Buying a co-op apartment in New York City is different than buying a single family home or a condo.
If you’re considering buying a co-op, you must know your Debt to Income Ratio or D.T.I.
DTI is a term used by mortgage companies to describe a borrower’s monthly debt amount compared to monthly income. DTI is more critical than a pre-approval letter. DTI is used to determine if the borrower can afford to buy the apartment, in other words, if they can pay their monthly mortgage payment and maintenance fee.
Unlike banks’ 40% DTI, co-op boards typically ask for 30% DTI. Some are known to consider only 20% DTI. In Forest Hills, the rule of thumb is 28%. Better yet, 25% DTI.
When you buy a co-op, you will be asked to complete the co-op purchase application. You must provide your pay stubs, W2s, 1099 (if applicable), tax returns, bank statements, and more to apply. In the application package you are required to disclose the following:
- Gross monthly income
- Projected monthly mortgage
- Maintenance fee
- Credit card debt
- Car payment
- Student loans
- Child support or alimony
- Any other monthly payment commitment
Before you determine how much house you can afford, your real estate sales agent will use the above information to figure out your estimated DTI. This is a crucial step when you are considering buying a co-op. It will position you to find the right apartment and avoid the heartache of not qualifying for that dream apartment you have put an offer on, or you are in a contract.
Note: Your real estate salesperson and a mortgage broker will need to know your down payment amount. Higher down payment will reduce your DTI.
How do you calculate debt to income ratio?
Let’s say the apartment is $500,000 and you’re putting 20% down payment ($100,000).
Your mortgage amount is $400,000
Your income (or combine income) is $150,000
The interest rate is 5% for a 30-year amortization loan of $400,000 is $2,147.29
The apartment maintenance fee is $1,000 per month
Other monthly debt services (car loan and credit card loan) $300
Total monthly income $12,500
Total monthly debt service $3447.29
DTI is $3447.29 /$12,500 = 27.6%
Your mortgage professional will determine the exact DTI.
Tips to reduce your DTI
1. Pay off or reduce your student loan.
2. Don’t buy a large ticket item during the buying process.
3. Reduce spending and pay off all your credit card debts.
Co-ops will also require you to show cash reserves. Most will need 6 to 12 months of mortgage payments and maintenance fees. And for closing costs.
From the DTI example: Apartment $500,000
Have at least $148,000 in cash reserve
– $100,000 for down payment
– $6,000 for closing cost (attorney fee, bank, co-op)
– $44,000 liquid asset after purchase
Need help calculating your DTI?
We’re here to help. Better yet, get our DTI worksheet and calculate your estimated DTI at the comfort of your home. Position yourself. Get prepared. Let us help you find the home of your dreams now.
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