Co-ops

Need a mortgage to buy a NYC co-op? Your rate is not the only thing to consider

By Mimi O'Connor | March 1, 2022 - 2:30PM 

While a bank might be fine with a 40 percent debt-to-income ratio—meaning up to 40 percent of your income covers housing expenses—many co-op boards will cap this at 25 percent. 

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Buying real estate in New York City is very different from buying real estate anywhere else. The speed at which deals go down, the amount of money that can be involved, and the intricacies of most transactions combine to create a very complicated experience.

One of the biggest differences is because New York City's housing inventory is relatively unique: It consists largely of co-op buildings, and no two are exactly the same. So if you are buying a co-op, you need to educate yourself on how they are structured and make sure your mortgage lender understands co-ops as well. Lack of co-op experience could slow down or possibly even sink a deal. 


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


Cautionary tales

Natasha Meyers learned this lesson the hard way. When buying a two-bedroom co-op in Mill Basin, Meyers initially chose to work with a non-traditional smaller bank she had learned about while educating herself on YouTube about the real estate buying process.

The sale did not go smoothly. The complication was the bank was not familiar with doing co-op purchases. They mostly did single-family homes,” she says. “They were requiring things that no other banks require because they didn't understand the process is different. They were asking things that did not make sense for the purchase. My buyer's agent had to get on emails and explain that co-op purchases are different. They were not willing to make a decision on how to move forward and it got to a point where I was forced to abandon them entirely.”

Pro Tip:

Remember that in addition to financial information and reference letters, your co-op or condo application must include a written insurance quote or active insurance policy—on an apartment you are not even approved to buy yet. Fortunately, the co-op and condo insurance experts at Gotham Brokerage can provide exactly what you and your board need in a fraction of a business day.  They’ll also swiftly accommodate any changes (for example, if your closing is delayed), and fully refund any policy costs if you don’t complete your purchase for any reason. Click here to get started.

In the end, Meyers’ lawyer was able to negotiate an additional month of time before closing, and Meyers found a Chase banker who not only had experience with co-ops, but was able to expedite the approval process to meet a tight turnaround. Meyers was able to avoid the horror of losing her down payment, but she was out the money she paid the first bank to initiate the buying process—and experienced a lot of stress and aggravation.

Daniele Kurzweil, a broker at Compass, recounts a similar scenario that unfolded when a well-known bank that did a lot of mortgages in NYC moved their mortgage department to the Midwest.

"What was once a smooth and easy process became an uphill challenge, as we had to explain to the mortgage department at the bank how we were unable to provide certain documents," she says. "They did not understand how you could purchase shares in a corporation versus real property. They had never encountered the type of housing stock we are dealing with and did not know the type of questions to ask. Needless to say it was a rough few months!”

A few extra steps

“The process does not have to be more complicated if you are working with a lender who is familiar with co-ops and can prepare you for how the process is going to work. There may be a few additional steps but it can still be a manageable process,” says Brittney Baldwin, vice president at National Cooperative Bank, which specializes in co-op mortgages (and is a Brick Underground sponsor). “Make sure you speak with a loan officer that can help guide you,” including ensuring that the mortgage you apply for will meet your co-op board's approval.

A co-op board's standards can be quite different and/or stricter than your bank's, including down payment restrictions and debt-to-income ratio caps, Kurzweil says. 

For example, while a bank might be fine with a 40 percent debt-to-income ratio—meaning up to 40 percent of your income covers housing expenses—many co-op boards will cap this at 25 percent. Co-ops can also restrict what kind of mortgage they allow in the building, so you an interest-only mortgage may not be an option for you.

Another difference is that many co-ops require the mortgage to "follow the deed," which means that whoever is named on the stock and lease of the apartment must also be listed on the mortgage. 

Most banks that have experience with co-op sales keep a list of 'approved' buildings, which can expedite your financing. (Pro tip: When interviewing lenders, ask if your building is already on their "approved" list of co-ops.)

“This means that they have reviewed all of the cooperative documents and are comfortable lending in that building,” Kurzweil says. “They are not only reviewing your finances, they are reviewing the finances of the cooperative as well. If you are dealing with a private bank who has never lent in a cooperative before they might not know how to approve a building or what to ask for when reviewing documentation.” 

 

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