purchase goals, it is hard to narrow it down further, but that would be the average.

Thanks for all replies.

No debts or anything like that.

And not frivilous with spending - thats how they saved $500k.

More worried the board will just take the "salary" and say they only earn $5k/month since the rest is bonus.

And i guess typical maintenance varies between $1200-2200 per month. Seems to be all over the map from what i've seen.

Maintenances can vary a lot, especially for land lease buildings which have insane maitnenances.

So their monthly nut would be, say, $6.5K. If that's more than their current rent+savings, what are they going to cut?

Not sure what youre asking NWT? Monthly exp are currently 2500-3000/month. Living in the outerbouroughs paying 1k for 1BR apt in order to save. So yes the purchase of a ~1M apt would significantly increase monthly expenses. Other thing to do would be wait another 1-2 years and have an extra 200k or so in the bank and put a really big down payment. Not sure if thats wise or not since its like putting all eggs in one RE basket..

On a 100kish salary, don't underestimate how painful paying that much bigger monthly nut is. Even if you have lots of savings.

500K savings...but what about your retirement? Is 500K liquid and do you have at least that much or more that is more or less inaccessible until you retire?

We have a little more than half as much as you in liquid funds but more than that in retirement and make a combined over 200K (no bonuses, totally steady income) and are looking to spend 700K max with 20% down. If you have more than 500K savings and your income is steady at what you quote, then $1M should be do-able. You have to figure out what your debt to income ratio will be after mortgage/CC, etc.

i agree with nyc100123

It was really nice, once upon a time, when we paid mortgage & maintenance with our small fixed salary, and had enough left over for other living expenses. Bonus money was strictly for saving & vacations. Alas, this is no longer possible (or at least, without a lot of pain) and I miss those days.

Don't underestimate how much it sucks to have to pull mortgage money out from savings, even if it's all fungible.

With current rent at $1K, and currently stashing away $5.5K per month, then diverting both of those to mortgage and maintenance would be OK. I guess my underlying concern is that three-times-income formula for the mortgage. That seems to apply to houses and suchlike rather than a NYC apt with a maintenance of $2K per month. It'd be a wrench.

shoot me now, but i think these calculations are crazy.

if you have 500K saved, how much of that are you willing to lose? if it were me, the answer would be 0--lets assume that someone less conservative would say 50K. so...what is the liklihood of buying a place where you could lose $50 K....seems to me that in this market you could lose 10% in a heartbeat. that would limit purchase to 500K -- which creates another problem because that place will probably be too small if you have any plans to have a family in the future. so, you have the further/risk hassle of knowing you'll have to move.

wait until the market settles down. keep saving in the meantime.

nyc10023- Thats the reason for the hesitation to buy now. If we wait 1-2 years and have 750k instead of 500k the cushion will be much bigger and we can put a bigger down pmt

Also its only one income- not sure if that makes a difference to a board.

and really, putting aside all of the nonsense often spouted here---this market is far too crazy, unpredictable to put so much of your total capital at risk. check out the recent talk about 490 WEA, 9B for a clear example of how unclear everything is right now. sounds like you've got a great situation...why add the burden of all this uncertainty? live and enjoy and feel good.

Too soon, plain and simple. D/I won't get you past co-op boards so condo is the only option. $6500 is a big number with that income. You will feel pain.

here is the string i referenced: http://www.streeteasy.com/nyc/talk/discussion/11895-example-of-natgure-of-this-market

Can they afford it? Certainly. Is it a good investment? Probably not with even the recently-improved buy vs rent fundamentals. On the other hand, I think RE should primarily viewed as a consumption asset, in which case are they comfortable going from a life where they are consuming half their income to one where they are committing to consuming all their income for a very long time? I.e., if they are not comfortable with the idea of switching from their $1K rental place to a $5K rental place, they will be in for a rude awakening.

