PLEASE Help, need advice. Young dreamer here!

@TripleZ: Would she be able to secure a mortgage assuming zero liquidity post-close? And on top of that, if she is buying into a co-op, she may also not pass the board review.

I have no doubt that someone making ~$100k can easily make payments on a mortgage of roughly $250k, but I don't know she can get one in the first place if she's showing the bank that she is using every last dime in her account just to make the down payment.

@Dreamer: Have you had any opening dialogues with mortgage brokers/banks regarding what their requirements are for loans in your range?

@Homebody:

"I think there was a lot of careless lending during the boom and ensuing bust; however, I don't think that by using an FHA or SONYMA loan, one is more inclined to default or foreclose."

I do. And so do the majority of co-op boards. That's why we require at least 20% down.

***

"I'm of the opinion that greater emphasis should be placed on a borrower's credit rating, earning history, and liquid assets. At 25, I have a 770 FICO but don't necessarily have 20% to sink into a downpayment. Even if I did, I don't think it would make fiscal sense to drain all of my liquid on the illiquid downpayment. To me, the more financially prudent decision would be to put less money down and preserve sufficient cash for closing costs and unforeseen circumstances: that's how you prevent rapid default and foreclosure. Again, I hate to use a cliche, but at the end of the day, CASH is king."

At 25, you have virtually NO "earning history" to speak of (under 5 years? Seriously?). And any fool who opens a credit card at age 18 and makes ONE payment on time has a FICO score of over 750.

No, it wouldn't make financial sense to drain all of your liquid on the "illiquid" down payment. But it makes even less sense to buy a home that you can ONLY afford if you put 3% down so that you can hang onto your last few thousand bucks in the bank.

***

"Regarding your second question about the expiration of the abatement, I have no idea what the assessment will be."

Maybe you should be doing a little bit of homework -- *due diligence* as we call it here -- before making a real estate purchase.

Just a suggestion.

@Triple:

What JBNYC just said.

And to your other comment:

"Earning $100,000 per year means, roughly, that you earn more in an hour than a minimum-wage burger flipper earns in a day. Only a tiny fraction of society will ever reach such rarefied heights. For us mortals who will never get there, dutifully and diligently saving our money is the clear route to home ownership. Stop pretending that this path doesn't exist."

I've said it before, and I'll say it again. NEW YORK CITY is a real estate market that's a world unto itself, unlike any other market in the United States. Because of the ratio of land mass to people (and not just people, but RICH people), supply and demand has pushed BUYING real estate into the stratosphere. This is why 85% of New Yorkers -- even "rich" New Yorkers -- can only afford to rent. Other cities have a variety of "showrooms" of inventory that fit all budgets -- from Ferraris and Bentleys to Lexus ... Cadillac ... Buick ... right down to the used Chevys. New York, however, is strictly a showroom of Ferraris and Bentleys. MAYBE an "affordable" Mercedes here and there.

Unfortunately, the path to home ownership in New York City exists only for the financially well-heeled. That's just a fact of life. For "mere mortals" who dream of home ownership but continue to fall short, they're just going to have to dream elsewhere.

Triple & Dreamer:

You will enjoy this article.

http://www.nytimes.com/2005/07/17/realestate/17habi.html?pagewanted=all

Sorry I'm a bit late with the response.. Work is a bit hectic this week!

@NYCAce Thanks for the advice. Ever since I found StreetEasy (a few years ago) that's all I've been doing. Educating myself. I feel like I'm a SE Addict! All I do is look at listings, market trends, discussion boards, rentals, sales, in all boroughs, etc. I feel like there's always more for me to learn, and I thoroughly enjoy it. And, I'll continue to do so. Thanks again for your help.

