Then I went through a very invasive and even more stressful process with a second bank because I loved the coop was perfect layout for my family. You cannot apply for a conventional mortgage, you will after going back and forth with underwriters be turned down. You have to in the very beginning tell bank about the excessive percentage and make sure they are aware that you need to apply for a "non conforming" loan. Not many banks will consider this type of loan. You need to supply more documents than you normally would, and have to have minimal one years worth of mortgage payments available in your reserve after closing costs and you will need to prove the amount to underwriters available in reserve several times throughout the process. They keep track of your spending and availability. And dont forget you need to put more than 20% down mine came out to approx 28% down.
The all time shocker is that after you go through this invasive stressful process, and if you are lucky to be approved, which I was, you than need to get building management approval, I received, and then wait for appointment to meet with the Board to see if they will approve you to be part of their environment. You are at the mercy of the Board. After 8 mos or trying to get loan approval due to flip tax more than 5% I was rejected and the Board does not have to supply reason of rejection.
My advice, walk away from any coop which carries a flip tax more than 5%. It is not worth the stress and you will pass up on much better opportunities that are probably out there. I regret pursuing my approval but not giving up. I will purchase my first primary home but there will be no Board involved. Who needs a group of volunteers making your rules of how to live your life. No matter how beautiful the property, the grounds, the complex, the building no matter how gorgeous the apt layout and how much you fall in love with it, do yourself a favor and walk away for the catastrophe.
I am now looking into purchasing a town house or a one family so I can set my own rules for my family and I
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Different banks have different policies regarding flip tax. Some are more strict than others. Keeping in mind that most co-ops require a minimum down payment of 20%, and also keeping in mind that you will not have to get and pay for mortgage insurance when you go 20% down or more, we must assume that the mortgage amount will be no more than 80%.
Some banks may argue that the flip tax is an additional closing cost that they would not normally incur. Based on that they may calculate the loan amount on a reduced price after deducting the potential flip tax they will/may have to pay in the future.
I know of several co-ops in Brooklyn that have a flip tax of 20% of the sales price. With that high of a flip tax, the vast majority of the banks out there would not want to lend... unless you increase your down payment amount to cover the flip tax in advance. Doing so limits the banks risk to a maximium loan of 80% of the properties post flip tax value. Hence if you were going 20% down, you would then put an additional 20% down to cover the flip tax. In that case you would be putting 40% down.
I was just selling a co-op om Ocean Avenue where the flip tax was 15% of the sales price. I thought this most likely would be a problem with many banks. Because of that I posted in the remarks on my listing that the minimum down payment was 35%. Thus I covered the 20% down and the 15% flip tax. The deal closed without a hitch.
Here's what you need to do... a) every time you view a co-op, make sure you know the flip tax. Do not just go by what it says on the listing, make sure it is double checked and b) shop around several banks for your mortgage and make sure you get the banks policy regarding flip tax upfront so you know you will not have a problem. Again, some banks are more flexible than others.
If I can be of further assistance please contact me direct. Good luck!
Mitchell S. Feldman
Associate Broker/ Director of Sales/ e-Pro Realtor
Fillmore Real Estate
Office: (718) 252-2000/ Cell: (917) 805-0783