If you want to close and move in by December you need a signed contract by Oct the latest. Please keep in mind that upon signing the contract there's a clause which gives both the buyer and seller an extra thirty days without penalty to extend (need to prepare for the unexpected). Regarding borrowing money against a 401K, one of my clients did just that "but" she was also in her late twenties and had enough time to make it up. You're correct about the IRA and penalties, one needs to be careful. I'll suggest a condo for starters since you'll be wanting roommates and a two bedroom which is only natural. You're going to have to think as a future seller, where does the unit face? How far is the commute to transportation, can my doorman get a cab outside the door? What are the amenities of the building? Some amenities for instance private restaurants for the residents, sounds great but it could eventually become an issue down the road on how and who's going to foot the bill .It’s become an issue in the past with other developments. You should also take advantage of the tax abatements for new development that’s the good news. The bad news, in new development your closing cost are a lot higher then a resell on a condo. Lastly, full disclosure I am a broker but please get one. You'll save time and money; I always preview units for my clients because although the listing might indicate "sunny and spacious" it might still face a wall with secondary sunlight, etc..Good luck and I'm here if you need anything.

You have gotten some good advice here, but I have to assume that if you have $10,000 equity in a rental property, that means you have a mortgage on it, which is considered debt. The rent that you collect will offset the amount of your mortgage payments plus taxes and insurance, but you will only get credit for 75% of the actual rent collected.
I agree with you that at your age, I don't think there is anything wrong with withdrawing money from your 401k, you have plenty of years to make up for it. However, it doesn't seem like that will give you enough for your down payment and closing costs. Although it is possible to get a seller's concession to cover closing costs, the appraised value has to come in at that higher number, so it is questionable whether you will get it. Also, I am not sure how you are paying $16,500 into your 401k each year, yet only have $10,000 right now, unless you have only been working for less than a year, or have lost money in it. When you say "saving money", does that mean that you have actually put money away in savings that you are not talking about here?
What I do not agree about is that the price of homes is $8,000 more than it should be because of the tax credit. I don't think that enters into the pricing at all, because no one gets that money until they file their tax return. Also, you are limited in how much income you can earn to get that credit, and also in this case, the numbers don't add up. It seems that if you are maxing out your 401k by putting in the money, your income must be over $75,000 a year, which is the maximum for a single person to get the full credit, and the credit drops off precipitously after that.
If you have not spoken to a loan officer to be pre-qualified yet, please feel free to give me a call. I am licensed to place loans in NY & NJ, and my company is licensed in CT as well. I have dealt with may investment bankers, analysts, and other "Wall Street types" in the past, so I am sure that we can work through this together to see what will work best for you.

Robin Silverberg
Senior Loan Officer
Preferred Empire Mortgage
516-972-1687

Its funny how much I have learned since posting this question.

Just to clarify, you do still in fact qualify for the first time home buyer credit even if you have purchased property within the last 3 years. It just could not have ever been your primary residence during that time.

Also I know that retirement accounts are not liquid assets, but I feel that I am young enough to use some funds from them without risk of not having enough to retire on. It is possible to use up to $10,000 from your ROTH IRA with no tax implications to buy your first home (same definition of first time homebuyer). Also you can always withdrawl your contributions to a Roth IRA. Its your money and you already paid taxes on it. You just can't withdrawl any earnings made in the account without early withdrawl penalty. There is also a time restriction that states you must have the funds in the Roth IRA for a particular period of time before using them for a 1st time home purchase. I think this is 5 years, not positive. So for example if you contributed $1000 more than 5 years ago and placed it in Investment A and $1000 last year and placed the funds in Investment B and had good returns with A now being worth $2000 and B being worth $2000, for a total account balance of $4000, you would still only be able to use $2000 for a first time home purchase. In my case I contributed $4000 (which used to be the max) for 3 years for a total of $12,000. Then I lost about $2000 in the market declines, but I can still use the full $10,000 for a first time home purchase no matter when I put the funds in because I have contributed more than $10,000.

