As we noted in the October issue of Habitat, historically low interest rates are driving many co-op boards to refinance their underlying mortgages – provided they’re willing to jump through new hoops put up by lenders. Those low interest rates, coupled with the uncertainty brought on by the coronavirus pandemic, are now pushing lenders to demand larger down payments from buyers of co-ops, condos and other forms of real estate, Brick Underground reports.
JP Morgan Chase has sent a memo to loan professionals saying the bank would now only be willing to lend 70% of the sale price for jumbo loans, forcing New York buyers to up their traditional 20% down payments by an additional 10%. With other banks expected to follow suit, 30% is the new 20%.
It all comes down to risk. “The more you put down, the less risk there is on the transaction," says Alan Rosenbaum, founder of the independent mortgage bank Guardhill Financial.
The good news for people shopping for a co-op or condo apartment is that New York has many banks and lenders, so if the larger retail banks are asking for higher down payments you can't meet, there are still lenders who can help. Melissa L. Cohn, an independent broker with William Raveis Mortgage, says, "There are still banks that are willing to finance with as little as a 10% down payment."
Whereas larger retail banks need to produce and follow national guidelines, independent mortgage brokers like Cohn and Rosenbaum understand the business, geography, and buildings of New York City on a more granular level and are able to access funds from a range of lenders. "It’s one thing if a big bank tells you they will give you a rate of 2.5%,” Cohn says, “but if they won’t give you as much financing as you need, aren’t you better off going to another bank and paying 2.75% and getting everything you need?"
Aleksandra Scepanovic, managing director of Ideal Properties Group, tells her clients to leave no stone unturned. There are some “lending gems,” smaller, and off the beaten path who, she says, may be more interested in attracting borrowers and thus will require smaller down payments.
Depending on the type of property you are buying, you may find you have to put more money down to secure the deal. There are, for example, co-op boards that require a 50% down payment – a requirement that has nothing to do with the pandemic and everything to do with the board’s desire to ensure the solvency of buyers.
Much also comes down to the purchase price. For loans up to $1 million, the National Cooperative Bank says it has not changed its underwriting criteria. "We require a 20% down payment for co-op share loans that are primary residences,” says Brittney Baldwin, a vice president at the bank. “But we will always look to the co-op as they may have a higher down payment requirement."
Ryan Serhant, founder of the new brokerage SERHANT, says you can expect to pay 30% in all the new development buildings he represents and even more if it's a second home. If it's an investor or second home you need to be prepared to put down at least 40% "because there’s greater risk that you will walk away from a second home if the market collapses than you will from the home your partner and kids live in," he says.
On the plus side, higher down payments will lower your monthly obligations, and Scepanovic points out that scenario can "potentially shorten the length of your term and save you a pretty penny on the mortgage interest side."
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