I'm looking in purchasing a co-op but I'm wondering how it differs from other real estate. Due to the nature of the property, is it offered by all banks and are there specific questions I need to ask about terms vs. if I were buying a house?
If you are looking to buy a co-op or condo, the financing will generally be a traditional mortgage. There is nothing unusual or extraordinary about this.
However, when looking at purchasing this kind of property, there is one VERY important question you should ask: Are there homeowners association (HOA) dues. And if so, can you afford them? In some cases, it is not unheard of to have HOA dues that are bigger that the mortgage itself.
You should also have your finanical advisor take a look at the association's books. If the association is strapped for cash, you can bet that they will be raising their dues. This is compounded all the more in buildings with high vacancy rates. With fewer owners to share the burden, each owner has to chip in more.
Co-ops are a unique ownership structure, most prevalent in NY. With a Condominium form of ownership you own everything within the walls. You and your co-owners share the common areas and pay for amenities and maitainance. With a co-op structure, you own a portion of the co-op entity (like stock in a corporation), usually based on your square footage.
One thing that differentiates a co-op from a condo is the ability to keep folks out. With a condo, you sell the property yourself, and there is no board process (at least there was not a few years ago). On the other hand, a co-op board can keep you out of the building for all sorts of reasons, and take some time to approve you. You have to be approved.
Many co-ops used to prohibit financing on a large portion of the purchase price, so the purchaser had to pay 25% to 50% of the purchase price in cash. It is my recollection that some buildings in New York City were 100% cash buildings.
You should talk with a good real estate lawyer prior to making any purchases. The New York real estate market is very unique in many ways.
Co-ops are certainly a different animal. During my mortgage banking days, there were few national outlets for financing so most buyers needed to rely on local lenders or private sources. While they may seem to be similar to condominium ownership there are significant differences. The most notable is the board that needs to review and approve new owners. Regardless of whichever type of property that is selected, it is important to get a handle on what you're buying into. So that means reviewing the books and records to understand the entity's finances, possible capital improvement projects, lawsuits, delinquent unit owners and issues noted in board meeting minutes. You have to consider that you're not just buying a unit but a way of life so you really are tied in with your neighbors. It's best to understand that ahead of time.