@Woodside I completely agree with your "test drive" advice. Even now, I'm not 100% sure of the area I'd committ to buying into. Up to now, I've really only considered what I can afford, but that's not the way to choose where you'll invest. So, I do believe it's best to rent in a few areas, and see what suits me best. These last 5 years of my 20s are certainly important enough to me that I'll make sure I won't waste them. Thanks :)

@NYC10023 You are very on-point in your description of me, and I think that once I am ready to buy I'll be looking for the type of place you describe; easy subletting, breakeven rent vs. monthlies. But as NYCMATT correctly points out, I'm not yet in a position to buy, and I think he's right with his advice of not investing in a Studio/1bdrm, but rather holding out until I can afford a 2bdrm. By the way, thanks for the article! What a cool story, the real "American Dream" Bravo to that guy! And very relevant, thanks again!

@TripZero & JBNYC Hello, Thanks for your help, your posts are very interesting to me. Let me just say, that I will never be the type to make such a decision without knowing (as much as anyone could know) that I will not fail. As such, I wouldn't want to put down the "minimum" payment that the co-op or condo demands. If I can, I plan to put down the most that I can afford to, as to make my monly payments as low as possible. I feel that this is the only way to go for someone like me, who will probably just make it. And, just to clarify, I have about 20K now, and will continue to save for another few years on my own. At the time that I wish to purchase, my parents have offered to match my down payment. So, let's say in a few years I have 60K, and receive another 60K from them, I'll have 120K to put down, which I think is a substantial amount. Now, given that all other things are in order (I still have back-up cash, good credit, etc.) I'll be in decent shape to take a shot at 350K. That's about a 35% down payment, and if my maintenance is below $900, my monthly payment can land at about $2,000. OF COURSE, at that time, I could be at a point in my life where I need more than the 1bdrm that 350K will buy me, which brings me back to my original dilemma. The reason I say this is to remind everyone that my original question wasn't what I can or can not afford, it was what I should do in terms of buying or renting, given my situation.

@JBNYC.. To answer your question about Mortgage brokers/Banks, Yes, I have gotten pre-qualification letter's and such back when I took my first shot at buying into a co-op with my parents as guarantors (major fail btw). We were approved for a $420K loan. Was that your question? If I misunderstood, I apologize. This is mostly because my parents have a large savings, and own a home, and other smaller assets. However, we were denied by the board because, since my father's retirement, our debt/income ratio was too close, as his income was obviously much lower than it use to be. <--- For this reason, I see why NYCMatt is so focused on the $$. I say this because I've seen a lot of people challenge his logic on this idea. He's coming from a "co-op" standpoint, and to them, the $$ is key. See, eventhough we had enough of a net-worth, the income was lacking, and that was the deal breaker. So, Thanks Matt for this insight. It may not matter in "the real world" but when you want to buy, it sure does.

> I've said it before, and I'll say it again. NEW YORK CITY is a real estate market that's a world unto itself, unlike any other market in the United States. Because of the ratio of land mass to people (and not just people, but RICH people), supply and demand has pushed BUYING real estate into the stratosphere. This is why 85% of New Yorkers -- even "rich" New Yorkers -- can only afford to rent. Other cities have a variety of "showrooms" of inventory that fit all budgets -- from Ferraris and Bentleys to Lexus ... Cadillac ... Buick ... right down to the used Chevys. New York, however, is strictly a showroom of Ferraris and Bentleys. MAYBE an "affordable" Mercedes here and there.

Oh, BS. Anyone who can save, can buy. You can buy a studio for $250k-$350k. 1BR for under $500k. That's all many people need. And, that's CHEAPER than the cost of a crappy house in suburbia, which is hardly "off limits to 85% of people". Pay it off, and then enjoy a lifetime of rent free living until you die. For many NYC people who never plan to marry or have kids (most NY'ers), life in a studio is just fine. Not everyone needs or wants to live in some penthouse.

You've said it before, but who really listens to a child or a boy.,,,,,,
rhetorical

"Oh, BS. Anyone who can save, can buy. You can buy a studio for $250k-$350k. 1BR for under $500k."

Not if your income is under $100K.

