Friday, May 13, 2011

Co Op Transactions

   If you live outside of the NY metro area, you may say to yourself-what is a co op?  To all of you that read this blog, you know exactly what it is.  As mentioned in previous blog posts, its those lenders that were and to this day, remain conservative that have weathered the housing storm.  Its just as true when its comes to building type.  Co op loans have changed very little.  Why?  Its 2 fold.  Firstly, the banks know that the co op is a built in filter and in most instances, the buildings requirements are tougher than the lender.  Secondly, the requirements to get a co op building approved really haven't changed.  If you don't think so, try and buy a condominium with financing these days.  It's a nightmare.  Here are the bullet points on things to be aware of when dealing with a co op:

  •    Taking the mortgage out of the equation, know that boards tend to look at 2 things when looking at a package-post closing reserves and debt ratios.  Every board is different so its crucial that you, your attorney or your realtor know exactly what the requirements of the board are before entering into a contract.  Post close reserves can vary from needing 1 years worth of maintenance in the liquid assets to needing twice the purchase price in liquid assets. Of course, its the higher end co ops that would need the latter.  As far as debt ratios, most vary between 25% and 35% and its normally a simple calculation of what is your gross income vs what your expenses are (credit cards, car loans, student loans, etc).  Be careful though because some boards allow the use of certain types of income like bonus and some don't.  By the same token, some boards count certain liabilities and others may not.  KNOW YOUR BOARD!!!!!!!
  •    Lenders want to see that at least 51% of the units in the building are owner occupied.  Some of the portfolio lenders are a little more strict but thats the general rule. Many times, realtors call me to ask if the building is on a lender's approved list.  Its a very good way to clear one of the financing hurdles quickly or to get a heads up as to whether the building may be a problem.
  • Be careful about locking your interest rate too early.  Many boards have a very long approval process and that can delay things.

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