Buying a home in New York City is unique compared to buying a home in other regions. For one, buying an apartment will come with monthly fees on top of your purchase price.
It is crucial that you factor these costs in when you’re looking for an apartment. Not only can it effect your wallet, these monthly costs are something your mortgage lender is going to take into account when determining your loan.
So, how much do these monthly fees affect your purchase price? Here’s how real estate agents typically evaluate this for our buyers.
How to factor monthly fees into the purchase price of a home?
We will typically start by looking at two areas when determining how monthly fees (or monthlies) factor into the purchase price of a home; the stats of apartment you’re looking at and comparable neighborhood averages.
Let’s say you’re interested in purchasing a home with the following criteria:
Building type: Co-op
Apartment Size: 750 sq ft
Building Monthly Maintenance: $2,000/month. We calculate Maintenance/SQFT as $2,000/750= $2.67/sf
Now we have to work a little bit and go and find 5-10 comparables in the same neighborhood, with the same service level, same asset class, same building size, etc. and calculate some averages.
Neighborhood Average: Average Maintenance/SQFT = $2.00/sf
This means that as the buyer of this apartment you’ll be paying $0.67/sf/month more than what is average. Since the apartment is 750 square feet, this amounts to $502.5 per month (=$0.67×750).
How do monthly fees factor into your mortgage?
Let’s assume that the person buying this apartment is financing. Your bank or mortgage lender is going to have to factor in how high these monthly fees will be. This is because part of your income is going to have to go to covering these, and therefore it will effect how much you can pay toward your mortgage each month.
So, if your going for an apartment where the monthlies are high, the bank may not be willing to lend you as much on your mortgage. The question is, how much less will the bank be willing to lend?
In this case we need to figure out the principal amount for a mortgage which costs $502.50 per month. At a 3% interest rate, this is about $120,000.
So, we can see that this apartment is going to be worth about $120,000 less than the theoretical “average” apartment. This breaks down to $160/square foot (=$120,000/750sf). So if the average apartment is trading for $1,000 per square foot, you would expect this one to trade for $840/square foot (=$1,000/sf-$160/sf) due to the higher monthlies.
This is precisely why, when evaluating whether you want to make a move on a specific apartment, you cannot afford NOT to make these calculations.
Other considerations on purchase price
Naturally there are other considerations that may factor into the overall purchase price of your home. Some of which may offset what the monthly fees may do to your overall cost. Some of these include:
- Renovation level
- View
- Outdoor space
Having the right real estate team in your corner will help you to navigate all of these factors. It’s important that your team is transparent with you on what you can and cannot afford and what will give you the best return on your investment. As always, if you have any questions feel free to contact us any time!
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