Dealboy: "A lifetime of rent free living" ???

There is something attached to NYC real estate - it is called maintenance. Whether or not you have a mortgage, you can be guaranteed a monthly maintenance. In any building that s only going to continue to rise - and in a doorman building it will rise even more. There are many apartments that have maintenances that approach the cost of renting a similarly sized apartment.

@ Dreamer:
>>Let me just say, that I will never be the type to make such a decision without knowing (as much as >>anyone could know) that I will not fail.

If this is really how you think about it, I think you're never going to get comfortable with purchasing vs renting. I'm also a conservative person, and it's VERY easy to run a not-too-far-out scenario where you lose a lot of money when you buy if things go wrong. Since a real estate purchase with 20% down is levered 5:1, all it takes is a 10% decline in prices to wipe our half of the equity value in your home! And with the list of potential crises out there that could impact NYC real estate (continued Wall Street issues, increased taxes to plug our budget gap that make cost of living even less attractive, spike in interest rates, disappearance of international buyers as Europe freefalls or Asia slows and/or dollar strengthens, foreclosure backlog at some point hitting NYC) or your particular apartment building (a huge assessment costs you $20k out of pocket or maintenance grows 10% / year), the list of what can go wrong is a scary one. Now I'm not saying any of this is likely to happen, but if you think there is a 25% (or pick your own probability) of losing 50% of your investment in the house, a conservative person will have a tough time pulling the trigger.

Pre 2008, everybody's rent vs. buy models had a DOWNSIDE case of flat price appreciation and a base case of 3-5% annual price increases - when that's the case, real estate is a home run. When your downside case is 2-5% / year declines, it is a whole different ball game in terms of potential risk of loss.

I'm not saying don't buy. I'm just saying don't delude yourself into thinking that it's possible to only pull the trigger on the purchase if you have zero chance of losing money!

@Freebird I do agree with you, and thank you for your insight. You're probably very right about me being hesitant one day. Because, let's be honest, I'm probably never going to be in the position where money is no object, and I can make huge mistakes knowing that I have unlimited funds to fall back on. But, the scenarios in my posts above were all hypothetical for argument's sake, and I did try to acknowledge the fact that I wouldn't take that plunge without knowing (**as much as anyone could know) that I wouldn't fail. So, of course I am aware that anything could go wrong, but the point is I'm not going to set myself up that way to begin with. (i.e. put a small down payment and have high monthlies, etc.) Anything that's in my control, I plan to control it. Hope that clarifies.

It seems like there are tons of assumptions on Dreamer's actual yearly income being made in each of these posts. All that is a given at the moment is that it is DEFINITELY under $100k at the moment, and from what I can gather, it is probably well under that amount, as she has stated that it will take her a few years to save roughly $45k. With those variables, I am estimating that she makes around $55k?

$55k
x 75% (assume a simple income tax calc of 25%
= $41k

Less: misc monthly expenses (going out with friends, shopping, commuting etc.) = $20k/year
=$21k max savings/year

@75% of that (conservatively estimating), she saves $15k/year x 3 years = $45k

Again, the above are really wild assumptions, since we know nothing about her personal life, but given that she is implying that there would be ZERO post liquidity in her posts, would a bank approve her for a mortgage of roughly $260k, let alone a co-op board?

Forgive me if I am grossly underestimating your salary Dreamer, but if it is much higher, then your "few year" estimate to save $45k seems too long, given that you have stated how careful you are with money. Also, do not forget that you are going to be taxed self-employment tax on your "side gig" which could mean upwards of 50%.

Maybe I'm more of a nuts and bolts guy than a *dreamer*, but I think you need to consider these things before getting far too deep.

@JB Thanks for your help.. When I estimated that i'd save about 45K in the next few years, I was assuming that i'd be renting simultaneously, which would of course not allow me to save as much as I could if I was living at home. So, that doesn't necessarily reflect my salary. 100K is a figure that I *expect to make in the next year or 2. I use the word *expect loosely, as it's not a given, but just my estimate due to the course my career is taking. I just need an approx figure in mind so that I may plan out calculations.. that's all.

