If you live in New York City, you already know that real estate here is like nowhere else on Earth. One of the most complicated matters involves purchasing a unit in a cooperative building, commonly known as a coop. With this common structure, a company owns the building and each unit owner purchases shares and receives a lease for his or her part of the building.
These are the legal issues to consider when you are considering a coop real estate purchase in NYC.
Elevated financial requirements
The financial requirements for a coop are typically much stricter than for a traditional mortgage. Often, you must show that you have liquid assets equal to two full years of your monthly mortgage and maintenance payments. For example, if you expect that your mortgage will be $3,500 a month and the building’s monthly maintenance is $1,500, you must show proof of $60,000 in liquid assets. Also, many buildings require a debt-to-income ratio under 30%, compared with 40% or higher for a traditional mortgage.
Strict rules and regulations
Make sure that you are willing to abide by the coop building bylaws and proprietary lease before making your purchase. For example, most buildings have rules about subletting your unit, running a business on the premises and other common scenarios. Remember that in most cases, the Board has the right to approve your prospective purchasers and have broad rights of rejection. Make sure you review the buildings rules and policies about pets.
The back-up bid
Even if the seller approves your offer, his or her broker may continue showing the property. However, this means that you may lose the unit to a higher offer. When you have a pending sales contract, make sure that you execute the terms as soon as possible to avoid losing out on a promising deal.
Despite complications, purchasing a coop in NYC often comes with lower closing costs, lower mortgage payments and extensive selection in comparison with condo buildings. Work with a professional who has experience with these city-specific properties.