Getting a Mortgage: What Matters
“A credit score below 680 can make it very difficult to get a loan, regardless of your other assets.”
Securing a mortgage—a bank loan that enables you to finance the purchase of an apartment—is a pivotal part of the apartment-buying experience. Until you’ve paid off that loan, which typically takes 10 to 30 years, you don’t truly own the apartment—the bank does. That said, there are a few things that are crucial to know about the complicated process of getting a mortgage in New York City.
Before you do anything else, research the type and length of mortgage you believe will work for you and your budget. This means deciding if you want a fixed-rate (traditional) mortgage, in which you pay the same interest rate for the life of the loan, or an adjustable-rate mortgage (ARM), where the interest rate is fixed for an initial period but then fluctuates with market interest rates.
Once you’ve decided on the type and duration of your mortgage, you’ll request a preapproval—an essential step before making an offer that helps establish your price range and maximum loan amount. Here are three points to ponder.
Balance matters.
Most banks approve mortgages according to the 28/36 percent rule, which means that no more than 28 percent of your gross monthly income is spent on housing and no more than 36 percent of your income goes toward your total debts.
Credit matters.
As soon as possible, order a copy of your credit report, and note: A credit score below 680 can make it very difficult to get a loan, regardless of your other assets.
Cash matters.
Most co-op boards want 20 percent down and enough liquidity for mortgage and maintenance for two years. In some buildings, all-cash offers and significant reserves may be mandatory.