Save (either by living at home or renting w/ a roommate) until you have enough for a 20% downpayment, AT LEAST one yr of expenses (debt service, real estate taxes, maintenance, and living expenses) in reserve AND your total mortgage won't exceed 2x HHI. Then, you're ready to buy. If what you can afford to buy at that point is not something you can imagine living in for at least 7 years, keep saving.

@Dreamer - It looks like it would me a tremendous advantage to you to stay with your parents as long as you can: paying rent will take such a huge bite out of your saving potential, particularly if you don't have roommates. Work hard and save diligently! And whatever you do, don't let the stick-in-the-muds get you down!

@Freebird - "Pre 2008, everybody's rent vs. buy models had a DOWNSIDE case of flat price appreciation and a base case of 3-5% annual price increases"

Not only that, but a lot of those rent/buy calculators used to presume a 5% return on cash investments if you saved it and rented rather than spending it on a down payment. And you couldn't even enter a number less than zero for RE price appreciation! Fortunately they've mostly corrected themselves; when I was first in the market to buy, I assumed 0% return on investments and -2% 'appreciation' in RE.

Manhattan price:rent ratio is still double historical norms. So is price:cost to build/renovate. Those two numbers mean that, unless the lenders collapse, professional investors will be creating new supply by building, renovating, and selling currently rented units.

Accordingly, the downside you need to be contemplating is that Adam Smith's profit motive works, in which case prices are likely to drop by a third -- not 2 or 3%.

Or more, if the builders/renovators/foreclosers/converters overshoot, as they usually do. Or if demand drops, say due to lower Wall Street profits or reduced international investment or a recession or fewer people sitting on bubble profits.

Of course, if builders are too afraid to create new supply, the NYC market could continue flat for many years, until 2% inflation pushes rents and building costs up to current prices. And maybe demand will rise because there is no place like Manhattan. So you could dream about flat or even rising prices too. All that is required is that capitalism be a failure and NYC a success...

At current prices, rational people looking for an INVESTMENT take one look at Manhattan RE and look elsewhere. People looking for a HOME, rent.

@NYCMatt,

If getting a 750 FICO was as easy as you mentioned, I think more people would do it and as such we wouldn't have had a subprime melt down.

Re: Dealboy: Pay it off, and then enjoy a lifetime of rent free living until you die.

Re: Target: There are many apartments that have maintenances that approach the cost of renting a similarly sized apartment.

Yes dealboy - please lose the whole rent-free schtick - I did the math on my place that I own outright - my maint is 42% of what comparable apartments rent for -- there aint no such thing as "rent free"! Discounted rent maybe.

"If getting a 750 FICO was as easy as you mentioned, I think more people would do it and as such we wouldn't have had a subprime melt down."

Actually, it IS. Always has been. Everyone's credit is "perfect" -- until it isn't anymore.

@ West34: "Yes dealboy - please lose the whole rent-free schtick - I did the math on my place that I own outright - my maint is 42% of what comparable apartments rent for -- there aint no such thing as "rent free"! Discounted rent maybe."

Even still, once the mortgage is finally paid off, is sure beats paying market rate foreverandeveramen.

NYCMatt,

Are you saying that everyone starts out with an 850 (perfect) FICO "until it isn't anymore"? I highly doubt that's the case. I think if it were, we'd be in more trouble than we were already in. No one's credit starts out at 850 (perfect) just because they've never missed a payment. There are other factors that influence your score such as whether you carry a balance and how close to your debt threshold you typically are. Prime example, Greece has never missed a payment. So according to your theory, their credit should be perfect "until it isn't anymore." But it's far from perfect because the outlook isn't good. Credit my friend is something you build over time.

