The home loan that lets first-time buyers put as little as 3 percent down

In New York City, banks often require you to put at least 20 percent of an apartment’s purchase price towards the down payment. Financing a deal like that—when the median price for Manhattan apartments is just over $1 million—can feel like an impossible goal for many.

However, there are programs that allow first-time buyers to put down far less than 20 percent, and even as low as 3 percent. 

For buyers at or below a certain income level, the State of New York Mortgage Agency (SONYMA) offers loans to help renters become owners of units that are below the median sales price for the city. This is worth knowing, especially since low inventory—which is the case in NYC now—drives up prices.

[Editor's note: A previous version of this post was published in May 2023. We are presenting it again with updated information for May 2024.]

SONYMA has primary mortgage programs as well as optional down payment assistance and other grants and subsidies. In addition to a program called Achieving the Dream, there are programs geared at veterans and active military personnel and those willing to buy units in need of repairs. (If you buy a vacant home you can apply for up to $20,000 to make improvements, though you’ll need inspections and—being realistic—you may need to combine this with other loans).

Only certain lenders offer SONYMA loans and these loans require some additional paperwork. If you’re using a mortgage broker—one who works with many lenders to arrange a loan for a client—you won’t hear about SONYMA loans because the agency only works directly with lenders. And many buildings in NYC, especially co-ops, limit the amount of financing you’re allowed, above and beyond the bank’s requirements, making SONYMA loans more difficult to secure. 

That said, if you’re finding it hard to get the funds for a down payment, a SONYMA loan could be the answer.

What are the available down payments?

According to Patrick Lavell, originating branch manager at CrossCountry Mortgage, SONYMA loans allow a 3 percent down payment for single-family houses and condos and a 5 percent down payment for co-ops. Of those amounts, buyers must make a minimum cash contribution of 3 percent for a co-op and 1 percent for other property types.   

Who is considered a first-time buyer?

So long as you haven't owned a primary residence in the last three years, you qualify as a first-time homebuyer—even if you sold a place four years ago.

There are also income limits: In NYC, you can earn up to $160,080 per year for a one- or two-person household and $186,780 if there are three or more residents, Lavell said.

You will also need to show you receive an income to cover the costs of home ownership and funds for the down payment and closing costs from what the agency calls a “verifiable source.” (More on the paperwork involved below.)

The upsides of getting a SONYMA mortgage

No false advertising: While traditional banks advertise teaser rates that only less risky borrowers will actually get, SONYMA’s rates apply across the board. The rate you see advertised on SONYMA’s website is the rate you get, as long as you qualify for the underwriting guidelines.

Interest rates are currently slightly lower than conventional lenders, plus you can receive a 3 percent down payment assistance grant up to $15,000.

No credit? That may be fine: “Credit score has nothing to do with the [rate], which is also a big advantage,” said Peter Lucia, senior vice president at CrossCountry Mortgage. He arranged a SONYMA loan for Elle, who wrote about her first-time buyer experience for Brick Underground.  

In fact, if you don’t have a lengthy credit history, you can use 12 months’ worth of alternative credit—rent or utility bills—to establish that you’re a worthy borrower. This is part of what’s called the Give Us Credit program, an effort to address racial disparity in who qualifies for a mortgage. Under this program, you’re also allowed to take a loan from a family member (rather than using a gift). 

Help with closing costs: If you’re still struggling to put down 3 percent and also cover closing costs, you can take advantage of SONYMA’s Down Payment Assistance Loans (DPALs). 

“The DPAL is a 3 percent forgivable loan up to $15,000 that can be used toward the down payment, closing costs, buying down the rate, or buying out the purchase mortgage insurance (PMI)," Lucia said. "A borrower is required to put 1 percent of their own money into the deal and the rest can be a gift from a family member. This is one of the best features of a SONYMA loan.” 

He notes that although the DPAL does not involve monthly payments, you will have to pay a portion back if you sell within the first 10 years. "The loan self-amortizes by month. For example, if you sell in year seven, you have to pay 30 percent of the DPAL back," he said. 

Advantages over FHA: You may have heard of loans from the Federal Housing Administration, a national program that also helps buyers who can’t come up with 20 percent. Though FHA loans don’t have income or first-time buyer restrictions, they do come with higher mortgage insurance costs, and you have to put down at least 3.5 percent, versus 3 percent under SONYMA. "FHA does not finance co-op apartments," Lavell pointed out.

Buyer privacy: In the past, sellers may have been concerned that a buyer who needs to borrow so much doesn't exactly look like the best financial prospect. Recent changes mean "the seller doesn't have to find out. In the past, there was a purchase affidavit but that no longer needs to be signed by the seller prior to the application," Lucia said.

