How one NYC buyer got a 3-percent-down mortgage for his first house

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If you’re at all like me, you’ve spent an inordinate amount of time refining your idea of your perfect city home. For me, it’s a detached Colonial with two units and a backyard, steps from the train and within 40 minutes of Midtown. But I knew that a down payment, even of 10 percent, would be a stretch for me, and I wanted to get preapproved for a mortgage to take advantage of today’s low interest rates. 

So to Google I went, and eventually unearthed a program sponsored by the State of New York Mortgage Agency, more commonly known as a SONYMA loan. Open to first-time buyers in New York who makes less than $100,000 a year, this program provides for loans with only 3 percent down, and if you opt for an interest rate that’s 37 basis points higher (basically ⅓ of a percent), the state will give you 3 percent cash towards your down payment, closing costs or mortgage insurance.

My first step was to find a bank that actually handles these loans. (My bank said they’d stopped offering them a year earlier.) The state publishes a list of participating lenders who do a large volume of SONYMA; I called the only one in the city. And then I started on the winding path to get a preapproval letter:

A loan officer—not a best friend

As the phone was ringing, I imagined a honey-coated voice would answer warmly, congratulate me on taking this step and take time to answer all my questions. Romanticize much? Instead, after a very terse greeting and a few preliminary questions, the loan officer assured me that the program was real and that I could probably qualify. She would email me. A few days later, after following the scavenger hunt-like instructions of her email, I dropped a thick stack of documents off at her office and waited to hear back.

After two days I couldn’t bear the wait and called her. Since I had dropped off more than 100 pages of financial documents, showing where every cent I had earned in the last two years had gone, I kind of felt like she’d greet me as an old friend, perhaps teasing me about my poor record with online poker. After all, even though I had never met her in person, on a financial level, she knew me better than anyone in my life.

Instead I got, “Who? Jordan Manley? I’m sorry, what is this call regarding?”

“Umm, I dropped off my mortgage application a couple days ago…” You know, those 100 pages of documents laying bare all my financial habits, income, spending with MY NAME ON EVERY SINGLE PAGE!

“Oh right. Yes, let me see,” she drawled. There was a long pause. “You have good credit. 797.” That’s not good, I thought, that’s great! I was almost offended she didn’t sound happier.

“But there is a problem,” she continued. “You only have two sources of credit. Two credit cards. The SONYMA program requires four sources of credit, each with a history of at least two years.” I was silent as I saw my home-buying dreams evaporate.

After an unduly long and cruel pause she said, “But there is a workaround.” I perked up. “We will consider alternative sources of credit such as phone bills or utility bills.”

Getting credit

That sounded reasonable but my mind was racing. My phone bill was a slam dunk. I’ve been with AT&T for many years now and always paid my bill on time. But the fourth source was going to be tricky. Until 14 months ago, I had always sublet in New York or lived abroad. That means I hadn’t had a lease or utility bill in my name for longer than 14 months.

Sadly, even at 29 years old, the best I could do was a triple whammy of 14 months of Internet, electric and lease. If you add them up, it was 42 months of alternative credit sources—that, and my iron will, would have to do.

Although I had already submitted so many documents, I made a second package with copies of my lease, a letter from my landlord, a payment history from ConEdison and Time Warner Cable and finally, about 75 pages of phone bills.

This time I wanted to meet my loan officer in person, hoping, naively, that meeting me would tilt the scale in my favor.

A face-to-face meeting

On a Friday at 4:30pm, five days after delivering my first round of paperwork, I was sitting in the sixth floor lobby of the bank’s offices on Park Avenue. The halls were still, the offices empty. The solitary receptionist punctuated the silence with the clacking of her keyboard. Finally, a personage emerged from behind opaque gray glass and clanked toward me. I smiled broadly at her hoping that I might warm up the austere space with my smile.

She took me into a small conference room where I handed over the thick stack of paper I had compiled.

“I think you have every document about every aspect of my financial life, but if there is anything else you need, just let me know.” I meant to break the ice, but probably sounded confrontational. Page by page, she scrutinized the billing statements.

“This looks good.”

“Good, like good-good?” I tried to remain seated and stay calm. “Like good-to-go good?”

“Assuming there are no late payments buried in here.” She eyed me suspiciously.

After working towards qualifying for a mortgage for almost three years (including two years of saving up), I thought it would be appropriate for a disco ball to drop from the ceiling and Kool and the Gang to rise out of the floor playing ‘Celebrate’.  I was about to get up on that conference table and moonwalk. She however, didn’t seem in a dancing mood. I pulled the plug on the dance party in my head.

The $350,000 question

Primarily, I wanted to know what I could afford to buy. The answer, I was pleased to learn, was $350,000 for a single-family house or $400,000 for a multi-family house. At this point I could not control my excitement. “That’s great!” I exclaimed.

She dropped her chin about a half inch in acknowledgement. Clearly, her emotional reservoir was rather shallow. No matter. I could already see myself on Trulia putting in the parameters of my home search. Multi-family house between $200,00 and $400,000. Search!

Hammering out the details

Before I left, I wanted to get clear on two things: First, was the state really going to give me money towards the down payment? Yes, they would. Three percent of the purchase price up to $15,000 dollars. I wouldn’t see this money until I was ready to close. As long as I lived in the house for 10 years, I would never have to pay it back. If I sold before that, I would have to pay it back, but without interest.

Second, I wanted to know exactly how much cash I needed to close.  The loan officer said I should plan on paying 6 percent in closing costs, so I’d need 9 percent total ($36,000) with a third of that coming from down payment assistance. Finally, I needed a reserve of about $6,000, as a cushion in case I lost my job or experienced other types of financial hardship.

My preapproval letter

Less than a week later, the loan officer emailed me letters of preapproval, for either a single or multi-family home. Now, each time I request to see a house, the seller’s broker requests this letter as a way to validate that I am a qualified buyer. Typically, preapproval letters are valid for a 60 to 90 days, during which the bank will lock in an interest rate. With SONYMA loans, the interest rate is fixed and does not change as frequently as the market rate. This is good in that I don’t have to worry much about the volatility of interest rates. However, that is only because the SONYMA rate, while more stable, tends to be slightly higher than the market rate.

In the end, I got my preapproval letter after one meeting, two hundred pages of financial documents and three weeks of waiting. No, I didn’t make a new best friend in my loan officer, but she has been incredibly helpful in answering my questions. There is a reason she is one of the top performing SONYMA mortgage brokers.

It may be months before I settle on a house and it may even be that, by the time I find it, I have enough cash to do it without down payment assistance, but at least this way if the right place comes along, I’m ready a full year sooner than I would be otherwise.


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