Buying a Co-op in New York City: What to Know When Getting a Mortgage

Buying a co-op in NYC

If you’re thinking about buying a co-op New York City, there are some extra things to know in order to get prepared when getting a mortgage. Co-ops have more hurdles to jump over than when you’re buying a condo, since you have to deal with a co-op board. There are also some important nuances about getting a mortgage for a co-op that you’ll want to prepare for.

In this article, I’ll go over the things you need to know to get a mortgage when buying a co-op in New York City.

What’s a Co-op?

A co-op, short for cooperative, is a structure where residents own shares in a corporation that owns the building. When you buy a co-op, you’re not buying the physical space; instead, you become a shareholder, giving you the right to live in a specific unit.

Approval Process for Co-ops

Getting approved to buy a co-op involves a detailed process. The co-op board, a group of residents elected to manage the building, plays a big role. They’ll review your financials, work history, and references.

They may also often have a say in the type of financing you get. For example, some co-op buildings don’t allow cash-out refinances. Before you consider buying a particular co-op, make sure you are fully informed of their restrictions for financing both mortgages and refinances down the road.

Down Payments

Co-op mortgages often have down payment requirements, sometimes around 20-25% of the purchase price. So when you are shopping for an apartment in New York, you’ll want to ask for the details for down payment requirements for a particular co-op building.

Details that Mortgage Lenders Might Need

When seeking financing for a co-op, mortgage lenders may request specific details to assess the risk of lending. For example, they may request details about the co-op’s insurance coverage and details about any ongoing or past litigation involving the co-op, as legal matters can impact the future value of the property.

Lenders also may be interested in the co-op’s financial statements to evaluate the cooperative’s financial health. Being transparent and organized with these details not only facilitates the mortgage approval process but also instills confidence in lenders regarding associated risks of lending when seeking a mortgage on a co-op apartment.

Monthly Maintenance Fees

Condos typically also have monthly maintenance fees that you need to consider, but for co-ops they can often be a bit higher. These fees cover the building’s operating costs, property taxes, and more.

In order to get qualified for a mortgage, these monthly maintenance fees are included in your debt-to-income ratio, or DTI. You want to make sure that your mortgage professional can help you understand the overall picture of your DTI when shopping for an apartment when you are considering co-ops.

The DTI, along with other factors, informs the mortgage lender about what mortgage types and rates you will qualify for. The higher monthly maintenance fees of a co-op are included in the housing costs when determining your DTI.

Building Rules and Regulations

Every co-op has its own set of rules and regulations. Before you commit, review these carefully. They might include restrictions on renovations, subletting and as I mentioned above, types of refinancing. You’ll want to become familiar with any restrictions before you make an offer, so you’re not caught off guard financially down the line.

Conclusion

Buying a co-op in New York City can be an exciting adventure. Understanding the mortgage process is key to making it a smooth journey. Getting prepared ahead of any mortgage financing is an important step. As always, I am here to help you navigate your mortgage process whether you’re considering a co-op, condo or house. You can contact me here.