Nearly 100 percent of New York City co-ops have an underlying mortgage of anywhere from a few thousand dollars to millions of dollars. If you own a co-op, having an additional multi-million dollar mortgage hanging over your head might sound like an alarming prospect. You might be surprised to learn that while homeowners generally pay off their own mortgages in 30 years or less, very few co-ops have paid off their underlying mortgage. Because of that, many buildings are forced to refinance when the term of their current loan comes to an end. Co-op board members looking to refinance will then turn either to a mortgage broker or a mortgage banker (or lender) to lead them through the process and obtain the financing they need.
What’s the Difference?
While the broker is a classic middleman, the mortgage lender is the actual source of financing. Most co-op boards will be better served by going through a broker, who will then select the lender who offers the most appropriate product. Only boards that have been through the process recently and know the financial product they need are advised to work directly with a mortgage lender.
Brokers, as their name implies, have a handful of different lenders to go to for your loan. This range of options can work in favor of a co-op board that may need non-traditional financing (i.e., one that has a poor financing history).
Keep in mind that mortgage brokers who can finance an underlying mortgage are almost never the same individuals that handle mortgages for individual apartments. You are unlikely to be able to use the same mortgage broker that helped you finance the purchase of your apartment to help your board refinance your building.
Usually a single individual from a co-op board or its management company will set the financing process in motion by making a few calls to select the mortgage broker with the right combination of skills and personality for their building’s needs. Many board members who are new to the financing process harbor suspicions of their broker, worrying about his or her motivations or true interests. However, there is no cause for distress. The broker will generally negotiate his or her fee with you early in the process. The board is usually responsible for covering that fee, but it is a small price to pay for the professional advice and service the broker provides.