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6 Tips for Millennials on Buying a Home in New York

Ossiana Tepfenhart

Ossiana Tepfenhart

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If you are in your mid-30s and you still haven’t bought a home, don’t fret. Renting is the norm among New York Millennials.

Millennials are buying later in life than previous generations.

Part of the reason for the delay deals with the wage stagnation they experienced during the Great Recession as well as the high price of student loan debt.

But that’s only part of the story.

Unlike generations before, many Millennials just aren’t interested in classic signs of growth like homeownership.

They would rather spend money at restaurants, traveling abroad, or just being able to work jobs they find more fulfilling.

Reasons Why Millennials are Starting to Buy

Although there are still plenty of Millennials renting with roommates and enjoying the single life in the big city, many older Millennials have now gotten started their own families and decided to buy.

Generation Y, as numerous as the Baby Boomer Generation, are now coming into their own and according to the National Association of REALTORS, have become the largest group of homebuyers in the US, making up roughly a third of all buyers.

More than a third of Millennials who are looking to buy have young children and desire to buy a home to call their own, as well as a change in their family situation.

The top reason for Millennials to purchase a multi-generational home is to take care of aging parents. The second top reason was to save money.

Taking A Look At Your Finances

New York is expensive.

In fact, it’s one of the most expensive cities in the world.

If you want to buy a home here, you need to have a budget that matches the pricing here. It’s also a place where it’s far cheaper to rent than it is to buy.

Before you look into buying, you need to get a good idea of whether or not it’s even feasible.

Buying a home is not a must, but it can have its benefits.

There are possible tax benefits for homeowners, as well as opportunities to build your credit by paying your mortgage on time faithfully.

Furthermore, purchasing real estate is you essentially making an investment that can accrue value over time.

Likewise, it can be detrimental to your financial health if you are not ready to step into a more potentially fiscally-demanding role.

That's why it's important to weigh the pros and cons, as well as, assess your buying power before you take the first step.

Your Income Level

Whip out a calculator, look at your savings account, and look at your cost of living.

Compare it to a typical mortgage in the area you want to buy in.

Can you really afford a home here, with a mortgage, PMI, and taxes? If the numbers barely scrape by, it’s better to stay a renter.

On a similar note, if you are highly unstable with your income, buying in New York City is not a wise choice.

You never know what may happen, and being unable to pay a mortgage will lead to far worse things than being unable to pay rent.

The median salary to afford a home in New York City is $114,000 right now.

It might be even higher next year. If you are making a modest income, buying is simply not for you.

Family Income

Even though Millennials are reaching their thirties, a large portion of them still rely on parental income in order to make ends meet.

It’s not necessarily Millennials’ fault; the job economy made it difficult for many industries to be livable.

If you currently rely on your parents in order to pay the bills, you probably should wait until you’re more financially stable.

If you still want to give homeownership a try, then it’s wise to try to talk to your parents about cosigning on the loan. Otherwise, getting a home loan probably won’t work out.

Your Inheritance

A lot of Millennials are banking on their inheritance in order to afford a home, but that’s not always a bright idea.

The truth is, most Millennials vastly overestimate how much they will receive in an inheritance—often by a long shot!

While most experts estimate the wealth of the Baby Boomer Generation to be about 30 trillion, the peak age range for inheritance won't come until about 60 years of age for Millennials.

Furthermore, while the Boomers are alive, they've still got more living to do. That means the usage of those very funds.

If you have decided that you want to buy a home, you need to save up some money and ignore the potential inheritance you think you’ll receive.

Otherwise, you may end up pretty disappointed when it’s time to qualify for a mortgage.

Your Credit

If you thought that renting was tough on credit, wait until you try to get a home loan in New York City.

If you are below a 700 score, it won't be impossible to qualify for a loan, but it will come with consequences.

For one, you will be paying more in interest to your creditor than someone with a good or excellent credit score.

That's potentially hundreds of thousands of dollars over the life of a mortgage.

Upping your credit score is a good way to prep yourself for a mortgage. Get our expert tips on boosting your score from How to Improve Your Credit Score.

Know Your Allies

If you are a first-time buyer or a lower-income individual, you may be able to get a down payment loan to help you buy your first home sooner.

New York’s HUD has multiple loan programs with affordable terms, good payment plans, and more just for this purpose.

