In much of Brooklyn, the apartment you want is either a co-op or a condo. They can look identical, but the financing and approval process are very different.
Co-ops: you are buying shares
A co-op buyer purchases shares in the corporation that owns the building, not real property. The loan is a share loan, and the board must approve you as a shareholder. Boards set their own rules, and they are often stricter than the lender's:
- Maximum financing, often 75-80% of the purchase price, sometimes less.
- Debt-to-income limits that can be tighter than the lender's.
- Post-closing liquidity: cash or investments left over after closing, often one to two years of mortgage and maintenance payments.
The upside: no NYC mortgage recording tax on a co-op share loan, and generally lower closing costs.
Condos: you are buying real property
A condo is real estate with a deed, so the loan is a regular recorded mortgage and mortgage recording tax applies. There is no board interview, although many buildings have a right of first refusal.
The lender reviews the building. A warrantable condo meets Fannie Mae and Freddie Mac standards on owner occupancy, reserves, commercial space and litigation, and gets the best pricing. Non-warrantable buildings can still be financed through portfolio or non-QM lenders, usually with more down.
What this means for your budget
Co-op buyers need more cash but pay less at closing. Condo buyers can often finance more but pay mortgage recording tax, which a Purchase CEMA can reduce if the seller has a mortgage.
Before you bid on either, send us the building. We check the board rules or the condo approval status so you do not find out after contract.