When you buy a co-op, you are buying shares in the corporation that owns the building. In exchange for this purchase of stock, the co-op corporation gives you a proprietary lease on an apartment. However, unless your seller is the original developer of the co-op project, the sponsor, before you can complete your transaction, you and your finances must have the approval of the co-op corporation board. This process helps to ensure the financial stability of the co-op. The board also oversees all by-laws and regulations of the co-op.

When looking at any possible co-op purchase, there are several factors that lenders, and therefore you, should consider:

		What is the total number of units in the building?
			Some lenders will not do loans in buildings that contain under a certain number of units. This varies from bank to bank.
		How many units are sold and of those sold, how many are owner-occupied?
			Banks generally want at least 51% of the units to be owner-occupied. In other words the owner actually lives in the unit.
		What is the amount of the building's underlying mortgage, and what are the particular terms of that mortgage?
			Banks also have limits on the percentage of the underlying mortgage or pro-rata share that is attributed to each apartment.

In a co-op every apartment owner, more appropriately known as shareholder, pays the co-op corporation a monthly fee called 'maintenance'. All the expenses and general up keep of the building such as real estate taxes, insurance, electric, heat, hot water, janitorial staff, supplies, accounting, legal fees, etc, are included in the maintenance. In addition to these expenses there is usually a mortgage on the entire building called the underlying mortgage, and the monthly payment for this mortgage, is also paid for by the maintenance.

The method used to calculate the amount each shareholder must pay as maintenance, is simply to add up all the building's expenses and then divide that figure by the total number of shares of stock in the entire co-op corporation. Every apartment is assigned a certain number of these shares. This is usually determined by the apartment's size, its amenities and its location in the building. The number of shares allocated to each apartment times the expenses allocated to each share, equals the unit's monthly maintenance charge. Therefore you should find a direct relationship between the purchase price of an apartment, its maintenance and the purchase price and maintenance of the other units in the building.

The closing costs on a co-op are substantially lower than those associated with a house or condo. With real property the two most costly expenditures are the New York State mortgage tax and title costs. On a co-op there is no mortgage tax, and instead of title costs, a lien search is conducted, which usually costs $300 or less. The total closing costs on a co-op, not including fees for the borrower's attorney, will usually amount to between $1,700 and $2,500.

When looking at financing a co-op, several factors should be considered. First, some lenders may have more restrictive regulations for co-ops than they have for houses and condos. Their rates may also be slightly higher for co-ops than for these other property types. The good news is that over the last couple of years, most lenders have eased their co-op guidelines and brought their co-op rates into line with their rates for houses and condos. However, when it comes to the larger loan amounts, called jumbos, some lenders still approach co-ops in a more conservative manner than real property. Thankfully, the government, with respect to tax deductibility, treats all co-op loans in the same manner as they treat mortgages on houses. Some or all of the interest on your co-op loan will be tax deductible. How much of a deduction will be determined mainly by your tax bracket. The portion of the maintenance fee on a co-op that pays for the real estate taxes and the interest on the building's underlying mortgage may provide the owner with an additional tax deduction.

You should always consult your accountant or tax advisor because tax liability varies from person to person.

Trachtman & Bach is recognized by bankers, developers and real estate professionals as an expert in the field of co-op financing. Major lending institutions have chosen us as consultants when developing their co-op departments and co-op financing guidelines. This has allowed Trachtman & Bach to play an instrumental role in promoting a more realistic approach to co-op lending. We have influenced many local and national lenders to the point where they no longer view co-ops as an unknown commodity, but as a solid investment. Our reputation for knowledge and excellence has now made it possible for Trachtman & Bach to persuade lenders to provide financing for units in buildings that were not previously considered acceptable for lending.