For a million dollar apartment, you'll also have mansion tax, which is how much? I forget.

this is interesting...i would suggest the price they can afford is $500k...this is why i'm looking for a studio and not a one or two bedroom...why spend $1m on an apartment that will be devalued in a few years.

not sure i get it...i can afford a bentley but would not want to face inevitable depreciation when it came time to sell. no one has had to consider serious depreciation on real estate for over a generation---now things have changed. to not consider depreciation (when there is a greater than zero liklihood) in the affordability calc is to kid yourself.

Down usually doesn't count. If you they make 100k a year, I would say they could comfortable afford a place that was 250-300k. Why would you want to pay more???

250k they can pay cash for and there is definitely no 2BRs in Manhattan in that price range.

They will probably continue to wait. maybe that 1M apt will become 700k in a year or 2.

If they are making $200-250k with 50% of it being a bonus, I am not sure they can afford a $1 million apartment. Bonuses are not guaranteed and it would be a hard sell to a board. I agree with Mat...put down $200-300k and then 3.3 times your SALARY (not total compensation) and that is what they can afford. That number is going to be much less than $1 million.

Oh, and one other thing. NYCRobot - "Figure 20% down = $200K (which you clearly have in the bank) with an $800,000 30-year mortgage at ~5% gives monthly payments of ~5k a month."

In what fantasy land will they be getting a 5% 30 year fixed rate on an $800k mortgage (with 20% down)???? It is not going to happen in NYC. How about maintenance/taxes? They are going to spen much more than $5k a month in reality if they buy a $1 million apartment...that is if they could even get a mortgage putting 20% down.

Try to run the numbers with Suze Orman. :)

not much

How much of your life are you willing to spend in a marginal 1-bed in a marginal suburb? Those of you that advise them to wait it out for 2 years, would you be willing to trade places with them? I know I wouldn't. We did the same thing, lived well below our means for many years to save up for a place we love. We still live below our means, but live in a great place in a great neighborhood that we designed to our taste & specifications.

None of you have a crystal ball, and the certainty with which you predict market movements is laughable. If this couple is ready to settle into a home they can call their own and be in for many years, which they can afford, then the best option for them is to start looking seriously. That doesn't mean bid on a place tomorrow. But prices are definitely down, and there is no guarantee that trend will continue.

My advice would be to limit their purchase to $950, put $250 down, get a conforming loan at the prevailing rate around 5.2%, which will give them a monthly mortgage of roughly $3600. Assume $1400 for maintenance, total $5000. Better still if they can find a unit that has cosmetic issues giving them more sq. ft. for this price, which they can then rectify with a little sweat equity and $20K or so. This is not a money-making scheme, it's a home!

I would also advise staying away from new dev. The recently constructed ones have a lot of issues, and you will pay a premium for a veneer that will wash away in 2 years. Most that have gotten hosed or will get hosed in this RE downturn are in the category of new dev buyers. Get a solid pre-war on a great block near the park, and you will likely not regret it.

I don't understand why you would put down half your savings...what if they lose their jobs, have medical emergency, etc...it doesn't make sense...when I look at it I can definitely afford a one bedroom but I don't want to be stuck in an apartment that i grow to resent because i overpaid.

Check out the links, they may be of some use. Conisder how much expendable income you want to have left over and how much you want to continue saving. For a $1 M apt, it'll cost you probably at least $1,000/month in maintenance and taxes in a co-op. That limits purchasing power.

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1&scp=5&sq=mortgage%20calculator&st=cse#

http://cgi.money.cnn.com/tools/houseafford/houseafford.html

It's a bit of a false dichotomy, though. This couple has many options other than a marginal 1 bed in a marginal suburb and buying a million dollar property.

Maybe the best alternative is to rent a nicer place in a nicer neighborhood, and save only $3,500 per month instead of $5,500 per month. I'd sooner do that than rush into a home purchase, buy something I wasn't totally confident I could comfortably afford, or buy something that is too small to meet my long-term needs. In fact, that's exactly what I am doing. :)

Its been 10 years in this 1BR rental in the outerboroughs.

