Debt to Income ratio = deal breaker?

I'm a board vice president.

We, along with a growing number of boards, are no longer counting bonus money as "income" unless we can get a written statement from your employer that your "bonus" is a *guaranteed* part of your compensation.

And being approved as a renter has absolutely no bearing on being approved as a BUYER. Apples and oranges.

Thanks, Matt. Understood the requirements are different for renting verus buying. Appreciate your comments.

There was a NY Times article about a year ago about many boards no longer consdering bonuses. IF you run into a lot of trouble, then I would suggest looking at condos.

You're welcome, WV.

Unfortunately, you have something else going against you ... working in FINANCE. It's viewed today by many boards as one of the most volatile employment situations. Coupled with your relatively short tenure with your current employer, in today's market, you'd be considered a higher risk than, say, an actor or freelance writer.

My suggestion would be to find a CONDO in your price range (assuming you're really comfortable strapping yourself into a mortgage with an income that's 60% bonus money), or a significantly cheaper co-op.

i've been waiting for a good excuse to leave finance for freelance.

"i've been waiting for a good excuse to leave finance for freelance."

You'd still have to prove substantial success as a freelancer (at least 5 to 7 years of consistent earnings).

Thanks, Matt. I orginally limited my search to condos, however this building appealed to me as it has limited restrictions on subletting and I love the location. Also, unfortunately, there are few affordable condos in this neighborhood, but I may have no choice but to widen my search. My question was more aimed at determining if the lack of income could be offset by other factors, i.e., earnings history and liquid assets, but from your resonse it seems that is not the case.

"My question was more aimed at determining if the lack of income could be offset by other factors, i.e., earnings history and liquid assets, but from your resonse it seems that is not the case."

Unfortunately, no.

Unless you were buying the co-op without a mortgage (all cash deal), and you had at least two years' worth of maintenance left in the bank (and even THAT might not be enough, as you may have seen in another thread, a broker actually turning away a guy who wanted to pay cash for an $800K co-op, and who would have had, in addition to a multimillion dollar home in California and untold other assets, $1.2 million left in the bank AFTER the purchase -- simply because he was retired).

And what is your earnings history? You stated just five years at your current employer, but what is your total industry tenure? If you have at least 15 solid years of industry tenure with a proven earnings track record, a board MIGHT look a bit more favorably on your application.

If the feedback here is anywhere close to being true, it certainly doesn't bode well for the co-op market in Manhattan. Plenty of people in finance have very stable compensation visibility, but the lopsided salary/bonus structure (call it 25/75 or so) is just a fact of life. If co-op boards won't underwrite that type of buyer, then they've effectively blackballed a major portion of the potential market. And if the primary concern is a lack of income visibility, then the natural course is for them to greenlight doctors, accountants, consultants etc. All well and good, except these professions don't pay the kind of money needed to comfortably plunk down big money for apartments. The marginal buyer sets the marginal price, in a way. If the co-ops can't recognize "shades of gray" in financial industry compensation, then the natural consequence must be further lowering of prices to market clearing levels.

"they've effectively blackballed a major portion of the potential market."

It's not as "major" as you think.

According to the latest Census Bureau numbers, New York City's largest industrial base is "Education, health, and human services". As a percentage, it's 23.4%.

Next largest is "Professional, scientific, management, administrative" ... at 11.9%.

Construction, manufacturing, wholesale, retail, transportation, information, arts and entertainment, and public administration all account for 53.3% of the city's economy.

The financial industry -- INCLUDING finance, real estate, insurance, rental, and leasing ... 11.4%.

On other words, roughly one out of ten potential buyers works in the financial industry.

And I would be willing to wager that only one out of TWENTY potential buyers works in the financial industry AND has a significant portion of his or her annual compensation in the form of bonus money.

NYCMatt: east_cider said "co-op Marker in *Manhattan*", not New York City. I know people tend to confuse the two, but if you are going to quote employment statistics, better not mix apples and oranges (e.g. Manhattan and Staten Island).

I have heard the more common approach is to include a percentage of the bonus, not discount it altogether. I think our coop allows 60 or 70% of historical annual bonus to be counted as income.

Hey Matt -- just curious -- did YOU have $100,000 of liquid mortgage and maint in an account somewhere, in addition to your down payment (of $150,000 or so) when YOU bought your coop?

More and more you are striking me as one of these mid-90s buyers who paid $100,000 for a one-bedroom, $20,000 down, maybe $5000 in cash in the bank. And now you're mister financially conservative coop board tsar who's going to make damn sure nobody can ever do again what you did....

