A few folks have asked for this, and so I am sharing it. With you, my dear readers. Here is what I know:
Buying a home is usually a smart idea. You can use all kinds of rent vs. own calculations, but the big truth is that unless you own your home, you live at the whim of the rental market. I know very few people who have enough money saved to make a down payment on a home, and you can all consider this your consolidated lecture. Financial security isn’t magic. It takes planning and saving. I have never met anyone who regrets having put money aside, but I know a lot of people, some of them a lot older than me, who are suddenly confronting the precariousness of renting. One friend, now in his sixties, told me about how he used to think he was so smart, watching his siblings struggle to make mortgage payments while he lived in his shared home with his roommates and his super cheap rent. He was free, liberated from the guy lines of the banking industry. They were bougie suckers. Hah!
Fast forward twenty years, and he watched as his siblings paid off their mortgages right about the time that he realized he was tired of negotiating with roommates. Today, he can’t quite afford a home of his own, and he’s feeling a little stuck. He’ll roll with it, but he regrets not being more proactive when he had the chance.
Yes, real estate in Brooklyn is outrageously expensive. Almost as outrageous as San Francisco. That doesn’t mean you can’t afford to buy. Buy what you can afford and take it from there. Renting is a fine way to live in the short term, but unless you’ve got some kind of rent controlled love shack, you need to think long term. (and, even if you are rent regulated, do you really want to stake your financial security on the continued vigilance of DHCR? I wouldn’t.)
Right now, today, if you have good credit, 20% to put down and a verifiable and stable income, you can get a fixed rate mortgage at 6%. For every missing piece, the interest rate goes up a bit. Getting a morgage isn’t any more complex than that. A mortgage broker might be able to get you a better deal, but the real challenge comes when you don’t have good credit or a verifiable income or cash to put down. I don’t know how to help you with those things, I’ve always been a by the book kind of a woman.
If you are counting on rental income to pay the mortgage, the bank won’t let you count on more than 75% of prevailing market rents. They know a thing or two about real estate and tenants. Figure they are about right and don’t count on getting higher than market rents or never having any vacancies.
You can find a thousand articles about tenancy-in-common gone awry, but they all have one thing in common–people didn’t communicate and they didn’t put things in writing. Do business with people you trust, yes, but there is no better way to be sure that everyone is on the same page than putting it all in writing. Be real. Marriages fall apart after 20 years. 30 years. People change. If you are investing in a home, don’t just trust anyone. Trust people, yes, but seal your trust with a sign on the line that is dotted.
Mortgage payments are a complicated thing, but roughly figure this:
a=(P*(r/12))/(1-(1+(r/12))^(0-n))
wherein a= monthly payment, r= rate, P= principal (if you are feeling dense, that would be the purchase price minus your downpayment …), n= term in months (there are 12 in a year …)
Property Tax in NYC is an arbitrary beast, water is expensive, so is heat. Those aren’t minor expenses. The attached spreadsheet includes realistic numbers for a house I recently looked at, but you should do your own homework. The department of finance has records online, so does the Department of Buildings. Property Shark is a great resource, too.
(OpenOffice Mortgage Calculator | Excel Mortgage Calculator)
Confidential to JF, you can usually use some of a retirement savings plan towards the purchase of your first home. Might be only $10,000 that you can use, though. At one point recently I was looking at a chart that broke it down for me, but I can’t find it right now.