As for borrowing from your 401k, it may sound like a bad idea, but I still have not heard a convincing argument for why not to. In my case I am maxing my 401k, which means putting in $16,500 per year. I don't really make that much money, in fact I'm only one year out of school. I 'work on wall st.' but used to make more money with my painting business. The point is I am just living as frugally as possible. This isn't substainable forever, but for now I am avoiding over $5000 in taxes per year by maxing my 401k. It depends on your employer, but for me I am able to borrow from my plan. When it comes to a home purchase, not just first time, you are able to borrow from yourself, paying yourself 3.5% interest and paying yourself back out of your paycheck for up to 15 years. Of course this would be the extreme, but it comes down to only $3 per paycheck per $1000 borrowed. In my plan even the amount you borrow remains vested in what ever funds you have chosen. You just can't borrow more than 50% of your balance. So in my opinion, depending on the plan, maxing your 401k, even when you make an entry level salary is a good way to save for a down payment. Worst case scenario you have to withdrawl some money, but there is also the option to just borrow for any purpose, not just home purchases, for up to 5 years. In any case you are saving way more than you would be able to without the 401k. Although you can't withdrawl without a lot of penalties you can 'borrow' and still have access to the funds. Bottom line, borrowing is not the same as a withdrawl and maxing your 401k is almost always a good decision.

As for the $8000 tax credit, everyone is talking about it and I was at first intrigued by it and eager to take advantage of it. While it is a great incentive for buyers, in nyc, I feel that this incentive is keeping prices inflated by at least $8000, so if it were to go away, prices will adjust accordingly. Chances are an incentive of equal or greater measure will exist in 2010. This may come in the form of an official government bill or markets adjusting down. So I agree with the general idea that there is no rush. I am more of a free market thinker and while a lack of regulation/government intervention may have gotten us into this overall mess, that is no reason to think that blanket over regulation will get us out.

Thank you everyone for their initial replies and especially to some of you for your continued support.

You could check this New York Bank Owned Deals discounted 35-50 percent
http://www.finestexpert.com/Search/Search?searchType=search&…

Peter,
Your first problem is unless it is extended, the Tax credit ends November 30th. And there will be a glut of procrastinators who wait and many will not get their loan closed in time. You must be closed by the 30th

Peter,
In describing your assets, be aware that the IRA and the 401K are not considered liquid assets. They are subject to withdrawal penalties and also become taxable if withdrawn before retirement. Don't consider them to be of face value.
My colleagues are right, you should start with getting a pre-approval from a lender to see what is realistic for you in terms of price range.

Peter,

You should definitely speak with a mortgage expert as early as possible in the process, (preferably a mortgage broker over just 1 bank as there are many advantages to working with a broker) You want to know how much you are qualified for and what is your desired purchase price based on your downpayment, salary, credit, employment history etc
You can start by looking at properties in your price range as well as below and above your desired price range so you start getting sense of prices, quality of apartments, the market dynamics...... you want to get educated. You would be amazed how quickly you will get a sense of value.....starting off with open houses at your own pace is never a bad idea. ........ If you just want to start out easy does it, you can look up most properties on http://www.nytimes.com and another excellent website which pools all listings together is http://www.streeteasy.com. You can also work with a broker right from the beginning who will do all the leg work for you. Buyer's broker can get you into just about any property out there.
.
The 30 minute commute should not be an issue in terms of a variety of neighborhoods where you can buy. Even Midtown will be within reach, possibly even uptown on an express train and depending on the walking distance to the subway stop.... I would actually recommend looking at the FIDI itself as that is where the true values are today. . As long as you are really plannning to hold long term I think its a great area to explore. LES which is nearby also will have some great deals.
I would recommend using the services of a buyer's broker once you get closer to buying and are more serious about your purchase. The right broker will cut through the chase and save you a lot of time by showing you only what is suitable under your criteria. Also, finding the property is one thing, but once you go into the deal by putting in offers , negotiating, application procedures etc you really will benefit from having someone on your side who 1. represents you , is YOUR broker and not the seller's broker
2. Can help you avoid any potential pitfalls, help you evaluate the property of interest and can dissect the details of particular situations from a professional knowledgable standpoint
3. Will do all the work that is involved in the transaction on your behalf ( Contrary to common belief :) there is a lot of work involved.
These are services that are free to you as a buyer - in NYC we always get paid by the seller side of the transaction.
Feel free to contact me with any questions