Although I agree that dealboy's "rent-free" concept is seriously flawed, we *do* have to remember what maintenance actually is, which is taxes and upkeep. So even if Dreamer's parents own their house free & clear, they still have to pay taxes, and they still have to pay for upkeep.

When you rent from somebody else, your rent pays for the landlord's taxes and upkeep. Sometimes more, but sometimes less, as in the case of rent control/subsidization.

Any time you're receiving "free rent", it means you're mooching off someone else. Not something to be proud of, and clearly not something to brag about.

here's the thing to consider about co-ops. upkeep is not an absolute number or concept. some co-ops think that the lobby needs re-doing every 5 years at a cost of $250 K---others don't. some co-ops think its vital to have an elevator man to push the button for you---others don't.

Absolutely true, CC. But that's something you buy into, wherever you live. You can own a house in the suburbs and decide not to replace the windows when they break or leak. You can have broken bathroom tile and holes in the walls.

But that's how each individual sets his/her own gauge. Even if you go with gutter-low maintenance, you're still never living rent-free. When the furnace breaks, it needs to be fixed, and that costs money.

I guess my point is that even in "houses" where the "maintenance" is not etched in stone, there's still "maintenance" in the form of upkeep. There's no such thing as "free rent" anywhere.....city, suburbs, or the farm.

Yes, monthly maintenance is under 50% of market rent.
A massive discount to being a lifetime rental sucker.
For retirees with a young boarder in the other BR, it truly is rent free!

>Actually, it IS. Always has been. Everyone's credit is "perfect" -- until it isn't anymore.

What an idiot.

I've been following this thread with interest because, as I posted earlier, I accomplished exactly what the OP was trying to do. I support anyone who wants to make the sacrifice and follow their dreams if that's truly what is important to them.

Unfortunately after continuing to read I've become a bit of a skeptic. The reason was the OP's comment a few posts up: "When I estimated that I'd save about 45K in the next few years, I was assuming that i'd be renting simultaneously"

$45K is simply way too low a down payment to purchase a NYC/Manhattan apartment unless the OP is planning a Co-op studio for around $250-$300K. Also, if the OP is purchasing a co-op than she will need to submit a board package and if one spends all one's money on the down payment than they will not (usually) be approved by the board. It's usually at least one year of expenses so on a fairly conservative estimate if it's a $300K apartment with a $50K down payment that's a monthly expense of ~$1400 without maintenance. So $1400 x 12 is another $16.8K. And this is just a rough estimate. That means on a $50K down payment on a $300K co-op one would need at least $70K to be approved not just closing costs and other expenses.

In this economy no one can reasonably estimate that they'll be making $100K+ in two years unless one is already making +100K and is moving jobs or one is part of the family business.

I think the feasibility of the plan should be reassessed unless some of the variables change, namely the amount of the down payment.

Saving takes a few years, not just one or two. Unless, of course, one is/becomes fairly wealthy: that's a whole different matter all together.

I'd like to see some more numbers and the "business plan" from the OP so that she is grounded a bit as to what type of sacrifice will need to be made....

@Homebody:

"Are you saying that everyone starts out with an 850 (perfect) FICO "until it isn't anymore"? I highly doubt that's the case. ... Prime example, Greece has never missed a payment. So according to your theory, their credit should be perfect "until it isn't anymore." But it's far from perfect because the outlook isn't good. Credit my friend is something you build over time."

You realize that FICO scores for individuals inside the United States and credit ratings for entire nations are two completely different things, right?

Or maybe you don't.

Hint: TransUnion doesn't rate Greece.

You don't start out with an 850 FICO the day you open your first-ever line of credit, but you do start with a decent rating. For reference, I've had a credit card in some form for 15 years, typically with smallish credit lines of $2k-$10k, and only use my cards very, very sparingly. My FICO is up around 780 just from that; that range is fine for a big loan like a mortgage. Once you start paying that off on time, you can hit the 800s super-prime territory.

