What to know about buying a co-op

When shopping for condominiums, you may come across some units that are a cooperative (co-op), not a condominium. Buying a co-op is quite different from buying a condo. Let’s take a look at some of the differences.

What is the difference between a co-op and a condominium?

ApartmentsWhen you buy a condominium, you own the interior of your unit, usually from the walls inward. You also own the common areas and land that the condo sits on, but you own these in conjunction with everyone else who owns units in the condo.

In a co-op, the structure and land is actually owned by a non-profit corporation that operates the building. You actually purchase a share of the co-op. That share includes a proprietary lease that allows you to exclusively possess and occupy the unit you are buying for as long as you own the share in the co-op.

Co-ops are extremely common in some east coast cities. In Seattle, there are far more condos than cooperatives, but you will find co-ops in some older buildings in the city.

You must use a co-op lender

Obtaining a mortgage to purchase a co-op is possible, but you must use a co-op lender. If you have obtained a loan pre-approval from a bank like Wells Fargo or Chase, you are going to have to switch to a co-op lender, as most banks do not loan on co-ops.

Most often, a co-op has one or two preferred co-op lenders that have agreed to make mortgages on the building. (Technically it is a share loan, not a mortgage.) When buying a co-op, you must inquire who the preferred lender is for the building and you should use that lender. NCB is one of the big lenders that you may encounter.

Loan terms are usually not as favorable as you might find for a similar condominium. Because of this, it is typical that a co-op will sell for less than a similar condominium.

Understand the rules & regulations

Co-ops originally came to be as a cooperative form of living. Compared to condos, a co-op may have more extensive rules and regulations for its residents. There may be more restrictions on activities like pets, playing of music, guests, etc. Co-ops tend to be very strict about allowing rentals of your unit.

Co-ops also have a review process to approve new occupants. This can include an interview of the purchaser by members of the co-op board to make sure a resident is appropriate for addition to the co-op. It also may include extensive background and financial checks of the purchaser. The board has the power to block a purchase based on these background checks, as long as they do not violate discrimination laws. For example, you could be denied as a buyer if you don’t make the income required by the co-op association.

Property tax and other payments

Similar to a condo, you will pay a monthly fee to the co-op association. That monthly fee includes common area maintenance expenses and reserves for future expenses. It also may include shared utilities like water. In a co-op, property taxes are paid in one payment by the association. These are usually included in the monthly fee, which is different than how condos work.

Work with agents and lenders experienced with co-ops

Because co-ops are so different than condominiums, it helps to work with real estate agents and lenders who are familiar with the process. You must spend extra time to qualify with the co-op lender. You also must make sure you review and understand the rules and obligations that come with buying a unit in a particular co-op.

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