Again, i am an attorney and not a mortgage broker, but we'd need to know your salary, any other cash savings, credit score,etc., to get a good idea with respect to your rate. I think Chris has the best answer here. As an aside I live in the financial district, absolutely love it, and can tell you there are bargains galore here.

If you haven't already done so now is the time to visit with any qualified loan officer, know what you can afford before you even begin to look and he/she can tell you if you qualify for the tax credit--it will depend on how long you have owned your other property, then take it from there--you must have some areas in mind and if so contact a Realtor and begin looking within your budget.

Anna

Peter,

To answer your question directly, you may want to consider Jersey City, NJ.

It has become very popular with people working in the financial district and it is about an 8-minute ride on the PATH train. There are many lower priced condos and houses on the market -- while they won't be the luxury waterfront units, you sound flexible enough to evaluate the options realistically.

It is true that you won't qualify for a first time buyer credit, because you aren't a first time buyer (assuming you are on title to the rental property) HOWEVER the answer about needing a certain percentage of equity in the rental property etc is incorrect. The respondent was probably thinking of the Fannie Mae/Freddie Mac "buy and bail rules" This rule only applies to a property you are currently living in or have lived in over the last 6 months, not properties that are already investment properties.

In terms of financing, it sounds like you might be eligible for an FHA loan with 3.5% down, rolling in closing costs with the loan. Rate would be low. Not every condo qualifies for FHA financing, so this is something we would need to look at if you go that route.

Other areas you could consider might be Astoria, Queens; co-ops in Forest Hills, etc. but I think Jersey City would be your best starting point. Hoboken is great too but you might be priced out.

I work for Bank of America Home Loans, and I've been in the mortgage business for nearly 15 years. If you would like to explore this further, feel free to contact me at my email address below.

Ruth Bonapace
ruthbonapace@gmail.com

Since you own a property now, you will not qualify for the first time home buyer credit or a SONYMA loan.
Second, to purchase another property you must prove that you have at least 20% equity in your rental property AND it must be leased so that it covers your mortgage payment. Your tax returns and leases are required.
The alternative is to sell your rental property and use the equity in that house as your downpayment. Then you can forget about borrowing against your retirement funds.

Hello Peter,

You appear to be very intelligent and savy for a young man. I highly commend your thought process.

I concur with your decission to take advantage of the best possible time to invest in real estate. Interest rates are low and property prices are attractive. There may never be a better time to purchase an apartment. While there is a chance that property prices may drop a little - the up-side potential is much greater.

Why don't we schedule a meeting in my office so we can discuss what steps you need to take. I strongly recommend that you work with an agent who will represent you as your buyer's broker. This way you will have someone looking out for your best interest. Further, this does not cost you anything.

Our company is having a seminar for buyers on July 15th. If you email or call me, I can register your name as a guest so you can attend this informative session where the guest speakers include an economist, a mortgage banker and an attorney.

I look forward to helping you achieve your real estate goals.

Anoop Punjabi
Halstead Property LLC
770 Lexington Avenue,
New York, NY 10065.
Tel: (212) 317-7844
Cell: (917) 972-6009
Email: apunjabi@halstead.com

You can visit Realtor.com to strat to look for homes or you can contact a few local real estate offices and ask the broker manager for their recomendation on an agent in the office. Interview a few agents from different offices and find someone you click with. The realtor will have access to information about the tax credit, and thebhousing market in the area you want to focus on.