Now, it is almost a clichés that New York City is extravagantly expensive. The fact is, it is no recent phenomenon but goes back almost a century ago.
Buying a million-dollar home could be e great wish, but to translate it into reality, your account balance must back your dream. To be honest, to afford a million-dollar home, you must be earning handsome or must have parked enough money in your account, whatever the case, let us figure out in detail what it takes to afford a million-dollar home in New York City.
Two ways to afford a Million-dollar Home in NYC:
In NYC, at any place for that sake, everyone can explore one of the two options; buy or rent. Renting is especially suits if you do not plan to live long but can afford a lavish lifestyle. If you are earning a handsome amount of money, then renting a million-dollar home is not a bad idea. The other option is, of course, buying. Both have their pros and cons and depending on your requirement, either option can make your dream come true to live in a million-dollar home in NYC.
Let us discuss them one by one:
The established practice for rent is landlords ask between 0.5% and 1% of the total cost. In higher value homes, the rents stay to the lower percentage cut as fewer people show up to rent.
The chief benefit of renting is when you are not looking for long term commitment to the city and might have to leave the city in the future. On the flip side, the running cost would make a huge portion of your earnings plus you cannot consider it as an investment for future gains.
The book suggests that if you have a net worth over a million dollars, you are eligible to purchase a million-dollar home. However, you have to arrange a mortgage for your home loan. Therein, certain factors come into play which strengthens or weakens your pursuit such as down payment. The rule of thumb is if you pay a larger down payment, you will need a lower monthly income to afford a million-dollar home.
When we calculate down payment, the unwritten rule for a required down payment with a purchase price of over $1 million is 20% or more. The higher you go the easier for you to seal the deal. 20% down payment makes a figure of at least $200,000 which means you are left with $800,000 worth to arrange a mortgage.
In addition to it, the credit score carries equal importance in your equation. For the conventional scorers, the average credit score is above 600. For big loans, you might need a better score. However, if you can balance your credit score with the down payment, some lenders might accept an average credit score.
Sometimes, lenders ask you to show emergency reserves. They mean to make sure that you have enough liquid assets to pay the mortgage for 6 months. It could be additional savings or another type of liquid investment.
Other expenses associated with a million-dollar home:
You might be thinking that the principal amount of loan is all that you need to worry about. But that is not the case since you will have to cater to the taxes, insurance, and fees mandatory in the process. Property tax makes the major portion of extra expenses. Property tax coupled with insurance cost is likely to make closing costs heavier than what you would have expected, in the first place.
In addition to it, you got to take into account the utility bills as well as the running cost of a million-dollar home. The fact is, the larger the house, the bigger the utility expenses.
The point to discuss them here is to keep you prepared with the estimated expenses you will have to incur once you buy or rent a million-dollar home.
Some pro tips to purchase a million-dollar home:
The bottom line:
The good news is if you do well on any of the deciding factors, you may incline the equation in your favor straightway such as larger down payment, controlled debt ratio, and a better financial record.
If you find yourself comfortable with all the information above, you can, certainly, afford a million-dollar home. Congratulations!