And basically only 1 income family. Significant other has marginal income.

khd hits on some important points. If they saved $500K in cash and have also been dutifully funding their 401K to the maximum for retirement, I could see using $200-$250K for a down payment. But, if this is their only savings, they are not expecting a large inheritance (most people get much less than they envision and the timing is obviously unpredictable), and they don't have a generous company-sponsored pension plan, buying a $1 million apartment is crazy. They would be heavily over-exposed to volatile Manhattan real estate. In this economy, everyone's bonus is subject to being reduced and job security for even the best/brightest employees has been curtailed. Be conservative and look for something in the $700K range. You'll sleep better at night.

lad- yes renting a larger apt and spending 2-3x is probably safer than buying at this point. Less risky- no large down pmt for a rental even if its 4k a month vs. 1k now.

do the calculation backwards, first figure out how much you want to spend on a mortgage, maintenance, savings, and other expenditures each month, then figure out what price range you want to afford. If you have kids or plan on having them be more conservative with your calcs.

Wait a second, their numbers sound very close to the much maligned Mr. Araya of WSJ/Palm Court fame. He also made 200k, single income family, bought a 960k apartment. His monthly nut went to $6000, and they exhausted their savings in 2 years. While 5thGen's cushion is bigger, I think their situations are similar.

5thGenNYer -If your screen name is truly descriptive, I wonder if your predecessors were renters or owners.

That aside, patk14's numbers look good to me. Let's assume your credit is brilliant (if not, don't bother buying till you've cleaned it up). The advertised mortgage rates - which have been climbing in the past two weeks - tend to apply only to the lower "conforming" limits. Even though NYC's conforming loan limit is hypothetically higher than much of the nation's, that doesn't mean we can get those 4-5% rates. You may be better off buying something for $700K and putting down $300K to keep your loan to $400K. At those ratios you should be able to clear any board and get your pick of the litter of mortgage offerings. But once your loan goes above $417K, you may find a new kettle of fish.

I'm talking smack of course, because I'm not a banker or a mortgage broker. But I've been through this process with enough clients recently to know that there's a major difference between the quality of the loans out there, based on seemingly incremental differences in credit scores, LTV ratios, and loan amounts. Speak to your banker, weigh all the options. In the meantime, be patient! You've waited this long - you can hold out for the perfect home.

Tina
(Brooklyn broker)

nyc- Yes- true. But the person making the $250k has an MBA and a CFA. I know the job market is tight but Mr. Araya had zero post secondary education.

Assume base salary of $125k. They can afford a mortgage 3x income, or $375k. They should have 1-yr mortgage, tax, insurance, maintenance costs in reserves after purchase, about $50k minimum. The rest they could afford to put toward downpayment, which means max they could afford is $375 + 500 - 50 = 825k, ignoring closing costs. This assumes one is comfortable tying up $450k in real estate, which I would not be unless I have equivalent assets in other liquid investments and set side in my 401(k). Best advice so far is keep saving and wait or rent nicer and wait.

OTNYC - They are not going to get a 5.2% mortgage. Using your example, they buy a %950k apartment, put $250k down and they finance $700k at 7.5% which is about $5,000 + maintenance/tax. For this example, let's use a modest number of $1.54/sf and they have a 1300 sf apartment = $2,000/month. They will be paying around $7,000/month not $5,000/month. Add the $2,000 a month they pay now and you are up to $9,000/month. This is too much apartment for them.

Is 7.5% really the rate they could expect to get with good or excellent credit and $250k down? Is that a bit high?

Yeah, but there are a lot of MBAs (Ivy even) and CFAs unemployed out there. Not wishing you this fate, but unless you could buy it all cash, I'd be nervous as a sole breadwinner on a 100kish base and 150k bonus. Also, do you have children. Costs associated with kids tend to balloon.

