My name is Jeff Cohen and I'm a real estate Salesperson in New York City with NextStopNY. Manhattan is a different real estate market when compared to the rest of the country. So I decided to create a real estate series dedicated to answering some of the top questions I receive from buyers when shopping for a home in New York City (NYC).
In this episode I will go over what is called the debt to income ratio or what some people also call the debt to equity ratio. What is important to know is that a bank may have a different ratio requirement than a co-op board and most often the co-op board has a a more strict threshold. When buying a co-op in New York City, co-op boards usually want to see the buyer landing somewhere between a 25 to 35 percent debt-to-income ratio, and quite frequently below 30 percent.
Debt-to-income ratio is a measure of what percentage of your income goes towards housing expenses, more specifically mortgage and maintenance, but can also extend to areas such as other debts. This formula is calculated by taking your monthly expense divided by your monthly income.
As an example if you are buying a 1 bedroom apartment for $700,000 with 20% down, your mortgage could be about $2,800. If you add to that a hypothetical maintenance of let's say $1,200, your total monthly expense is $4,000. Then let's assume you make $165,000 per year gross salary (not after-tax). $165,000 divided by 12 months is about $13,750 per month in income. So in this example you would take $4,000/$13,750 and come up with a debt to income ratio of 29%.
Evidence from studies of mortgage loans suggest that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments. So the lower the debt to income ratio the better.
When you are looking to buy an apartment in New York City be aware of the debt to income ratio. Either ask your real estate agent what the debt to income ratio is or have them ask the management company of the building if they don't know.
This is Jeff Cohen a real estate agent in Manhattan with NextStopNY. I hope you enjoyed this episode and look forward to seeing you again soon.
