Difference Between Co-ops and Condos: Money Issues

So what the difference between a condo and o-op when it comes to money? Lots of things actually so let's examine them.

Difference Between Co-ops and Condos: Money Issues

Money. Money. Money. So what the difference between a condo and co-op when it comes to money? Lots of things actually, so let's examine them. 

Difference Between Co-ops and Condos: Financing

Co-ops face two financing issues. One, they have an underlying mortgage, AKA blanket mortgage, master mortgage or corporate mortgage. Payments on that first mortgage are paid by the corporation and (like property tax) are passed along in the monthly maintenance fee to you, the tenant-shareholder. 

Second, since a co-op is not fee simple ownership (like a condo) sometimes it's difficult to obtain financing. The reason why is because the security for the loan is the resident's shares in the corporation; not the actual ‘physical property.' Many banks want something 'physical' that's used a collateral. This is why buyers need to have cash on hand since many lenders will not lend money on a co-op. The good news though is that many co-ops have relationships with a few "approved" lenders who DO co-op finance sales.

Difference Between Co-ops and Condos: Home Equity  

Since a co-op isn't ‘real property,' like a condo, most co-op owners can't get a home equity loan or line of credit.   

Difference Between Co-ops and Condos: Monthly Fees

Maintenance fees, usually paid monthly or quarterly, are considerably higher in a cooperative. The reason is the corporation is collecting mortgage and property tax payments from you and other shareholders in addition to managing things like lawn care, security, insurance, etc. Co-ops, however, have an advantage when it comes to unexpected or expensive repairs or capital improvement projects. They can borrow funds, adding to the amount of the blanket mortgage as where condos cannot.

Difference Between Co-ops and Condos: Powers of the Board

A popular misconception is that condo associations are powerful, but the reality is they are not. Co-ops, by comparison, have the right to approve or deny the sale of shares on nearly any basis such as the buyer's perceived inability to pay. They can also decline sales if they feel the owners may disturb the peace and quiet of fellow shareholders. So while they cannot discriminate against buyers because of race, religion, sex, nationality, etc., they can select shareholders based on financial resources and criminal background.

This concludes our three part series regarding what's the difference between a condo and co-op. Hopefully you enjoyed it. Remember, if you've got further questions feel free to contact me directly. I'll be glad to help.