The base salary is still a mystery here. Does the person earn $150k + bonus or something different? If the base is $100k, there is no way any board is going to pass them for a $1 million coop, let alone an $850k coop. They would be able to pass a board for $700k, assuming they put $400k down, kept $100k before closing costs and financed $300k (3 times base salary).

Yes, 7.5% is more likely what they would get for a $700k mortgage.

Wait until you see what kind of 2bedroom 1MM buys you in Manhattan, even in today's market.
You will look around and think...You have got to be kidding me! When did 1MM become chump change?

Base is around $110k

I don't think that they will be able to get a mortgage with those financials -- especially a jumbo (which unless they burn the entire savings on the down is what they'll need). The lender is not going to count the bonus as income. The lender may qualify them for abut $300 - 450K based on the salary. If they were smart enough to save $500K they shouldn't be stupid enough to spend it on a $1M apartment.

Okay, so it looks like they could probably get approved for $400k and they could put $400k down. They could realistically afford an $800k coop.

..... and put 80% if their savings down? W-A-I-T !!!!!!!!!!!!

waverly - no they couldn't afford $800K as it would take a huge chunk out of the monthly income - also assuming they're looking at coops the maint would be at least $1K and that would be on the low side. considering that these are fiscally conservative people (per the previous posts) I'd say keep renting or look for something in the $700K or less range.

ncy10025 - I totally agree with you. I was just giving the highest number possible within reason....which was $200k less than was first being bandied about.

I would just stay renting and save money if I was that couple. This doesn't seem like a good buy for them given their $$ situation, retirement savings and $110k base salary.

I'm with Waverly and Ncy10025. Base salary is way too small for them to afford a $1mil apartment. $800k max, less if they want a reasonable cushion in case of job loss, which is the prudent approach in this market. Personally, I would limit it to approximately what a reasonable co-op would look for: minimum 20% down payment, housing costs including maintenance no more than 30% of base salary, and a minimum one-year reserve.

Well, base salary of $100K is definitely suspect, but as a board member, I would also consider your cash cushion. It looks like you would easily have 2 years living expenses if you put $250K down, therefore I would be more likely to consider your bonus as a material component.

As for the earlier posts on interest rates, the conforming limits (what Fannie will buy) in NYC are $729,750 - therefore, they would get the same rate for a $725K loan as they would for a $400K loan (assuming good credit). Here is the HUD site: https://entp.hud.gov/idapp/html/hicost1.cfm. Come on people, this news is 6 months old. The current average for 30 year fixed is 5.5%, and for a 5/1 ARM it's 4.75%.

My real-life story. Back in '99, our fixed base salaries were 200k combined (50-50). We were comfortable only putting in 100k down & looking at sub-500k apts. Didn't want to count on bonus money or use our savings as a cushion. I was REALLY nervous about buying with those numbers. Do you really want to squander your savings?

Part (a major part) of what drove the bubble was the willingness of buyers to continuously increase the leverage they were willing to assume. In a rising market, and it rose for 15 years, the less money down the higher the return on investment. In a declining, the opposite is true with leverage multiplying the losses. Many people, particularly younger types, have a really distorted vision of what they can afford. Real estate agents are only too happy to encourage this risky behavior. Mortgage providers required lower and lower down payments and provided larger and larger loans. Don't put yourself into a position that you are eating into your savings each month and hope that the bonus is sufficient to get yourself back on track.

100% agreed with patk14- thats what I've been telling them. I think the market is way over priced still. maybe that 999k 2BR/2BA with dining would have gone for $1.2-1.3M a year or so ago theres more to fall.

Also I saw on Open House NYC last night this girl (with her husband) had purchased this apt for $1.3M a year and a half ago. Put in 50k of renovations. Barbara Corcoran told her now she would have to put it on the market for $850k if she wanted to sell it. that's a $500k loss in a year and a half. OUCH!

