Cooperative (Co-op)

Residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan.

There are several types of Co-ops.

Market-rate housing cooperatives - In a market-rate cooperative you can buy or sell a membership or shares at whatever price the market will bear. Building equity is very similar to single family homes.

Limited-equity housing cooperatives - In a limited-equity housing cooperative (LEC) there are restrictions on what outgoing members can get from sale of their shares. These restrictions are usually imposed, because the co-op members, benefit from a below market interest rate mortgage.

Leasing cooperatives - In a leasing cooperative, the cooperative corporation leases the property from an outside investor. Since the cooperative corporation does not own any real estate, the cooperative is not in a position to build any equity.

Some of the benefits of owning a Cooperative are, personal income tax deductions, controlled maintenance costs, lower real estate tax assessments and more control of expenses through an elected board of residents.

In most states closing costs will be lower on a Co-op, because you are buying shares in a corporation, not property. Due to this, there will be no need for a title search or title insurance.

Co-ops have become so popular, that the "Internet Corporation for Assigned Names and Numbers" (ICANN) assigned cooperatives a top level domain. The .Coop is restricted to cooperatives and cooperative organizations.

If you're thinking of buying into a co-op or cooperative, please note that you will have to budget for your own mortgage payment covering your share of the corporation and by extension your unit, as well as a monthly maintenance fee which varies from coop to coop.

The Maintenance Fee in a Co-Op will cover any basic expenses, such as service staff, as well as a portion of the underlying mortgage and property taxes paid by the corporation on the property or properties as a whole.

Because co-operative maintenence fees are mandatory in most coops, lenders will consider them to be part of your housing expenses when qualifying you for a loan.

Many banks offer cooperative mortgage loans in areas where coops are common. Most coop mortgages offer the same features as mortgages that are secured by single family houses, such as fixed rate or adjustable rate, stated income documentation or no-doc.

Coop boards in cooperatives often require questionnaires and forms to be filled out by the coop buyer in addition to an interview. One of their criteria may be to limit the number of occupants (ie. A one-bedroom coop apartment may only house a maximum of two people). They may also dictate the relationship of the occupants (ie. A two-bedroom apartment may only house a couple with a child and not a couple with children of different sex. Male and female children must have separate bedrooms.)

Coop boards often have a more stringent income review than a lender bank. Many mortgage banks allow a borrower to contribute up to 45% of their gross income towards housing expenses whereas coop boards may only allow up to 36%. In other words, a coop buyer may very well qualify for a mortgage loan but fail to qualify the coop boards' requirements.

» DISCLAIMER: The information contained in this article on 'Cooperative (Co-op)' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.