Loans for a cooperative apartment can be difficult to obtain, even though the appearance of a condo and co-op can be identical. The two buildings differ in their legal structure, as condominium owners get a deed to a real property, while co-op owners receive shares in a corporation, which owns the entire complex.
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With a cooperative you receive a proprietary lease that allows to you live in the apartment you bought, however, you don’t own the actual property. Clearly, if banks don’t have something physical that they can seize if you default, their risk greatly increases, which is the main reason that co-op loans are so difficult to obtain.
The cooperative structure is governed by the board of directors, which have the most power, as well as the homeowners organization, which has less power but is involved in the day-to-day running of the co-op. When you go to sell your co-op, your sale has to be approved by the board, so you may not be permitted to sell, leaving you hanging out to dry.
Buying a co-op is no picnic either, and it helps to have references within the community, as even with perfect financial records you may be rejected. Clearly, a condominium may be the right choice for you as there is a lot less hassle, however, if you are concerned with bothersome neighbors and wish to have more control of your community, a co-op may be the choice for you.
If you aren’t concerned with all of these hassles, and still want to obtain a cooperative home loan, make sure that the co-op allows financing, as some will not permit it, requiring you to pay cash up front. Real estate agents and the cooperative apartments are the best resources for finding out which lenders offer co-op loans.
Loans are available, but banks consider them to be high risk, so much so that you will be paying a high interest premium. If you own a small business, usually your bank is willing to help you out as a favor, and having your employer put in a good word will greatly help your case. Seller carry loans may be an option, if the co-op owner owns the property outright and is willing to stake you.
Due diligence is important in making your choice between a condominium and a co-op, as each form of housing has certain advantages and disadvantages. When in doubt, selecting a condominium is the best option, due to lax restrictions and easier access to loans, unless you can pay cash.