New York City’s HUD programs also include a first-time homebuyer’s tutorial and class, all to help you to learn what to expect when you pay for your first home in New York City.

Talk To Experts

Navigating New York City real estate purchases isn’t easy.

You should talk to someone who has been through the wringer a couple of times, such as a realtor or banker.

They will often tell you what to expect, what to afford, and more.

Start Saving

Though you might be able to swing buying a place with no money down, it’s not the norm unless you have a VA loan.

To get the home you want (and also maintain some security too), you need to start saving up money...and fast.

Consider Taking A Second Job Or Downsizing

There are ways to qualify for 0 or a small percentage down, but these are not the norm.

Most mortgage companies will want tens of thousands of dollars in down payments before they approve you for a New York City mortgage.

Most co-ops will also want to see a lot of liquidity. Same with condos.

Simply put, cash is king and you need a lot of it in your bank.

Though taking a second job and tightening your belt are the two most common ways to save money, any method you use is one you should consider.

Liquid funds will only help you in your attempt to buy a home in New York City.

The sooner you start saving, the better. That cash can make a world of difference when it comes to getting approved for a loan OR the co-op of your dreams.

Overcoming Millennial Money Problems

The easiest way to make sure that you get a good shot at homeownership is to work on solving classic Millennial problems that prevent budgets from being real estate-friendly.

Here’s what you need to know about the income barriers, and how you can potentially solve them:

Overwhelming Student Debt

Studies show that Millennials have the highest levels of student loan debt out of all generations in American history.

On average, a typical 10-year, $25,000 student loan will require a $280 monthly payment.

If you’re a doctor or earned a Master’s degree, your loans can easily equal a monthly mortgage payment.

Unlike any other type of debt, student loan debt can’t be discharged through bankruptcy.

The only real option that you have with these loans is to pay them off or refinance them.

Tackling your loans before getting a mortgage is vital. If you don’t, it’s possible that you won’t be able to qualify for a mortgage!

Low Incomes

Though this is not the case across the board, there are many Millennials who struggle with getting a mortgage due to income levels.

Studies revealed that Millennials earn far less than their parents did at the same age, adjusted for inflation.

Thankfully, there are several ways to (at least partially) even out the playing field:

  • Take Up A Second Job. This is obviously not ideal, but it can help you reach the income minimums you need in order to qualify for a mortgage.
  • Switch Jobs. Studies show that it’s usually more profitable to hunt for jobs every two-to-three years than stay at a job in hopes of getting a promotion. This is because new employers will be more willing to hire you at a higher wage than what you’d receive at a promotion. So, dust off that CV and start applying.
  • Open A Side Business. Side businesses, particularly turnkey operations, tend to give people the ability to earn a passive (or semi-passive) income.

High Healthcare Costs

The price of healthcare is absurdly high, no matter how old you are.

With Millennial households already feeling the income crunch, it can be hard to mitigate this ultra-pricey issue.

Thankfully, there are ways to help curb spending:

  • Seek Out A Benefits-Rich Job. If you can find an employer that provides discount health insurance, by all means, apply. This is a simple way to make sure that you get rid of a major bill.
  • Work A Payment Plan Out. If you already incurred bills from a medical visit, call up the hospital or doctor. Ask them about good faith payment plans, charity care, and other options. You might be able to work things out.
  • Revisit Old Bills. Take a look at your old medical bills carefully, since many bills have serious (and pricey) errors on them. If you notice something a little “off” about your bill, call your insurer. They may be able to fight the billing error on your behalf.

Know What You’re Buying

Apartments, condos, co-ops, homes, oh my! You can buy a little everything in NYC, can’t you?

Well, here’s what you need to know about each, and why they may or may not work for you.

Houses and Townhomes

If you can find a house or multi-family house outside of Manhattan that you can afford, it’s a good idea to consider it.

Houses are way more spacious than most other options on this list, and multi-families can afford you passive income.

Read more on How to Buy an Investment Property in New York.

Loans offer less red tape, getting approval is easier, and you might even be able to help pay for your bills.

These can be an amazing way to create equity that lasts, as well as a source of income.

That being said, most houses in the five boroughs are out of reach for first-time renters.

You also will be entirely responsible for maintenance and repairs, so if something breaks, it will be an out-of-pocket expense.

Apartments and Condos

You can, technically, buy an apartment unit.

It will be legally yours, and you will be able to sublet it to others. You also will be able to live in it, sell it, and use it as leverage.

