Waiting on a big bonus? Here's how to buy or rent in the meantime
It's almost that most wonderful time of the year for a subset of New Yorkers: bonus season. And while it may sound enviable, for city-dwellers with salaries that are largely bonus-based, renting or buying an apartment presents its own set of challenges.
For starters, many employers don't want to put bonuses in writing, and since they can fluctuate so much from year to year, "expected bonuses" often don't fly with landlords or co-op boards who like to rely on consistent income when evaluating future tenants and neighbors.
To prove bonuses are a usual part of your income, co-op boards, banks and landlords usually want to see W2 forms from the last two years—at least. If you don't have those (say, you've just started a new job), things can get tricky. Here's what else you need to know, whether you're renting or buying:
RENTING
If your base salary isn't 40 times the monthly rent, chances are you're going to need to get a guarantor who makes 80 times the monthly rent, even if your bonus takes you over the 40 times threshold. Usually said guarantor will have to be a relative—parents are best—and they'll have to be a resident of the tri-state area.
"Unless it's an absolute guaranteed bonus, and it's in writing, a landlord will want you to get a guarantor," says Jeffrey Geller of Insurent Lease Guaranty, which acts as a guarantor (for a fee) as long as would-be clients make at least 27 times the monthly rent. (Full disclosure: Insurent is a BrickUnderground sponsor).
Another potentially helpful tool if you're waiting for a bonus to come through and need to rent in the meantime (though it won't help address the guarantor conundrum): services like Renter's Loan and RenterKey, which, for a fee, loans renters cash up front for expenses like moving, security deposits, broker fees, etc. (Both firms will want to vet you using information like your credit score to determine your ability to repay.)
If you're a little short on cash until your bonus arrives, they can front the money. Or you can save what you have and amortize rental and moving costs over time. "[A loan like this] can also help you in your efforts to save to buy an apartment. You can keep what you have—and even your bonus if you want—to add to your equity and make you that much more attractive in the eyes of the bank/co-op boards," adds RenterKey founder Richard Santhouse.
BUYING
Condos and townhouses are your best bets if your salary is largely bonus-based, since you'll only have to contend with the bank and not a strict co-op board. But that doesn't mean co-ops are out of the question either.
To get a mortgage, the bank will want to see two years' worth of W2s to prove your bonus, says Robbie Gendels, a senior loan officer with National Cooperative Bank. (Full disclosure: NCB is also a Brick sponsor.)
You may need to show the last pay stub of each year, or the pay stub for whenever you're paid your bonus, says Julie Teitel, a senior loan officer with Everbank.
Usually, Gendels says, the bank will take the total bonus amount over the last 24 months and divide it by 24 to get the total income. This amount will be included when they look at your debt to income ratio.
Most banks will accept 100 percent of your bonus income these days. (Teitel points out that after the market crash in 2008 they often wouldn't.)
But if you're no longer with the company that gave you said bonus, "it's questionable whether the buyer can use it," says Teitel.
"The trickier part is the co-op board," says Ari Harkov, an agent with Halstead. "The way boards look at the variable, discretionary nature of bonuses can differ," he says.
Most co-op boards will want to look at W2 over the last few years and come up with an average.
If you've just started a new job that's largely bonus-based, it'll be trickier to get board approval since you won't have two years worth of W2s and most co-op boards (and banks for that matter), won't accept simply expected bonuses. But it's somewhat easier if you're staying in the same industry, "say going from Deutsche Bank to Goldman Sachs," says Harkov. But you're going into an entirely new field where the bonuses could be different, that's going to be a problem for the board, he says.
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