What is a Co-Op?
A Co-Op, or a housing cooperative, is a property that is owned by a corporation as opposed to individual home owners. When you purchase an apartment in a Co-Op you are really purchasing shares of this corporation. The number of shares you own is directly related to the size of your apartment. The Co-Op board represents the corporation. They handle the taxes and the overall mortgage for the property, as well as maintenance of the building. As a shareholder you will contribute to these costs with your monthly maintenance fees.
The beauty of living in a Co-Op is that you are still considered a tenant. This can be very helpful to you because the Co-Op board, acting as the landlord, is still responsible for keeping the building habitable. If the water heater breaks in the dead of winter the Co-Op board will be responsible and not any one tenant individually. The costs will be taken out of the fund of maintenance fees that you contribute to every month.
Fundamentals
In order to purchase a Co-Op apartment in NYC, there are many things that you will need. Find a real estate attorney, a broker, and an accountant all who are well versed in Co-Op rules. An accountant is especially important due to the nature of financial documents you will need to provide to the Co-Op board. He can help you get the documents in order as well as have your financials show in the best possible light. These documents include:
- Savings statements and any other assets
- Bank statements
- Proof of payment of rent for the past 5 or more years
- 401k documents
- Student loan details
- Car loans
- Employment letter
- Last two pay stubs
- Credit Score
- Tax returns for the last 2 years
- Proof of any non-employment income
- Your license and social security card
Be prepared to go over all of these documents at great length in the Co-Op interview. Your broker can be a big help with this step. If they are experienced with Co-Ops, they will know the types of questions you will be asked and can prepare you accordingly.
Assets
Upfront costs of purchasing a Co-Op are what scare some people away from this housing option. Be aware of what kind of liquid assets are required before you being your hunt. Have 20-50% of the asking price set aside for a down payment as well as 24 months of mortgage and maintenance fees. This is the bare minimum that will be prerequisite for a Co-Op board to consider you. If you’re choosing a particularly sought after building they may ask for 100% of the purchase price up front. The more demand for the property, the more they will ask for.
Mortgage Pre-Approval and Offers
When you are prepping for your house hunt, getting a mortgage pre-approval is paramount. But you must keep in mind that all pre-approvals are not created equally. Make sure that the lender knows you’re applying for a Co-Op and not a condo or a single family home. The requirements for the pre-approval will be different. You wouldn’t want to get to the stage of making an offer only to find out you’re pre-approval doesn’t qualify.
Also, make an offer that you are comfortable with but do not try to low-ball it. Firstly, if you make an offer that is way below your max budget, you could lose a place that you could have easily afforded. Secondly, you could be denied outright by the Co-Op board because the valuation of your apartment affects the value of the building as a whole, and therefore the value of their apartments as well. They have no motivation to lower the value of their shares just to get you a lower purchase price.
Closing
Once you get the ok from the Co-Op board and your offer has been accepted, it’s time to think about closing. Your real estate attorney is now up to bat. They should do everything to speed up the process of closing as it can take weeks or months. At closing you will need to present a certified bank check with the deposit to the Co-Op board as well as have your mortgage documents. With a traditional purchase, this is also when you would get the deed to the property but in the case of a Co-Op it’s when you will receive record of your shares and proprietary lease. Once you get past this final hurdle, you will officially be a Co-Op owner.
