Co-op, or Condo? Comparing Financing, Debt-to-Income Ratio, & Flexibility: What Buyers Need to Know

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Although co-ops make up roughly 80 percent of the available-for-purchase housing stock in New York City, buyers often face this common dilemma when apartment: hunting: should they seek a co-op, or a condo?

Many factors come into play in this decision. But increasingly, especially for first-time buyers, condominiums may be the preferred choice. Instead of ownership of shares in a corporation and the granting of a proprietary lease that are typical of co-ops, condominiums are real property -- and come with less financial scrutiny and requirements. Despite condo prices being roughly 20 percent higher than for equivalent co-op units, condos may also require a smaller down payment.

So before you take that plunge, here are some things to consider.

Financial Requirements

Cash requirements differ between co-op and condominium purchases in three main areas: down payments, required cash reserves, and closing costs. The down payment required for a condominium generally has more to do with the percentage permitted by bank financing than any other factor. In a co-op, though, the board may require a larger percentage down payment than an equivalent condominium unit would command.

Let’s look at a typical scenario. A two-bedroom co-op unit is listed for sale at $1,000,000. The co-op board requires a minimum down payment of 25 percent, or $250,000. An equivalent two-bedroom condominium unit is listed for sale at $1,200,000. The condominium association does not have any financing restrictions, and financing is available for up to 90 percent of the purchase price. The down payment required for purchase would be $120,000. Even at 80 percent financing, a down payment of $240,000 would be $10,000 less than that required for the less expensive co-op.

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Comments

  • I live in a Washington DC co-op (34 years) and serve on an organization that represents and promotes DC market-rate housing co-ops (20+ years - DC Cooperative Housing Coalition, www.CoopsDC.org). How typical are the co-ops described in this article relative to percentage down payments, required escrow, etc.-- 100%, 50%, other? The majority of DC co-ops collect less than the 2 years worth of monthly fees you describe. My co-ops requires 3 months with the financial risk for possible foreclosure (less than 1% in my complex) borne by lenders using a recognition agreement. I should note, my co-op is the third most expensive in DC in terms of value-- approximately $200 million --so we are careful about our expenses and valuation. Your story makes no reference to real estate taxes as part of the monthly co-op maintenance fee. I assume real estate taxes are included in NY co-op monthly fees which makes monthly co-op fees look high relative to monthly condo fees. In Washington, real estate taxes are lower for co-ops compared to condos-- approximately 40-60% lower for a co-op than a comparably assessed condo unit. Is that true for NY City co-ops? You are correct about renting-- most DC co-ops also have restrictions on renting, but that is the nature and beauty of co-ops. Co-ops are intended to be home-owner occupied, hence the restrictions. Condos, on the other hand, can often become an investor's paradise with some condos having rentals exceeding resident owners. Renters and absentee landlords often have competing philosophies with resident owners about how money should be spent, especially as the percentage of renters increases. Then there is financing. Higher investor ratios can preclude some lenders from providing mortgages in condos while co-ops have seen an increase in the number of lenders given especially low renter percentages and delinquencies. There are many more advantages to co-op ownership than many are aware. Overall, I found the article a bit too breezy and light with the analysis and is a slight to co-ops.