Co-op apartments

In a co-op you own shares in a corporation that owns the building, not real property. That changes how you borrow.

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How co-op financing works

• The loan is secured by your shares and lease, not a deed.
• The board may cap how much of your unit you can finance.
• Lenders review the co-op's finances and underlying mortgage.

Senior co-op communities

Many age-restricted communities, such as Laguna Woods Village and Leisure World in Seal Beach, are co-ops. Laguna Woods.

These are the situations where shopping more than 180 lenders matters most: one lender's "no" is often another's standard loan. Tell us about your situation.

Why co-ops are different

In a co-op, you don't own real estate. The corporation owns the building, and you own shares plus a proprietary lease for your unit. A lender can't record a mortgage on shares the way it records one on a house, so the loan is secured by a lien on the shares (a UCC filing) and an agreement with the co-op called a recognition agreement, which spells out the lender's rights if you default.

The board's role

Co-op boards typically approve any financing. Many limit how much you can borrow (some require 20%–50% equity or prohibit financing beyond a purchase loan), review your finances, and may reject a request. Some buildings don't allow additional borrowing at all. Read the building's proprietary lease and house rules first, or ask the managing agent.

The building's underlying mortgage

Most co-op buildings carry their own mortgage, and each owner's monthly maintenance helps pay it. Lenders look at that debt and the building's finances, since a building in trouble can affect the value of your shares.

Senior co-op communities in Orange County

Laguna Woods Village and parts of Seal Beach's Leisure World include co-op units, along with condos. Co-op units in these communities typically can't secure a standard HELOC. Owners who need cash usually look at a share loan from a specialty lender, a personal loan, or, for condo units, a standard HELOC or reverse mortgage. Laguna Woods · Seal Beach.

If you need cash from a co-op

• A share loan refinance with a co-op lender, if the board allows it.
• A personal loan for a smaller amount.
• A HELOC on another property you own, if you have one.

Example

A 74-year-old owner of a co-op unit in a senior community needs $30,000 for medical bills and repairs. Standard HELOC lenders decline because the unit is a co-op. A specialty share lender approved by the co-op offers a small loan, but the board limits additional borrowing. She compares a personal loan and help from family before settling on a smaller share loan the board approves.

Checklist

• Proprietary lease and house rules.
• Board financing limits.
• Building financials.

Also asked

Can I get a reverse mortgage on a co-op?

Only in limited areas. FHA HECM reverse mortgages are generally available on co-ops only in places such as New York. In most of California, you can't get a reverse mortgage on a co-op.

Does a co-op building's underlying mortgage affect my share loan?

Yes. Lenders review the co-op building's finances, including its underlying mortgage, because that debt affects your monthly maintenance and the value of your shares.

Is a co-op cheaper to buy than a condo?

Often, yes, partly because financing is harder, which limits the pool of buyers.

Do co-op share loans have fixed rates?

Many do, with terms similar to standard mortgages, and adjustable options are common too. Fewer lenders offer them, so rates and terms can vary more between lenders than for condo or house loans. The co-op board's approval of the lender, and sometimes of the loan amount, is part of the process.

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