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Which is worse: Revealing your finances as a buyer to a co-op board of total strangers….or refinancing your mortgage and having to spill your financial guts to a board now populated by friends and frenemies?
We submit that refinancing is worse—way worse.
“When you’re going in new, you really don’t know that many people,” says Richard Martin, the executive vice president and a mortgage broker with Stanley Capital in Manhattan. “By the time one of the board members has become your friend, they’ve long since forgotten your financials. Then you refinance, and, well, people are curious.”
Many of Martin's clients feel anxious about the prospect--particularly those who’ve suffered a financial setback since their last inquistion.
“They lose a job and were not necessarily vocal about it, or maybe their credit took a hit, or maybe their assets aren’t the same,” says Martin. “They don’t look as good as they did four years ago.”
The good news is that turndowns are rare unless the new loan is bigger than the old one.
Some boards won’t allow it at all, and most want to know where the money’s going. There are good answers, and there are bad answers.
“They want to hear that you’re putting all the money back into the apartment,” says Martin. “That brings everybody’s values up. The number one thing they don’t like to see is that you’re taking it out to invest somewhere else.”
In addition, many buildings enforce a loan-to-value cap: The amount of your new mortgage can’t be higher than a certain percentage (usually around 70 percent, but be sure to ask before you apply) of your apartment’s current value.
If you’re applying for a larger mortgage than your current one, there is more forced sharing. You will usually have to submit much more detailed financial information, including tax returns.
Boards typically require less documentation for same-size-or-less mortgages: An appraisal, the commitment letter from the bank, your mortgage application (stating your income), and a credit report.
Despite the lousy economy and fiscal conservatism of many boards, “we still have a very very high percentage of approvals,” says Martin. “We tell people to spend extra time well in advance asking the managing agent or maybe someone who sits on the board exactly what to expect. ‘What’s the LTV ratio, can I take cash out, and what are the acceptable things to say about why I’m taking cash out?’”
By comparison, condos are a breeze, says Martin. Though many started to involve themselves in the refi approval process during the real estate boom, the recession changed all that.
“Everything relaxed about a year ago,” says Martin, who believes condos are focused more right now on keeping people in their apartments. “We just don’t see condo board approvals any more for refis.”