Hi, Here is the blog post...
I have been receiveing alot of questions about Coop Apartments, what they are and how the operate. A Coop is a corporation made up of all the occupants of the building. When You buy a Coop you are not buying an actual unit, you are buying shares in a corporation. You will receive a stock certificate and a proprietary lease which entitles you to occupy the unit.
Since the occupants do not own the unit they do not pay property taxes like you would in a condo or house. You pay a monthly maintenence fee wchich includes your pro-rata share of the buildings property taxes, and care for the grounds, etc. If in NY you will qualify for the basic STAR reduction but will have to inquire with your particular Coop to see how they handle it. There are additional fees that vary from parking, assessments, flip tax, storage, etc. Again each building is different and you will have to inquire about any additional fees. There is a percentage of your maintenece that is tax deductable, usually 45%-55%, but it can vary. There is always a minimum down payment requirement which can range from 10%-50% down, depending on the Coop. Nowadays alot of Coops are requiring 20% down to protect themselves and make sure only the qualified apply. Even the banks are requiring this so times have changed a bit. On occassion you will find a "Sponsor Unit" available. This is a unit that is on the market by the sponsor for the first time. These are highly sought after because they usually don't require a board interview. This is good for the first time only, the next time it goes on the market a board interview will be required. Keep in mind just because at first you don't need an interview the board usually still looks at the package.
When purchasing a coop part of the process is a board interview. Many people get scared and worry about what it will be like. Once you have an accepted offer on a unit you will receive a board package to fill out. This includes a standard application, request for financial information (bank statements, W-2s from previous and current years, pay stubs, etc.) Here are a few major things the board will look at...1) Amount of down payment, where it came from, and how much you have in reserve after making it. Most Coops want to see a few months reserves at least. 2) Credit scores, do you have any judgments against you, how much debt you have. They look at your "Front End Ratio" which is how much debt you'll have with just housing payments and "Back End Ratio" housing debt along with any other existing debt you have; credit cards, loans, etc (student loans sometimes get deferred, you'll have to inquire). They will have a debt-to-income ratio requirement which can vary. 3) Current Income is important as well, they want to see that you make enough and aren't spending everything you have to pay your bills. Having alot of cash in the bank doesn't impress them, that can be spent quickly. You will also get a copy of the by-laws (house rules) and the offering plan. The offering plan tells how many units are in the building, what the exisiting mortgage is on the building, how much the building has in reserves, etc. You will have a chance to review these with your attorney to make sure you are buying into a financially sound building.
The application can be a bit intrusive but the Coop does this to make sure that they don't take on any financial liabilities to the building. They will only hurt the corporation. Once the package is complete it can be submitted for the managment review and once they approve it, it's then passed on to the board members. Once the board reviews you will be contacted to come in for an informal interview. They might ask questions regarding your motivation for buying in the building, questions about your finances, or just general questions to get to know you further. They will have a pretty good sense of who you are by your package already.
My advice to you...stay calm, don't over answer their questions, be positive! At times you will find out right away if you are approved and others you will be notified the next day, or so by the management company. The approval needs to be in writing and sent to the attorneys on the deal to make it official. Once approved you can finalize everything with the bank and setup a closing. I hope this answers some of your questions and I welcome any further inquiries.