"As for the earlier posts on interest rates, the conforming limits (what Fannie will buy) in NYC are $729,750 - therefore, they would get the same rate for a $725K loan as they would for a $400K loan (assuming good credit). Here is the HUD site: https://entp.hud.gov/idapp/html/hicost1.cfm. Come on people, this news is 6 months old. The current average for 30 year fixed is 5.5%, and for a 5/1 ARM it's 4.75%."

I don't care if this news is 6 months old or 6 minutes old. Regardless of what the limits imply, you cannot get a $700k mortgage for the same rate as a $400k loan. They may even publish that rate, but all that matters is what you can actually get....and it is about 7.5% for $700k.

so many people trying to justify crazy behavior.... i'll say it again...how much are you prepared to lose? by the way....there was string a week ago or so about the barbara corcoran open house---i think she was right and it sold for $ 850 K. if you don't think that's still a possibility, you're kidding yourself. i am so tired of all the comments about how real estate isn't an investment, its a home. how does that apply to the couple that lost the $500 K? oh well, its not an investment...its a home that just cost us $500 K + carrying costs for 18 months or roughly $35 K per month. brilliant. if you want something nicer or different, look at rentals ....$5- $6 k per month gets a space that is arguably nicer than anything you could buy for 800 K to 1 million. remember: a loss of 10% on $1 million + 100 K. even over 5 yrs, that's $1,700 per month. and if its 15% on $1 million over three years its $4,200 per month.

Waverly - I haven't shopped for a $725K mortgage lately, so I won't breathe more fire in your direction, but you have to back up a comment like that. Have you shopped for said product with excellent credit and received said quote as the best offer available? If not, then the published rates stand. If so, would love to hear more about it.

As for the story about the couple who paid $1.3 and could sell only at $850, sucks to be them. But if they planned to sell in 1.5 years, they deserved what they had coming. And it sounds like they grossly overpaid if the place needed renovations. Also, you are not factoring in transaction costs which are probably close to 12% for buying and selling (close to another $120K total), and leverage, so if they were in for 20%, they are losing closer to $600K. Ouch!!!

I could tell you another story about a couple who paid $240K and sold for $680K 3 years later (with 20K in renovations), but they are both just anecdote. Buyers should buy for the long term, not in anticipation of flipping for a quick buck.

"I don't care if this news is 6 months old or 6 minutes old. Regardless of what the limits imply, you cannot get a $700k mortgage for the same rate as a $400k loan. They may even publish that rate, but all that matters is what you can actually get....and it is about 7.5% for $700k."

You're half correct.
With excellent credit and it's an apartment that is above 90% sold you can get a 700K loan in banks like Chase, Wells Fargo, HSBC at 6.25% currently with 20% down. With 30% down, you can get rates at 5.85% currently. These are facts..i just spoke to all of them today.

If you want lower rates, you have to pay the points. Every point is 1% of the loan. And every point will mark down your rates a certain percentage depending on the bank.

Correction..
With Chase, you can get a 700K loan at 5.65% with 1 point, a credit score above 740 and open a platinum checking account (70K deposit). Currently, it's the best deal in town....

who cares about the stupid mortgage? how can you be discussing this given what has happened? astonishing.

CC - get over it dude - some people just want to own a home, and they will pay the prevailing price and borrow at the prevailing rates for the privilege (and it is just that, a privilege).

and then two or three years later, we'll read about them and their financial woes and be expected to be sympathetic and, of course, bail them out.

"Base is around $110k"

Mortgage = $330. Say they hold onto $50k for emergencies (low, in my opinion) and sink everything else into the home. $450+$330=$780k. The million-dollar apartment is out of reach.

you don't understand...some people just want to own a home and in the US of A, we are free to be as stupid as we choose. the best reason to buy is being sick of renting and wanting to own. the rest is just noise.