Approximately 75 percent of buildings in New York City are co-ops. Whether you’re looking to buy an apartment, condo or home in Manhattan, Brooklyn, Queens, Staten Island or the Bronx, chances are good you might just end up in one of these buildings. The process involved with this type of purchase is a bit different than your average home or condo-buying transaction. Gain an understanding of the nuances of the co-op buying process, and prepare yourself before jumping into one of the largest purchases of your lifetime.
- understand what living in a New York City co-op means
- have extensive knowledge of your finances
- partner with an agent experienced with co-op sales
- dress to impress for your co-op board interview
- skimp on an attorney
- purchase a co-op as an investment property
- choose a lender unfamiliar with co-ops
- interview the co-op board
An apartment corporation owns a cooperative building and each apartment is allotted a distinct number of shares within that corporation. In order to purchase (and become a shareholder within the building), a buyer must interview with and be approved by the co-op’s board of directors. Each cooperative also creates a unique set of rules, and you should familiarize yourself with these before purchasing. These rules determine issues such as: the amount of money that may be used to finance a purchase, subleasing, flip tax, making alterations to your apartment, whether parents can purchase for children, and pet policies.
There are unique financial requirements necessary to pass a co-op board. In general, boards look to see that you have at least two years worth of carrying costs (mortgage and maintenance payments) left over in liquid assets after your down payment. Your income will be a prime source for approval as well, so make sure you’re not carrying monthly debt payments that exceed 25 percent of your gross monthly salary after the purchase. Good credit is a must. These requirements vary from building to building, depending on how strict the board chooses to be. You will have to submit a packet to the co-op board that contains all of your financial information, but don’t worry, there are often creative ways to put your finances in the best light if you find yourself on the cusp for approval. Regardless, have a keen sense of your assets, liabilities and net worth prior to purchasing in a co-op.
To be successful, it is strongly recommended that you work with a reputable NYC real estate agent who is knowledgeable and experienced in financial requirements of co-op buildings. Your agent will help guide you toward a purchase that meets both your personal criteria and the financial criteria of the board. Plus, you will need your agent’s expertise, additional insight and assistance when putting together your financial packet required by NYC co-ops. Remember to ask your agent what experience they have with co-op purchases.
The board interview is your chance to make a good impression and win their approval. Treat it like a job interview and you should pass with flying colors. Wear business attire. Come to the interview with an understanding of your finances. Be prepared to answer any questions the board may have. Remember, if you have made it to the interview process, chances are your financial criteria have passed the board’s muster. The next step is to show them you are a gracious, responsible neighbor!
Hire a New York City attorney to represent you in the transaction. This is one of the largest purchases you will make in your lifetime. Do not cut corners by trying a do-it-yourself method or by using someone who is low cost with little experience. Your attorney will be responsible for examining the co-op’s financial history, investigating the building’s future plans and reviewing the sales contract. Speak with your real estate agent about solid referrals in this arena.
Most co-ops do not allow their shareholders to sublet. If they do allow it, the time frame for subletting is usually minimal. Rules are often one to two years maximum or two out of five years. Subletting is not allowed without the consent of the board and also includes a board interview with the tenant prior to their occupancy. Furthermore, shareholders wishing to rent out their apartments are subject to additional fees that must be paid to the board.
Not all lenders are familiar with co-op mortgages. Be sure your lender has successfully financed cooperative purchases. It is also wise to speak with an NYC mortgage broker who has experience with co-ops. Don’t be afraid to pursue multiple options before choosing a lender or mortgage broker for the mortgage. Compare mortgage rates, closing costs and past transaction experience with co-ops prior to making your decision.
The board interview is not the time for you to ask questions of the co-op board. Questions can often unintentionally convey a negative persona to the board. Simply answer questions that are asked of you and let the board direct the conversation. Any further inquiries you might have should be directed through your real estate agent or your attorney. Save questions for after you are approved rather than potentially jeopardizing the interview and your approval.
There are many ins and outs to purchasing a co-op in New York City. While the process may seem a bit daunting at first, do not fear. Remember that the cooperative purchase is the norm in NYC, not the exception. Simply understand your full financial picture, work with a real estate agent you trust and present yourself in the best light. The rest is smooth sailing!