Debt-to-Income Ratio Requirements in NYC Real Estate
You need far more than a down payment to buy a co-op in New York City. Just because a bank is willing to approve you for a loan, doesn’t mean a co-op board will also approve you. When buying a co-op in NYC, you will also need to meet the building’s requirements, including their post-closing liquidity and debt-to-income ratio requirements. Many NYC co-ops have very specific debt-to-income (DTI) ratio requirements. While others take a holistic approach to evaluating a buyer’s financials. You will include this information, along with just about everything else about you, in your board package to the co-op board before they decide whether to invite you for an interview and approve your application.
What is the Debt-To-Income Ratio?
Your debt-to-income ratio shows the percentage of your monthly income that will go towards your fixed housing expenses (and other fixed liabilities). Your fixed housing expenses include your mortgage and your maintenance on the co-op you are purchasing as well as on any other properties you own.
In other words, how much of your monthly income will go towards paying these housing expenses?
What Do Co-ops Require?
Debt-to-income ratio requirements differ depending on the building. Generally speaking, you should have a DTI of 25-30% if you want to be approved by a co-op board. A co-op on Park Avenue may require a lower ratio, while a co-op in Washington Heights may have more relaxed standards.
What is Considered Income?
Co-op boards define income differently. Many co-ops exclude passive income and only allow income from employment. Other co-ops will dictate how to calculate the monthly mortgage payment used in the DTI calculation. Many buildings do not allow ARMs or interest-only loans, so you won’t be able to use the lower interest rates associated with those loan products in your calculation.
What is Considered Debt?
Most co-ops will include your student loans, car payments, alimony and child support payments , in addition to your housing expenses, when calculating your DTI.
Calculating Your Post-Closing Liquidity
When you prepare your REBNY financial statement, we will assess your debt-to-income ratio for each property you are interested in to determine whether you are qualified to pass the co-op board. We will speak to the seller’s broker and management to understand how each particular co-op calculates debt-to-income ratio. When we present your offer and subsequently prepare your board package, we will highlight any debts that will be eliminated in the near future (e.g. vacation property is currently in contract to be sold) and any income that will be forthcoming (e.g. rental income on your current home once you move out). Presentation is very important and can make or break an offer acceptance or board approval.
Read more about rejection from co-op boards here.
Digs Realty is a residential real estate brokerage in NYC that provides full service at a discount. The Digs Mission: Saving you money without compromising service or quality. We give our home buyers up to 67% of our commission and charge our sellers up to 4% less than traditional brokerages.