@nyc_ace - I think she's factoring in the matching down payment from her parents, which would bump her $45k up to $90k. And that's if she rents for the next three years *and* takes the gift.

If she lives at home, and saves the $1500/month (being conservative) that she would have spent on rent, she saves an additional $18k *per year*. After three years, she's got 3(15k + 18k) = 99k living at home, and after five years, a massive $165k, and that doesn't even include a parental gift. Not having to pay rent makes all the difference in the world -- it's how I'm managing to sack away so much every month!

Dreamer, if you're willing to stretch your waiting period to five years rather than three -- get yourself a nice 30th birthday gift! -- you'll have very little to worry about.

"In this economy no one can reasonably estimate that they'll be making $100K+ in two years unless one is already making +100K and is moving jobs or one is part of the family business....the feasibility of the plan should be reassessed unless some of the variables change, namely the amount of the down payment....Saving takes a few years, not just one or two. Unless, of course, one is/becomes fairly wealthy: that's a whole different matter all together."

Very sage advice from nyc_ace, in particular the part about how long it takes to save a substantial sum. OP, you should read that post carefully, a couple of times.

Smart comments from nyc_ace above, particularly relevant:

Hello Everyone..

@Triple Thank you for clarifying my plans here to NYCAce.. Also, thanks for attempting to break down my savings for both scenarios. I definitely know that i'd be able to save a nice chunk living at home, but the question here really is: Is the money I would save worth the life experience I could have by living on my own (conservatively)?

@NYCace Yes, I realize 45K is WAY too low of a down-payment, but as Triple clarified, I'm considering a gift from my parents. And, I am keeping in mind that i'll need liquidity beyond the down-payment to get approved by any board. And, as mentioned, I'm using 100K just for argument's sake, and understand that it's not a "given." But, I needed a frame of reference that's realistic for me, which I believe 100K to be. I'm not going to use anything more than that because I don't see my career taking that path. I'm not using less than that because if I never wind up getting to at least 100K then I will probably not consider buying at all. That's pretty much my "break into the game" point, if you will. Thank you for following my post, and for your good advice, I genuinely appreciate it!

@manhattandreamer - "Is the money I would save worth the life experience I could have by living on my own (conservatively)?" Only you can answer that; it's subjective.

Consider various options. For me it was roommates from craigslist. I'm acquaintances with a woman who works in publishing. She decided to live nunnery or convent or something in Manhattan so she could have very inexpensive rent. Naturally few people every came to her place but she lived in NYC on a meager salary before moving out to LI.

In terms of the finances, I would play around on the streeteasy property calculators for various listings. The focus should be on the size of the down payment and the monthly expenditures (taxes and maintenance) for your total monthly cost of the apartment. Run this up against your current salary, not a projection. Assuming you are paid bi-monthly (if you are paid semi-weekly do an average to figure out how much you make a month and divide by 2), does the apartment costs come out to be less than one paycheck? If so, would you want to "live" only on the remaining one? That should just about answer the subjective part of it.

I also suggest playing around with different property types. Coops are usually less per square foot than condos. That means coops have a lower down payment for a larger property. That's the upside. The downside to coops: usually you will have higher monthly costs living in a coop since the maintenance is higher (even though you'll get a percentage back on your taxes).

Naturally there are many more variables to consider. I've just introduced a few based on your question. I'm less concerned about where the money will come from than how much you have to use in your purchase.

(Thanks to everyone else who read my posts and relied. I'm trying to address them without @'ing everyone. ~Cheers.)

@NYCMatt,

Understood clearly, but I think the premise of credit and a credit rating is basically the same no matter where you go.

nyc_ace: "Coops are usually less per square foot than condos. That means coops have a lower down payment for a larger property. That's the upside."

Co-ops almost always require a *minimum* of 20% down, plus some have strict requirements on liquidity post close. I don't think that your upside is really an upside, IMHO.

@jbnyc - i see your point. i was never interested in the co-op market, though. condos all the way... ;)