You no longer will have to worry about what to do if you can’t pay rent.

Apartments are great for passive income, but being a landlord is still not easy and can be downright risky.

You can make a lot of money this way, which is why buying these can be incredibly competitive.

You also may be required to pay maintenance, taxes, and other fees when you buy.

Co-ops

Co-op purchases don’t make you a homeowner per se, but they do give you ownership over a unit and shares of the building.

You get a lease that lets you occupy that unit as thanks for owning shares in the company-owned building.

Co-ops have maintenance bills much like rent but also come with more amenities.

Price-wise, they are often much cheaper than comparable apartments and homes.

The problem with co-ops is that the application process is often grueling, intrusive, and downright maddening.

Even celebrities can’t get into some of the most expensive co-ops in New York City, so you can expect standards to be a serious battle for you, too.

Co-ops are risky because the board of directors can make your life difficult or easy for you. You have very little control over what happens with you at your co-op.

Lofts

Artists love lofts, which is why they are so highly demanded in the real estate world.

These open spaces are often converted from industrial buildings to be live-work spaces for lone artists or collectives.

Because of the unique multifunctionality of many lofts, you may be able to write them off as business expenses if you work in them too.

They are more open to unique people, and can also be more affordable.

That being said, many lofts are illegal. Make sure you are buying one that you can actually live in before you plunk down the money.

Hiring a good real estate attorney can help you avoid the pitfalls that may land you in the red.

Learn The Process

Each type of property will have its own buying process. Here’s a quick run-through:

Basic Buying Notes

  • Houses. Houses are expensive but are the easiest to buy. You can get a mortgage, will need an inspection, will need a lawyer present, and also will need to cover closing costs. You don’t have to be approved by a board, and you get full reign over your place. It’s simple.
  • Townhomes and Condos. You can get a mortgage for these fairly easily, but buying can be more difficult. You may need board approval before you buy it. You also may not need to deal with inspections or repairs, since they are covered by the condo association. You will have rules to follow, but most of those are easy to deal with. That being said, you still get full reign over your space as you do own it.
  • Co-Ops. These are the cheapest on the market, but the application process makes them very difficult to deal with. They have incredibly intrusive applications that involve issues like liquid asset minimums, live interviews, and a loan lined up if you can’t afford cash. The boards can make your life miserable, as can all the rules. You will also be responsible for monthly maintenance bills. You don’t own a co-op, so technically, you can be evicted.
  • Lofts. Lofts are often treated like apartments or condos when it comes to the buying process. Some are also treated like industrial purchases. A building inspection is necessary, as is live-work zoning...if you want to stay legal.

No matter what kind of property you want to buy, you need a real estate agent and a lawyer to look things over for you. It’s a good idea to hire an experienced one to help you out!

Beware Of Scammers

Though rare, real estate sales scams have happened in the past. It’s best to use common sense here.

If a listing looks too good to be true, it probably is.

If it’s not being sold by a licensed realtor, it probably is a scam. If they balk when you tell them you need a lawyer to look it over before you hand money to them, run.

Above all, never buy a place you have never seen before in person.

Know Your Neighborhood

Like with any other part of the United States, buying a home in New York City means you need to know the area you’re living in.

Is it on the “up and up?”

Is it already established, like the Lower East Side? Or, is it a high crime rate area? You need to know these things before you move there!

Look At Daily Life Details

Your neighborhood will make or break your stay, and the devil’s all in the details.

Do you see high crime rates? Gang graffiti? Bad schools? Nearby metro stations? Grocery stores? Good restaurants?

These things matter and will often reflect in the price of your home.

If you’re looking for a long-term stay, it’s worth pointing out that many of these things may change as the years pass.

Many “bad neighborhoods” are now incredibly attractive to Millennial professionals.

Even so, you might want to still look for the best value right now.

Inspect The Home

A home inspection is a must if you want to buy a house.

Repairs are expensive, and slick sellers may try to hide them from you until it’s too late.

A good inspector will be able to spot them and give you a better-negotiating platform when you make an offer.

Be Realistic

Renting in New York City is often cheaper than owning.

If you want to own your own place, there is a good chance you will have to downsize.

Is that something you want to do? Will you want to grow larger again, if you have kids?

You might want to think about that before you make the move.

If you are okay with living in a smaller space in exchange for more equity or control, then you’re a good match with homeownership.

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