Guide to Buying Your First Co-Op Unit
You’ve been thinking about it for a while and you’ve finally decided it’s now or never. You’re going to buy your first co-op unit. You tell your family and friends, start collecting boxes for the move, and hope someone throws you a housewarming party. But here’s the problem.
You have no idea where to start.
That’s okay! We’ve put together this easy to follow guide that will have you moving into your first co-op in no time.
What is a co-op?
If you’ve been shacking up with a roommate in their apartment or have only called your parents’ house home, you might be confused on what a co-op actually is. A co-op building is a unique living situation in which buyers purchase stock shares that enable them to occupy a unit within.
If you go the condo route, you’ll own your actual unit, similar to buying a stand-alone house. But when it comes to co-op units, you’re not buying the floors, walls, and space between. You’re buying into the corporation.
Benefits of owning a co-op
Tom Baron, a licensed NYC real estate agent, spoke with us about the co-op buying process.
“The first step when looking to purchase a co-op is to understand whether a co-op is the right fit for your needs. A co-op will require more patience on your end as you are part of a community of shareholders and every decision made by them may affect you directly. Things like making changes in the apartment, like renovating, or subleasing your property will be things the co-op board will determine for you and for some people that is something they are not comfortable with.”
But if you’ve done your research and feel that a co-op is the best choice for you, you’ll be thrilled with the unique benefits this type of housing provides.
The first main benefit of buying a co-op is that they’re more budget friendly compared to condos. You’ll find that on average, a condo will cost over 60% more than a co-op similar in size, layout, and location. You’ll also pay less at closing when buying a co-op.
Plenty of options
Some parts of NYC consist of 75% co-op units and 25% condos when it comes to housing. Therefore, you’ll have a healthy number of options when it comes to finding a co-op. Just remember that they go quickly so you’ll have to act fast if you find one you’re interested in.
Co-ops are known for their rigorous vetting processes. But this can be a benefit after you’ve moved in. You’ll find comfort in the fact that your neighbors will also have to agree to the same rules and conditions you did. You’ll enjoy a healthier and happier community.
Steps to buying a co-op
Buying a co-op does take persistence and patience. Tom says, “The process of buying a co-op can be complicated. It is long and frustrating especially when you need to work with the co-op timelines.”
But this doesn’t mean it’s impossible. Here’s how to find your dream co-op.
- Assemble a team, including a mortgage broker, lawyer, and real estate agent. Hiring professionals will ensure you get the best deal and have your fair share of units to choose from. Not all co-op units are listed in the newspapers or on websites. A good agent will be able to show you “hidden” units.
- Obtain a pre-approval letter. You’ll want to move quickly if you find a unit you’re interested in and you can’t move forward without it.
- Start your search. Narrow down your options by neighborhood, price, features, and square footage.
- Make sure you qualify before submitting an application for a unit you’re interested in. According to Tom, most co-ops in New York City require a minimum of 20% down when financing and a debt to income ratio of 28% or less. You’ll also need to have two years of maintenance and mortgage payments in liquid assets after closing.
- Prepare for the board if your application is accepted. Begin the title search and mortgage application process. Submit your board package, which your real estate agent should help you with.
Tom says this is a key step. “A co-op board package will require a lot of documents, including all of your financial information in the past two years (bank and brokerage statements, tax returns, etc.), reference letters, income verification, multiple documents to sign and more. It also needs to be done right by a professional, otherwise it is likely to be returned to the buyer to revise.”
- Interview with the board. This is stressful but if you come prepared, meet the board’s requirements, and agree with the bylaws, you should be good to go. But be patient. According to Tom, it takes an average of 30 days for a board to approve a candidate.
- Conduct a final walk through, checking everything from the appliances to the electrical outlets. Bring up any issues immediately.
- Attend the closing. You’ll meet with the seller, buyer, all attorneys involved, the co-op, your lender, and all involved real estate agents. After a few hours of paperwork and finances, you’ll officially be a co-op owner.
Buying a co-op will test your patience and maybe even your sanity. If you’ve been trying to buy your first co-op in NYC for quite some time but with no luck, don’t give up yet.
“Look at it as a one time process and [try] not to focus on the hurdles you may come up with when applying to one,” suggests Tom. “At the end of the day this will be your home for many years and if the apartment is a good fit and the building is one you are comfortable with, focus on the goal of becoming the owner of that property and not on the lengthy tiring 3 month process it will take to get there.”
If you know a co-op is the best option for you, your efforts will be well worth it. Don’t forget, you’ll want to secure renters insurance before you move into your new space. Let us know how your co-op search goes – we wish you the best of luck!
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