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I make a little over 100k a year in nyc as a programmer and have 200k saved up. I'm looking to get a mortgage to buy a condo in lower Manhattan sometime in 2019-2020.

  • How much of a mortgage can I afford?

I was looking at the condos that cost about 800k+, but I wasn't sure if I can get a loan out for that. Also since I freelance, I sometimes don't get paid "consistently" like a w2 person.

  • Do I have to show monthly deposits?
  • What if its ever few months I get paid?
  • I only started earning this much recently this year, how many years of tax returns do I need before I can apply for a mortgage?
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    You need to consult a mortgage broker. Too many variables to easily answer this question here, IMO. – Norm Apr 24 '18 at 19:21
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    Usually if you've just come into a larger salary you can submit an employer's offer letter (including salary) in lieu of payslips - this is fairly common, since people are often house shopping after moving for a new job. But since you say you're freelancing, it might be a bit harder to prove your income and/or its stability. Different lenders are going to have different opinions/requirements in this situation, so you'll just have to ask them directly. – CactusCake Apr 24 '18 at 19:50
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How much of a mortgage can I afford?

Here's how to figure out how much you can afford:

Use any of the plethora of mortgage calculators out there, plug in how much you can afford to spend out of your take-home pay now, what interest rate you expect (4.5% is a decent estimate for someone with good credit these days), and how long you want to be paying the mortgage (10 years? 15 years? 30 years?).

Some other variables to consider:

  • down payment - you want to pay at least 20% down to avoid adding PMI to your monthly payment
  • taxes and insurance - these will be added to your monthly payment as well
  • dues/other fees that will be required
  • What other fixed debt payments do you have (student loans, credit cards, cars, etc.)

The monthly payment on a 4.5% mortgage over 30 years (which is a long time) on $640k (80% of $800k) is $3,243, which will be VERY hard to do on a $100k income, especially after adding taxes, insurance, and other fees.

A more realistic goal would be to keep your payment at 25% of your take-home pay, which would be about $1,700, which would be a mortgage of about $330K, which would be a $425K condo after a ~20% down payment of $90k.

Note that the fact you are in NYC is largely irrelevant. The mortgage payment would be the same on an $800K condo in lower Manhattan as a $800K ranch in rural Montana. Just because that's what the prices are doesn't mean that you can magically afford it on a $100K salary.

If I were you, I would find a way to make this more affordable:

  • Find a cheaper place to live
  • Find a roommate to rent to (don't share the mortgage or ownership - keep everything in your name and put everything in writing)
  • Wait, in order to save for a larger down payment and for a larger income.

Your other questions will need to be answered by the bank or broker that gets you the loan, but the more irregular your earnings are, the more risky you will be considered, which may disqualify you for the loan or raise your interest rate.

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    Also worth noting that on the $640k mortgage, at current rates you're looking at around $25k in interest payments each of those first few years. I'd find that a tough pill to swallow even if I could afford it. – CactusCake Apr 24 '18 at 20:02
  • +1 for a well written answer, but haven't we answered this before? This has to be a dup. – JTP - Apologise to Monica Apr 24 '18 at 20:39
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    @JoeTaxpayer I'm sure there is, and I'm happy to delete if one is found; I was just pretty sure that a $800K condo on a $100k salary was unaffordable and wanted to run the numbers. The rest was just brainstorming trying to be more helpful. – D Stanley Apr 24 '18 at 20:46
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    @JoeTaxpayer I think money.stackexchange.com/questions/58833 is the closest duplicate (although both have numbers specific to the situation). The other point I wanted to (nicely) address was that "in NYC" is irrelevant. The numbers and affordability would be the same for a ranch in Montana. – D Stanley Apr 24 '18 at 20:49
  • In theory, we can offer a normalized answer, e.g. “100K income qualifies for $XXX mortgage. I have no strong motivation in either direction, I’ll leave this for now. (Although one great answer updated for current rates feels good enough) – JTP - Apologise to Monica Apr 24 '18 at 21:05
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My advice: rent, unless the rent levels are absurdly high.

Buying a condo has high risks. You have poor diversification. All of your investments will be in one bucket, yet you are 100% certain you have to pay back the mortgage. What if there is a water leak that leads to a mold problem? If you become allergic to mold, you may find your investment uninhabitable. That does not excuse you for paying back the mortgage.

I'm personally comfortable with a loan level that's 2.5 times my income from which I have subtracted taxes. Sure, you might eventually want to pay back that loan. And that loan level includes all loans: student loan, car loan, mortgage. You didn't specify if you make 100k before or after taxes. You also didn't specify what other loans you have. Anyway, even if it's after taxes and there are no other loans, I would advise you not to take a mortgage of over 250k. That means you're limited to condos of 450k at most.

Usually, stock market long term returns are far better than the returns of not renting your home but instead buying it. Not only that, but also a well-diversified stock portfolio has lower risks in the long term than an investment into one poorly diversified condo. What if the area where your condo is goes out of fashion? What if there is a mold problem?

So, to repeat my advice: invest those 200k into stocks (sans perhaps a small emergency fund), rent, do your job to get paid, and invest extra money you're going to get into stocks. If all goes well, perhaps someday your stocks have increased in value (and paid dividends) so that expensive condos are affordable for you. However, if you do that, you might realize it is a better option to wait for the stocks to increase in value and pay dividend even more, and continue renting. At that income level, it's not long until you become a millionaire.

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