PURCHASING IN A CONDOMINIUM VS. A COOPERATIVE BUILDING
When making an investment, there are many things that a purchaser must know about the difference between purchasing in a Condominium building vs. a Cooperative building. This is why before you start looking online at listings it is critical to have a knowledgeable broker’s guidance.
As explained before, in order to approve a purchase, the Board of Directors of a Coop building will require information about your income and net worth. Condominium buildings will require a similar application form but for their information purposes only, so that they know who is living in the building.
If a purchaser and seller agree to a contract for a Condominium unit purchase, this contract is generally not challenged by the Condo as long as their board's application is complete. Your broker will go over this with you and guide you through the process so when it is submitted to the board, it is submitted correctly.
When applying to purchase an apartment in a Cooperative building, the Coop will have strict requirements of income and credit. You can find out what these requirements are from your broker and the property’s listing. In general, Coops expect your monthly carrying costs (maintenance plus mortgage) to be no more than 25% of your gross adjusted income. Coop boards generally expect that after the Coop’s required down payment, which can range from 20%-50%, that the purchaser will have a minimum of one year’s maintenance in liquid assets remaining in your bank or brokerage account.
In some of the stricter Coops, the Coop board can require that a purchaser has between 50% and 100% in liquid assets after the Coop’s down payment. This means that for a two million dollar Coop, the Coop’s board can require that after a purchaser puts down a 50% down payment ($1,000,000) that the purchaser has between $1,000,000 and $2,000,000 left in liquid assets.
It is critical that you not only work with your broker when searching for your apartment, but also have met with a mortgage broker if you are considering obtaining financing. Both will work to guide you to the right building, based on your financial portfolio. (Do not get discouraged because there are plenty of Coops that are in the 20-25% down range, but you must be aware before you blindly start going to see properties.
Coops are not for investors who do not plan to use their home as their primary residence. If you do not plan to spend the majority of your time in this apartment, a Condominium purchase is the appropriate purchase for you, as the Coop will not likely approve you, regardless of your income or status.
There are also a small number of “Condop’s” in Manhattan, which are structured, as Coops where owners hold shares of the Corporation, but the approval resemble a Condo. Since there are so few of these in Manhattan I am not going to get into Condop’s, but you can likely look at Condop’s if you want an easier approval process and/or if this home is not your primary residence.
Listed below is some of the information that will be requested by the Board and the bank and some questions that you should ask yourself to help determine how much money you wish to invest in your co-op purchase.
- Stocks & Bonds
- Real Estate
- IRA, Keogh, etc.
- Net worth (assets minus liabilities)
You must have enough funds in your bank to pay the building's application fees, which can be up to $2,000.00. Also, be prepared to have all of your financial records, business and personal reference letters. You will need to complete a asset and liability statement for your application. Your broker will assist you with the application process and will review it before it is submitted to the Board.