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October 16, 2008
Mortgage for Coop with 90% financing
Hi,
We are looking to obtain a mortgage for a new home purchase in Park Slope (90% financing), but are running into a few hurdles: 1) a lot of places say they will not finance coops, 2) the loan amount is considered "jumbo" despite the stimulus package that has increased the jumbo loan size, or 3) they will not allow 90% financing. Has anyone on the forum closed within the past month or so, and can you recommend a lender with competitive rates? I'd prefer to avoid mortgage brokers if possible.
Comments
I'm a real estate agent, and the biggest problem you're going to have, outside of getting 90% financing, is that most coop boards require at least 20% down, regardless of whether or not you can get 90% financing.
I'm not sure if you've had a bad experience with a Broker before, but the reality is, your best prospect of getting 90% financing is with a Broker. A broker can shop for the best terms for your situation and is not tied to a specific bank. Also, most Brokers are paid directly by the Bank and charge you nothing.
Posted by: rkohlny1 at October 16, 2008 12:53 PM
Sounds like you're better off renting until you save up a larger down payment.
It still doesn't make sense to buy yet anyway. Until prices drop to a level where mortgage payments are approximately equal to rent for the same sized unit, it's a terrible decision to buy.
I'd say the NYC housing market has at least a 30% haircut coming, and it could be more like 50%.
Once again, I'm a landlord who owns a decent amount of NYC real estate, not a bitter renter.
Posted by: IronBalls at October 16, 2008 12:55 PM
12:53 - I have verified that the coop will accept 90% financing. I tried to deal with a mortgage broker earlier, but he refused to provide APR (after asking twice) because he said 'it's irrelevant'. Not sure if that's true but I didn't get a warm and fuzzy.
12:55 - I agree, the market will probably come down. I'd like to wait, but we're in a tight situation where the space we currently have is way too small for the two of us but moving would mean a huge increase in rent (because we're in a rent stabilized place). The mortgage payments for us would be more than rental, but the space would be well worth it. Also, we plan on staying in this place for a long time, so even if the market drops in the next few years, we should still be in the new place for years beyond that.
Posted by: spyre98 at October 16, 2008 1:05 PM
When you're dealing with a coop, you have to go with a bank that does a lot of financing of coops in New York, obviously. In my experience, that's Citibank and Chase. I used a broker, Manhattan Mortgage, and I thought they were wonderful. They are the biggest mortgage broker in New York, they find very competitive rates, they are incredibly fast, and they understand coops. Their deals don't fall apart.
Posted by: mopar at October 16, 2008 1:16 PM
I would be scared to buy in a co-op that accepted 90% financing.
Have you studied the finances of the co-op? How about the other shareholders?
Anybody else who bought into the co-op in last couple of years at 90% down probably owes more on their mortgage than their shares are worth. That's not who I want to have as partners in a corporation.
Posted by: phripley at October 16, 2008 1:21 PM
1:16 - The negative experience I had was with Manhattan Mortgage, but I'm sure it varies person to person. Could you recommend your broker there?
1:21 - That's a good point about financing, but I'm relying on my lawyer a bit, who said the building's finances and reserves seem strong (this is all relative and since I'm new to this I assume she is correct). The building did post profits year over year and increased reserves, so at a minimum that appears like a good thing. I also searched through all housing records back to '04 and only one unit had been sold in the building, but it appears the the building has appreciated significantly in value since then.
Posted by: spyre98 at October 16, 2008 1:46 PM
These are diffcult times, as we all know. Banks and coop boards are going to be extra conservative when it comes to approving loans and board applications. Even with very good credit, its difficlut getting a conventional loan, with 20% down. 10% makes it even more unlikely.
If you have the option, wait until you have enough of a down payment. Its a good market to buy in now, but its likely to get even better in the next 6 - 12 months.
Posted by: rkohlny1 at October 16, 2008 2:27 PM
Coops do not post profits. They may have operating surpluses -- but actually a coop's operating income should be very close to equalling its expenses. If income exceeds, is it being acquired for short- or long-term capital expenditures (and if not, why not?)? If so, what and how much? If only 90%, does a sponsor own units? If so, makes it harder to get financing as lenders want 100% owner-occupied. A lot of questions here (and not to be too cynical, we have had a lot of new owners trust their lawyers who told them squat!).
Posted by: BH76 at October 16, 2008 2:37 PM
2:37: Thanks for the feedback. Like I mentioned, this is all new to me so this is really helpful, I will check the documents to verify where the surplus is going etc. The building is 100% owner-occupied. (And re: trusting lawyers, I agree about taking a careful approach, but I don't really have a lot of options on who to trust as I am not friends with a lot of coop owners.)
Posted by: spyre98 at October 16, 2008 2:52 PM
Yes, Elise Levi at Manhattan Mortgage. I absolutely love her.
Posted by: mopar at October 16, 2008 5:52 PM
"I would be scared to buy in a co-op that accepted 90% financing."
May I ask why?? Makes no sense to me.....
Posted by: AnneReal123 at October 16, 2008 7:54 PM
the reason coops weather downturns better than condos is b/c of the equity of the owners, limiting the worst case scenarios in bad markets. w/ significant equity, no one is underwater unless things get really bad.
Posted by: slick at October 17, 2008 1:19 AM
I bought my coop apartment last year and paid only 10% down. I didn't want to do it, but the apartment that I had lived in for 8 years was due to become unstabilized with my 01/01/2009 lease renewal and I was afraid that the rent would be raised to market value and I would have to move (way out of my neighborhood) anyway.
Even though I didn't have a lot of cash, my coop board accepted me based on my credit rating and solid, steady job history. When I was the cash-poor buyer, I thought that having a strict coop board was a negative because I thought it eliminated potential buyers when you want to sell. But I have since changed my mind. Now that I'm in the coop, I think it's wise to want your fellow shareholders to be as financially responsible and have a healthy debt ratio.
The bank appraised my coop at 7% higher than my purchase price. So I guess this means that if the market drops more than 17%, my mortgage will be higher than the value of my shares. But I don't think this makes me a liability to my fellow shareholders. I'm a considerate neighbor who always pays my maintenance (and all other bills) on time and I have a healthy savings account, so I don't understand why they would be concerned about me just because I paid 10% down.
I don't regret my decision to buy with 10 % down. But my advice would be to stay put in this market until you can afford the 20%. My old apartment was also tiny and I felt cramped. But if you can just deal with the space problem a little longer, I would wait. Definitely wait.
Posted by: TJR at October 18, 2008 9:37 AM
This is slightly off topic, but what are the repurcussions if your shares fall below the value of your mortgage (assuming 1. you plan on staying in your place for 10 years or more, and 2. you believe the market will rebound in that time)? If you believe the NY market will stay strong or will get weaker but rebound before you decide to sell, I would think this shouldn't be a big deal? Also, I'm not sure how the appraisal factors in - if it's too low I understand that the bank will not lend the money, but what if it's just a little more than the price you are purchasing for? Is that a bad sign?
Posted by: spyre98 at October 20, 2008 5:34 PM
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