Co-ops make up about 75 percent of the apartments in Manhattan, NY. If you’re considering buying a co-op in New York City, you should understand it’s a more complex process than purchasing a condo or renting a typical apartment.
Owning a co-op has benefits and can be a good investment, but there is a lengthy application process and rules you need to follow to be approved. This post describes the process for buying a co-op in NYC in 2023. If you’re thinking of a NYC co-op purchase, you may find this information helpful.
What is a Co-op?
A co-op, or cooperative, is owned by a corporation instead of individual private owners. The corporation owns the block of apartments, and shares of the corporation are assigned to each apartment. So when you buy a co-op apartment in NYC, you purchase shares in the corporation. This differs from buying a condo: when you buy a condo, you own real property with a deed. When you buy a co-op apartment, you don’t own the apartment, you own shares that are assigned to the unit. Nevertheless, owning a co-op can be a sound long-term investment because the value tends to increase over time.
What Are Some Advantages of Buying a Co-op?
Co-ops are typically less expensive than condos, and closing costs and taxes are usually lower. Additionally, co-op owners are only responsible for maintaining their own units, whereas condo owners also share the responsibility for the upkeep of the grounds and common areas.
What Are Some Drawbacks of Owning a Co-op?
Buying and selling a co-op can be more complicated than a condo because the co-op board must approve all purchases. Buying a co-op may also require a larger down payment. Co-ops can also have more restrictions about subletting, pets, and renovations or upgrades to a unit.
What Are the Steps to Buying a Co-op in NYC?
The steps to buying a co-op in NYC are:
- Determine your budget and desired location
- Choose a co-op in your preferred area, preferably with the help of a broker
- Submit your offer and get approved
- Complete the co-op board interview
- Sign the contract
What Can Help Get a Purchase Offer Approved?
It can help to get pre-approved for a loan before negotiating with the co-op board for purchase. Co-op boards are very strict about financial requirements for buyers and want to ensure every owner is on a firm financial footing. A pre-approval can help show the co-op board you are prepared.
Co-op boards also look at each prospective buyer’s financial records, including debt-to-income ratio. A 25 percent or less debt-to-income ratio will tend not to raise questions.
Furthermore, you must be prepared with a substantial down payment and cash reserves. Co-ops usually require at least 20 percent down; some expect 30 or 40 percent. Co-op boards will also review prospective buyers’ financial statements to see available reserves. You will need to have at least two years of mortgage and monthly payments in cash reserves post-closing. The most selective co-ops, like the ones on Fifth Avenue, require funds equal to the purchase price of the apartment.
How Much Are Closing Costs?
A co-op buyer in NYC can expect to pay one to two percent of the purchase price in closing costs, or two to three percent if the apartment’s cost is $1 million or more. However, unlike a condo, you don’t have to pay a mortgage recording tax or purchase title insurance.
Can Buyers Get Co-purchasing?
Considering the price of co-ops in NYC, many buyers get financial help from relatives when purchasing their first apartment. A family member may buy the apartment on the buyer’s behalf or co-purchase it with the buyer.
You will need to confirm the co-op properties you’re considering allow co-purchases. Some don’t. If co-purchases are permitted, you will probably need written documentation from the person helping you with the purchase.
Do Buyers Need a Buyer’s Broker?
A buyer’s broker can be a tremendous help during any housing purchase in NYC. They will help you navigate the purchase process, including comparing different properties, making an offer, and negotiating price.
With a co-op the requirements are even more stringent, so a real estate broker is even more needed. They can help you choose a property, prepare an application, and get approved by the board.
A local agent can also help you negotiate the best price and may offer commission rebates to help you save.
What is the Co-op Board Interview?
After your application is approved, one of the final steps is the co-op board interview. This may be conducted in person or by video conference. The board wants to see what kind of resident you would be. They may ask about your occupation and hobbies, how often you have guests over, whether you have pets, and what renovations you plan for the unit. They may also ask about your financial and income situation.
Buying a co-op in NYC comes with advantages but has a lengthy purchase process. This information can help you succeed in getting the home of your dreams.
We hope you found this post, Buying a Co-op in NYC: A Guide for 2023 helpful. Be sure to check out our post, Things to Consider Before Consulting A Housing Broker for more great information.
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