When you purchase a condominium apartment, you're actually buying real estate...you own the apartment. Your individual unit is considered a separate tax lot, just like a house is. You're also purchasing a percentage of the building's common areas. A condominium is managed by a Homeowners Association, a body that oversees the common areas of the building but has little authority over individual units.
With a co-op, you're buying shares in the corporation that owns the building. In exchange for that purchase of stock, the corporation grants you a lease on an apartment. To ensure that the co-op remains financially stable, its corporation board first approves all potential buyers and their finances...with the exception of those buyers purchasing units from the project's original developer, called the sponsor. The board oversees all co-op by-laws and regulations, including those governing individual units.
The guidelines and rates most lenders offer for condos are usually similar to those for single-family homes. Some lenders have loan programs that allow them to bypass a project review...meaning they won't examine the condo project to determine how many units are sold, or the number of owner-occupied units.
What does this mean to a buyer? That it's just one more reason to make Trachtman & Bach your mortgage broker. Because they have the inside track on which lenders require project reviews, and which don't...a major advantage when you want to finance your condo in a building with low pre-sale or low owner occupancy. And that can make all the difference to the success of your mortgage.
Some lenders may have slightly higher rates and more restrictions for financing co-ops than for condos or houses. However, this trend seems to be changing for the better as many lenders have eased their co-op guidelines over the past few years and brought rates in line with those for houses and condos.
However, when it comes to larger loans - jumbos - some lenders still approach co-ops in a more conservative manner. Fortunately, the government addresses tax deductibility for co-op loans the same way it treats mortgages for houses. Thus, some, or even all the interest on your co-op loan will be applicable to a tax deduction. The portion of the maintenance fee that pays for real estate taxes and interest on the building's underlying mortgage may also provide the owner with additional tax relief. Take care to consult an accountant or tax advisor because tax benefit varies from person to person.
Consider, too, that all lenders will review the entire co-op project to ensure that it meets their criteria, focusing on:
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The number of units in a building |
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The percentage of units owner occupied |
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The number of investor units |
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The percentage of the underlying mortgage that is attributed to each apartment, otherwise known as the pro-rata share. |
| Trachtman & Bach is recognized by bankers, developers and real estate professionals as experts in the field of co-op financing. Major lending institutions have chosen us as consultants to develop their co-op departments and co-op financing guidelines. Our solid reputation for knowledge and excellence has allowed us to play a significant role in promoting a more realistic approach to co-op lending, as well as influence local and national lenders to view co-ops as a solid investment. We also have been able to persuade lenders to provide financing for units in buildings that previously were not considered acceptable for lending due to low owner occupancy. |
A co-op apartment owner - or shareholder - pays the co-op corporation a monthly maintenance fee. This fee includes all expenses and general upkeep of the building, including real estate taxes, insurance, electric, heat, hot water, janitorial staff, supplies, accounting and legal fees. Additionally, there usually is a mortgage on the entire building (the underlying mortgage), and the monthly payment on that mortgage is included in the maintenance charge.
The method used to calculate the monthly maintenance fee is the following: the building's expenses are added up and divided by the total number of shares of stock in the corporation. The number of shares assigned to an apartment is determined by the unit's size, amenities and location in the building. A unit's number of shares then is multiplied by the expenses allocated to each share, and that figure becomes the apartment's monthly maintenance charge. Within a co-op project, you will find that there is a direct relationship between the purchase price of an apartment and its maintenance fee.
A condominium's building-wide services - management fees, insurance, door staff, utilities and upkeep of common areas - are covered by a monthly common charge to owners. There is no real estate tax included in this payment because individual owners pay that separately, as with a house. This common charge usually is lower than a maintenance charge associated with co-ops because in a condominium there's no underlying mortgage.
Please see our Closing Costs page for more details.
Please see our Closing Costs page for more details.
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