Negotiating + Financing

The 3 percent-down mortgage you've never heard of that's available in NYC

By Emily Myers | May 5, 2022 - 9:30AM

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


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, a state lending program, the State of New York Mortgage Agency (SONYMA), is available to help renters become owners of units that are below the median sales price for the city—with just 3 percent of the purchase price. This is worth knowing, especially as the cost of borrowing increases and prices rise. 

[Editor's note: A previous version of this post was published in April 2019. We are presenting it again with updated information for May 2022.]

Only certain banks do 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 New York City, 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

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Who is considered a first-time buyer?

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

In order to qualify as a first-time homebuyer, you can’t have owned a primary residence in the last three years. So even if you sold a place four years ago you’ll still be considered a first-time buyer. There are also income limits: In New York City, you can’t make more than $143,160 per year as an individual or more than $167,020 for a three-person household. 

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

What you need to know about rates and credit history

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—that’s the rate you get, as long as you qualify with the underwriting guidelines.

Interest rates compare well with conventional lenders: The current interest rate for a SONYMA loan is 4.625 percent. It’s 5 percent with down payment assistance. 

No credit? That may be fine: “Credit score has nothing to do with the [rate], which is also a big advantage,” says Peter Lucia, a branch manager with CrossCountry Mortgage, who 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, electric, or phone 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 is able to get a mortgage. Under this program you’re also allowed to take a loan from a family member (rather than a gift). 

Help with down payments: If you’re still struggling to put down 3 percent, you can take advantage of SONYMA’s down payment assistance loans, up to $15,000, which can also cover closing costs, though it will bump up your monthly interest rate. 

"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," Lucia says.

Advantages over FHA: You may have heard of loans from the Federal Housing Administration, which also helps buyers who can’t come up with 20 percent, albeit on a national level. 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.

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 says.

The downside of SONYMA loans

Income limits and purchase price limits: One of the obvious disadvantages of the program is that “the home prices in and around NYC are so high, that because of the income limits and purchase price limits associated with the program, it doesn’t work well for a lot of properties,” says Patrick Lavell, originating branch manager at Cross Country Mortgage. 

The program caps purchase prices at $719,950 for a one-family unit. This minimum price increases for two, three, and four family buildings, up to a cap of $1,384,750. These price caps create a situation where the program is rarely used in expensive Manhattan and increasingly not in prime locations in Brooklyn either. In certain economically distressed “target” areas different limits apply. For example, you can spend $1,692,470 for a four-family building in a target area. There are also higher income limits and you can skip the first-time homebuyer requirement depending on the program. 

The need for a savvy lender: For the fastest turnaround, 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, getting the loan typically takes as long as a conventional mortgage,” Lucia says.

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 3 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 for the life of the loan. The amount you pay each month depends on the size of the loan, 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 says and 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.”

Here’s how to get started

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 have to 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. 

Speak to a lender to get prequalified

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 prequalification 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; names, addresses and dates of your rental; and income tax returns.

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.


Emily Myers

Senior Writer/Podcast Producer

Emily Myers is a senior writer, podcast host, and producer at Brick Underground. She studied journalism at the University of the Arts, London, and graduated with a MA Honors degree in English Literature from the University of Edinburgh. As host of the Brick Underground podcast she has earned three awards from the National Association of Real Estate Editors.

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