the hardest part about trying to buy an apartment is asking for help
and then understanding what the people trying to help you are talking about
Early on in my attempt to defy the odds of the Brooklyn real estate market (which is to say that I am trying to earn an honest living and purchase a home in the city), I learned that I will not be able to accomplish this goal without getting some help. Initially, I thought the main form of help that I needed was financial: extra money for a down payment, a raise at work to cover a higher monthly cost than my current rent, or closing cost assistance to ensure that I had a little money left in my savings after the sale. However, the deeper I’ve waded into this process, the more I’ve found that I need help to understand and navigate the complex world of real estate transactions. Maybe I should have been giving Chrishell more credit…
At first, I thought I could just ask some of my questions to the brokers that were showing me apartments to gather knowledge of how to understand the market, evaluate my options, and finance my purchase. It turns out that is not what brokers do. Mostly, their job is to unlock the door (especially when they’ve been hired by the seller to do exactly that). When I asked a broker about whether the co-op board of a unit I was looking at would be open to HUD-sponsored financing, he frowned and asked me whether that was something I really needed, or if I could just use a regular mortgage product. He admitted that he didn’t really know what the co-op board thought about that, but it appeared that his personal opinion was that this would be more of a hassle than it was worth.
Unfortunately, for the unit in question, some level of down payment support would certainly be required. In a follow-up email, the broker insisted that I “don’t let the process get in the way of buying”; however, the 1-bedroom apartment I was touring was listed for $560K and required at least a 20% down payment (also known as a minimum payment of $112,000). So I wouldn’t say that the process was really stopping me from purchasing the home, but rather the fact that the down payment was nearly triple what I could pull together from my savings. Nonetheless, I reached out to mortgage lender he put me in touch with to see how far into the “process” I could get.
Talking to the mortgage lender was somewhat more productive than my conversations with brokers, since he specializes in financing my purchase and could walk me through the costs in more detail. The conversation we had was focused on what I could afford: what kind of savings I had for a down payment, what kind of monthly payment I felt comfortable with, and so on. Then the strangest thing happened… I found that I was rounding up all my numbers: giving him an aspirational down payment if I saved a bit more or got a big bonus this year and signing myself up for a monthly payment that would only make sense if I got a raise or took more consulting work. We ran the numbers for a $330,000 1-bedroom I was interested in based on my ~optimistic~ estimates, and we determined that I could afford it. I sent over a few bank statements and paychecks, and got a pre-approval letter from the bank.
It was exciting news, but the ease at which I got pre-approved and the lack of rigor in the process was also nerve-wracking - what if I actually got approved for a mortgage that I couldn’t afford? Isn’t the mortgage lender’s incentive to give me as large of a mortgage as possible? Was getting the loan that I wanted actually going to cause more problems that it solves? Is being responsible for a mortgage even more stressful than being responsible for rent?
So after all of these conversations I found that I still had a lot of gaps in my knowledge. One major gap was in my understanding of an “all-cash offer”, which I thought meant that you needed to have the full purchase price of the home in cash and that you would not even need to have a mortgage. In other words, it was an option for wealthy people to buy homes without needing to take out a loan. While it may sometimes be the case that an all-cash purchase does not require a loan, it can also mean that the buyer promises to pay the full value of the home at the close but they can still secure financing separately. So the buyer is exposed to more risk by making the commitment to pay the full value before securing a lender, but it makes their offer more attractive by speeding up the closing process because you have decoupled the home sale from the lender underwriting and approval process.
If your head is spinning, so is mine. That’s why I reached out to the Mutual Housing Association of New York, a non-profit based in Brooklyn, to help me navigate the process. Unlike a broker or a mortgage lender, their paycheck is not contingent on making the sale of the home, and so their incentives are not to encourage me to buy in the same way. Their program includes a 2-hour first time homebuyer course that has a special focus on the types of mortgage products available to people in my situation, as well as a 1:1 advisor that will work with me to identify properties and facilitate the homebuying process.
But you’ll hear more about them in my next post.
City Speak #48
Bennett