The downsides of SONYMA loans

Income limits and purchase price limits: One of the obvious disadvantages of the program stems from the fact that "home prices in and around NYC are so high," Lavell said. "Because of the income limits and purchase price limits associated with the program, it doesn’t work well for a lot of properties."

The program caps annual income at $169,440 for a one- or two-person home and up to $197,680 for a household of three or more people. 

The program caps purchase prices at $1,110,400 for a one-family unit. This minimum price increases for two-, three-, and four-family buildings, up to a cap of $2,610,410. These price caps create a situation where the program is rarely used in expensive Manhattan and increasingly, many prime locations in Brooklyn. In certain economically distressed target areas, different limits apply. For example, you can spend $1,357,160 for a one family and up to $2,135,750 for a four-family building in a target area.  

The need for a savvy lender: For the fastest turnaround, you'll want to find a lender who handles volumes of SONYMA loans. The easiest way to do that is to look up the list of participating lenders on the agency’s website. Next, call up a few loan officers and ask them to explain the process to you. This will give you a sense of how familiar they are with it. 

“If you are using a lender who knows the system, the turn times are similar to a conventional or FHA loan,” Lucia said.

Peter Kwak, a home lending officer at Citibank, said SONYMA loans take around two to three months to close.

The federal recapture tax: If you sell your home within nine years, it’s possible you’ll pay higher income taxes that year because of the so-called federal recapture tax. The amount you’ll pay is based on a complicated formula that takes into account the profit you made on the house, the cost you incurred in selling it, and any home improvements. SONYMA often reimburses the borrower for the tax. 

No conditional commitments: You can qualify for a conventional loan even with a host of contingencies, such as your down payment check clearing. Not so with SONYMA. The agency will only issue a loan once you meet all the requirements, so that check better be in your account. On the other hand, if you’ve got your whole package together, you could speed up the process and save a co-op or condo board some time.

Some standard rules apply: Even if you're purchasing with a SONYMA loan, you'll still have to meet many of the same requirements as a buyer getting a traditional mortgage. For example, most co-ops require at least 20 percent down, so if you can only come up with 5 percent, you won't be able to buy in these buildings. Likewise, the lender is still going to want to ensure that the building has strong financials (like having funds in reserve for major repairs) and, if you’re buying in a new development, at least a certain percentage of the apartments have sold.

You'll need mortgage insurance: Just like with any loan where you put less than 20 percent down, you'll have to take out private mortgage insurance, or PMI. The amount you pay each month depends on the size of the loan, your credit score, and the down payment. 

The property must be owner-occupied: If you want to move out, the loan needs to be paid off before you can sell, Lavell said. The same applies “if someone gets relocated or just wants a bigger space because they’ve outgrown it, a conventional loan wouldn’t necessarily have to be paid off, whereas SONYMA requires it.”

Additional restrictions for a SONYMA loan

You can only use a SONYMA loan on a primary residence, and no commercial activity is allowed—so no renting it out if you decide to move. Co-ops and condos must be at least 500 square feet, though exceptions can be made. 

With minimum down payments required at many co-ops, you may not be able to take advantage of the low down payment. Condos, however, typically don’t have financing limits—the loan amount is between the lender and the buyer so as long as the buyer is approved for financing and can close, a SONYMA mortgage can be used to buy a condo. 

"It’s important to note that SONYMA requires a minimum of 10 units in a co-op or condominium project, and the building must be professionally managed by a third party," Lavell said.

How to get pre-qualified

Before you even start the hunt, speak to a lender to get prequalified. That way you’ll know you fit the SONYMA requirements and won’t have to scramble (or worse, find out you can’t get a loan) when you’re ready to make a deal. A pre-qualification will also give you an idea of how much home you can afford.

At a minimum, SONYMA will need information about your work history, bank account balances, credit card and other debt, and your landlord and rental arrangement. You’ll need to provide pay stubs, bank statements, income tax returns, and the names, addresses, and rents of previous apartments. 

How long this takes will depend on the lender. Just like with any mortgage process, you’ll want to start amassing a paper trail months before you actually apply. For example, if you sell your car while you’re apartment-hunting, keep the bill of sale to explain that big deposit in your account. Likewise, if a relative gives you a gift for the down payment, which is allowed, keep a copy of the check.

What determines whether you qualify

When getting approval, the lender you’re working with sends your file to SONYMA, and the agency, through an outside underwriter, decides whether you qualify. Just like with a traditional mortgage, they assess the loan-to-value and debt-to-income ratios, the strength of a building’s financials, and what percentage of the building has sold, among other things. If a co-op restricts how much you can finance, you’ll have to come up with a bigger down payment, though you can still use SONYMA.

Next, SONYMA checks to make sure you meet the requirements of the program, such as the income limits. After that, the file goes back to the lender to close the loan, and you’re set.

Previous versions of this article included writing and reporting by Leah Kamping-Carder and Emily Myers.

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