Buying a Home Actually Makes Sense for Way More New Yorkers Than You'd Think
Today, the average cost of renting a one-bedroom apartment in New York City for a year is about $32,940. Anywhere else in the country, that could be a down payment on a house. But NYC is a very particular kind of beast, and just about the only thing more expensive than renting is buying. Sort of.
A recent StreetEasy study by economist Grant Long pinpointed exactly how long it takes for a New York City buyer to break even on a home purchase, and depending on what neighborhood you’ve decided to call home, that so-called “tipping point” could come a lot quicker than you think.
“The point in time in which the benefits of owning a home exceed the benefits of renting that same home,” Long explains, “[is] the tipping point.” And if you’ve been a renter in New York City for five years or more, you’ve probably already passed it.
"You need to stay in your home for a little over five and a half years for buying to make financial sense."
This year, Long places the tipping point at 5.6 years, on average, which is actually higher than the tipping point was last year -- a result of rising mortgage rates, increasing home prices, and (believe it or not) more attractive rental prices.
“Overall, what we see as one of the most important factors is how long you plan on staying in that home,” Long tells Thrillist. “Based on listings on StreetEasy,” he explains, “you need to stay in your home for a little over five and a half years for buying to make financial sense.”
As Long points out, there are a lot of upfront costs that come with buying a home, and hopeful homeowners may need to have considerable cash.
After all, while mortgage payments may be no sweat (they’re often equivalent to rental prices), a down payment and related closing costs are pretty much inaccessible for anyone who doesn’t have a trust fund or a rare beanie baby collection.
But according to Kathy Conley -- a housing specialist with GreenPath Financial Wellness and a former housing counselor -- buying a home in NYC may not be as absurd as it sounds.
“If owning a home is a dream of yours,” Conley tells Thrillist, “it might be a lot easier [than you’d] expect.” Conley, who counsels potential home buyers and other housing specialists, says that by taking small, preliminary steps -- and doing your research -- can make New York City ownership so much more than a fever dream. This is how to do it.
Determine your personal tipping point
To get a feel for whether you should continue renting or start house shopping, do the math (or have someone do it for you). StreetEasy’s Interactive Tipping Point tool is a great place to start. Another helpful tipping point tool is SmartAsset’s interactive map of the United States. Zoom in on New York, and you’ll get a hyper-detailed look at every county in the Empire State. In addition to projections about how far into the future you’ll have to look to see your break-even point, SmartAsset gives information about average mortgage prices and home purchase prices. It also offers a detailed calculator that takes into consideration everything from home value and mortgage rates to ongoing expenses like maintenance and future tax savings to tell you how long you’ll need to stay in that charming Bed-Stuy brownstone you’ve been eyeing to make it worthwhile.
Speak with a qualified expert
Experts like Conley can take a fine-tooth comb to your personal finances, helping you clean up a less-than-satisfactory credit report and develop an effective savings plan. Housing counselors can help point you in the direction of down payment assistance programs that may suit your unique situation.
To really dig into the financial aspect of saving for, and buying a home, chat with a certified financial planner, like Kristen Euretig, CFP®, the founder and CEO of Brooklyn Plans.
Euretig helps New Yorkers -- especially women -- make informed financial decisions. “We often help our clients make a plan to purchase a home and counsel them on next steps,” Euretig tells Thrillist, noting that the “old rules of thumb don’t really work for the modern economy, cost of living, and sky-high rents we pay [in New York].”
“I often tell people who are interested to get pre-qualified for a mortgage,” Euretig says. Instead of going to a big bank, Euretig recommends that you go straight to a mortgage broker, who can “pre-screen you for first-time homebuyers programs.”
“A good one,” she adds, “will even give you some credit counseling tips so you can get to where you need to be.”
Both Conley and Euretig advise that New Yorkers start right away with a dedicated savings plan. “I advise clients to set up a separate savings account for their homeownership goal, and to set up an automated savings plan to add to it every month,” says Euretig.
Try an online bank like Ally, or stick with a piggy bank-style method of saving. Conley says to put aside quarters, one-dollar bills, five-dollar bills -- whatever you can collect. “ Saving is extremely important,” says Conley, “and it’s a good habit to get into.”
Get a lower down payment
“There are many people that could own homes out there that don’t believe they could,” Conley says, citing lower down payment mortgages and down payment assistance programs that can significantly lower your upfront cash costs. Some may even help cover closing costs. Conley points out a few government programs that can make homeownership more attainable:
Fannie Mae HomeReady mortgage loans, for example, allow buyers to put as little as 3% down on a home. Buyers interested in homes in low-income areas (which is surprisingly common in New York City) won’t have a limit placed on their income to qualify. Homeownership education is a required part of this program.
With a 5% down payment, low-income purchasers or those in a high-cost area may be eligible for a Freddie Mac Home Possible mortgage, which may not even require a credit score.
The 2017 area median income is $85,900 for the New York City region this year (for a family of three), and $66,800 for an individual, according to the US Department of Housing and Urban Development.
The Federal Housing Administration offers affordable loans with low down payment options, as well as state-specific programs. In New York, first-time buyers in a low-income bracket can get up to $7,500 in down payment assistance through the Federal Home Loan Bank of New York’s First Home Club Matched Savings Program. (To qualify for this one, you need to make 80% or less of the area median income which, this year, is a maximum of $53,440 for an individual.)
Change neighborhoods to reduce your tipping point
When you’re looking at the value of renting relative to the value of buying, Long tells Thrillist, neighborhoods with very high home purchase prices relative to rental prices tend to have longer tipping points. In Manhattan, for example, the tipping point is nearly eight years. But in Brooklyn, the tipping point is less than five years -- and that number gets even smaller when you consider home prices in the Bronx and Queens.
“The important thing to understand going into buying for the first time,” Long says, “is the trade-offs that you want to make and are willing to make in order to own a home. If you live in Chelsea right now, or somewhere very central in Manhattan, consider taking a longer commute.”
In less than a year and a half, for example, New Yorkers who go from paying rent in Chelsea to owning a house uptown in Washington Heights can break even.
“A lot of clients have written off the possibility of owning in New York,” says Euretig. “And while it may be difficult in hip parts of Brooklyn, there are neighborhoods that are still within reach for many young professionals for ownership.”
Sign up here for our daily NYC email and be the first to get all the food/drink/fun New York has to offer.