Written and reviewed by Jack Gladden, Senior Loan Officer, NMLS #1470164
Updated · 4-minute read · How these guides are written
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Co-op loans in brief
- What you buy
- Shares in the corporation that owns the building, plus a lease to your apartment. It isn’t real estate, so it needs a share loan.
- Two approvals
- The lender approves you and the building; the co-op board approves you, and can set stricter rules.
- Down payment
- Many lenders and boards want 20% or more; some buildings require more.
- Monthly costs
- Your loan payment plus a maintenance fee that covers your share of the building’s mortgage, taxes and upkeep.
- Who lends
- A smaller group of banks, credit unions and specialists that work with co-op boards.
- Where
- Co-ops in California, Arizona, Florida and Ohio, for a home you’ll live in.
How a co-op differs from a condo.
| Co-op | Condo | |
|---|---|---|
| You own | Shares and a proprietary lease | Your unit, as real estate |
| The loan | A share loan, secured by your shares and lease | A mortgage on the unit |
| Buyer approval | The board approves every buyer | Usually none |
| Monthly fee covers | Upkeep, plus your share of the building’s mortgage and taxes | Upkeep and reserves; you pay your own taxes |
| Renting it out | Often limited by the board | Set by the association’s rules |
If you’re weighing a condo instead, see condo financing.
How a share loan works.
- The security
- Instead of a mortgage on real estate, the lender takes a pledge of your shares and an assignment of your lease, and files a financing statement.
- Recognition agreement
- A contract between the lender and the co-op. It gives the lender rights if you default, such as curing missed maintenance fees, and the board signs it before closing.
- The board’s lien
- The co-op usually has first claim on your shares for unpaid maintenance, which is one reason fewer lenders offer share loans.
- How much you can borrow
- The lender uses the lower of the price and the appraised value of the shares. Where buyers take on a share of the building’s mortgage, that share is set aside first.
Fannie Mae buys share loans only from specially approved lenders, for a home you live in or a second home; investment co-ops aren’t eligible.
What the lender checks in the building.
Under Fannie Mae’s rules, for example
- The co-op qualifies as a cooperative housing corporation under the tax code, and holds title to the building.
- At least half the shares are owned by people who live there.
- The budget and two years of financial statements show enough cash flow and reserves.
- No more than 15% of owners are more than 60 days behind on fees.
- The building’s debt attributed to your unit stays within set limits, generally 35% of that debt plus your shares’ value.
- Any flip tax meets Fannie Mae’s rules, such as a fee of 5% or less of the value.
I request the building’s questionnaire, budget and financials early, so a problem shows up before you’re in contract.
Getting through the board.
Read the building’s rules
Minimum down payment, savings after closing, debt limits and subletting policy.
Get approved for the loan
A full approval before the package, so the board sees financing is secure.
Assemble the package
Application, financial statement, tax returns, bank statements, the loan commitment and references.
Interview
Many boards meet buyers before deciding. They can decline for any lawful reason.
Close
The board signs the recognition agreement and the shares and lease transfer to you.
Looking at a co-op?
Send me the building and the price. I’ll check whether my lenders will finance it and help you prepare for the board.
Co-ops in our states.
- California
- Stock cooperatives, and limited-equity cooperatives that cap resale prices to keep them affordable.
- Florida
- Co-ops are governed by Chapter 719 of Florida law, separate from condos under Chapter 718, so check which one a building is.
- Arizona and Ohio
- Fewer co-ops, so lender choice is narrower; I check each building with my lenders.
The trade-offs.
- Board control. Approval to buy, sell, sublet or renovate can take time and isn’t guaranteed.
- Fewer lenders. A narrower choice of lenders and loan types than for a condo or house.
- Larger down payments. Many buildings want more down and more savings than a lender would.
- Shared debt. If the building refinances or takes on debt, your maintenance fee can rise.
- Resale. Your buyer also needs board approval, and a flip tax may apply when you sell.
How we get started.
Tell me the building
The address, the price and the board’s requirements, if you have them.
I check the building
Whether my co-op lenders accept it and what they need from the board.
Approval
A full loan approval for your board package.
Board and closing
I coordinate the recognition agreement and closing with the co-op.
Co-op loans, answered plainly.
Is it hard to get a loan for a co-op?
Harder than for a condo, because fewer lenders make share loans and the board must also approve you. With a co-op lender and a prepared package, it’s very doable.
What is a co-op loan and how does it work?
A share loan: it finances your shares in the co-op and your lease, which secure the loan instead of real estate. The co-op signs a recognition agreement with the lender. See also: Co-op vs condo financing.
How much do you have to put down on a co-op?
Often 20% or more. The lender’s minimum and the board’s can differ, and the stricter one applies. See also: Co-op vs condo financing.
What is the downside of a co-op?
Board approval to buy, sell or sublet, fewer lenders, larger down payments, and a maintenance fee that rises if the building’s costs or debt do. See also: Co-op vs condo financing.
Can you borrow against a co-op?
Sometimes. Some lenders refinance share loans or offer lines of credit against co-op shares, usually with board consent. Fewer lenders do this than for houses.
Can I deduct co-op mortgage interest and taxes?
Generally, yes: co-op owners can deduct interest on the share loan and their share of the building’s mortgage interest and property taxes. Ask a tax professional about your situation. See also: Co-op vs condo financing.
Hard-to-finance condos
Conventional
Jumbo
Refinance