What's the difference between getting a mortgage for a co-op and a condo?

Loans made to buyers of co-ops and condos have some fundamental differences, our experts say, and condos come with some closing costs that co-ops do not. 

First, there's an important difference between the types of loans you can take out. 

"Loans made to condominium unit owners are usually mortgage loans secured by a mortgage encumbering the condominium unit," explains Jeffrey Reich, a partner at Schwartz Sladkus Reich Greenberg Atlas. "A cooperative loan is not a mortgage loan, it is a loan that is collateralized by the cooperative shareholder’s cooperative stock and proprietary lease." 

It's generally easier to get financing for a condo, because they tend to have less strict lending guidelines. They also typically require smaller down payments than co-ops do—often a minimum of 10 percent—while co-ops may require anywhere from 20 to 50 percent down.

On the flip side, co-ops tend to be a bit more affordable than condos, particularly units in new developments. 

"Purchasing a co-op unit can be a great way to become a first-time home buyer. In some cases in may be more economical," says Brittney Baldwin, vice president of National Cooperative Bank (a Brick sponsor.) "Always talk with your real estate agent to see if the building you are looking at has a particular down payment requirement. This will help to insure that you have enough funds for your closing, and will help with your conversation with the lender when you are looking to get qualified for a mortgage." 

Condos may require you to put less money down and offer an easier approval process, but financing a condo purchase comes with additional expenses. Lenders may require buyers to get a title insurance policy, for instance, which covers any outstanding liens on the apartment. 

Other closing costs that come with a condo purchase include a mortgage recording tax, which is "equal to 1.8 percent of the loan amount for mortgages of less than $500,000 encumbering property in NYC, or 1.925 percent of the loan amount for mortgages of $500,000 or more encumbering property in NYC," Reich says. 

You'll also have to pay a small mortgage recording fee to the county clerk, as well as a premium on your title insurance, with rates based on a percentage of your loan. The premium for a mortgage policy insuring a $300,000 loan, for example, would be about $1,500, Reich explains.

Closing a co-op purchase, by contrast, can cost you more time than money: "Your board approval process may take a little longer and may require a little more documentation then if you were purchasing into a condo association," Baldwin says. 

And if you do buy a co-op, you'll also be responsible for paying maintenance fees. At first glance, these monthly costs may look higher than those of a condo, but that isn't necessarily the case. 

"In most cases, this monthly fee will include the real estate taxes, building insurance, any building debt loan payments, and sometimes even some utilities," Baldwin says. "With your monthly condo fee, the monthly taxes and insurance are going to be a separate fee in most cases, and the condo fee is just going to go toward common charges." 

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