"NYCMatt: east_cider said "co-op Marker in *Manhattan*", not New York City. I know people tend to confuse the two, but if you are going to quote employment statistics, better not mix apples and oranges (e.g. Manhattan and Staten Island)."

Right.

Because no one in Queens or Staten Island works in Manhattan.

And no one who lives in Manhattan works in Connecticut or New Jersey.

"Right.

Because no one in Queens or Staten Island works in Manhattan.

And no one who lives in Manhattan works in Connecticut or New Jersey."

That's not the point. The point is that most of those 23.4% of people working in Education, Health and Human Services aren't about to buy co-ops in Manhattan. And good luck to all those 50% of people working in retail and construction when they try to apply to your board.

Matt, I get what you are saying, but if you narrow the focus down to respectable doorman co-ops in the prime neighborhoods of Manhattan, I would venture that the mix of financial services buyers is several multiples of the 1 in 20 ratio that you suggest.

"And good luck to all those 50% of people working in retail and construction when they try to apply to your board."

I'll take a solidly employed retail or construction worker with a salary over a finance guy whose major source of income is not guaranteed.

Well then be prepared to live with a marked-to-market price of $100psf on your unit if your preferred buyers are sweater folders and drywall hangers.

And Matt - could you also be one of those coop board members who decline prospective buyers who actually have better financials than YOU do currently? Higher salaries, higher incomes, more assets, higher net worth, but they are somehow less qualified to buy into YOUR building?

Actually, one guy who works in construction in our building clears $250K annually.

"could you also be one of those coop board members who decline prospective buyers who actually have better financials than YOU do currently? Higher salaries, higher incomes, more assets, higher net worth, but they are somehow less qualified to buy into YOUR building?"

Nope.

So if it came down to your construction guy at $250k and a finance guy at $200k salary + $800k bonus, you would disregard the $800k and roll out the red carpet for the construction guy?

And Matt - could you also be one of those complete liars who makes up everything that he says here?

Everything else being equal, yes.

CC, you're always good for a giggle.

Thank you for that.

and thanks for your clear admission of being a liar: "Everything else being equal, yes."

Cute one, CC.

I was responding to "So if it came down to your construction guy at $250k and a finance guy at $200k salary + $800k bonus, you would disregard the $800k and roll out the red carpet for the construction guy?

I'm sorry, but that's absurd. The finance guy could sustain a 93% drop in his bonus and still be a more attractive buyer than the construction guy.

matt is never interested in facts or logic...just his own useless opinion. of which he has many. all uninformed and useless. stay tuned.

"I'm sorry, but that's absurd. The finance guy could sustain a 93% drop in his bonus and still be a more attractive buyer than the construction guy."

Really. In your opinion, how would he be a "more attractive buyer"?

Is five years with the same employer really considered a "short tenure" by co-op boards?

Well, for starters, his total comp would be $256k vs. the hardhat at $250k.

The example is interesting, regardless of whether one believe the finance guy a better risk, if the policy is to exclude bonus from the equation.

and, of course, the construction business is rock solid...no drop there.

No job is guaranteed.

"Well, for starters, his total comp would be $256k vs. the hardhat at $250k."

No it wouldn't, because bonus isn't considered as income. Period.

how about overtime? is that considered income?

"and, of course, the construction business is rock solid...no drop there."

More solid than banking, sweetie.

"Is five years with the same employer really considered a "short tenure" by co-op boards?"

It's considered "short tenure" by any measure.

"how about overtime? is that considered income?"

Only if the employer can verify in writing that the OT is a "guaranteed" part of the applicant's income.

Re: It's considered "short tenure" by any measure.

Matt, do you even listen to yourself? It is just as I suspected, Matt's board is a bunch of middle class dopes who bumbled into their apartments by luck or happenstance at the right time. Some were renters when it converted, others bought pre 2001 and had barely two dimes to rub together -- just enough for 20% down and closing costs. They probably signed their closing checks with $20 left in their checking accounts. And they're mostly corporate admins, educators, maybe an accountant, a mid level ad sales exec, perhaps an illustrator, decorator or mid-level book editor. The kind of people who should be passing financial judgement on no one. People who still have CRT TV sets because they cant afford both a new flat screen and dinner out once a week.

Yet Matt and his board mates will make ridiculous onerously restrictive rules and financial restrictions that not a single one of them could pass. Hey Matt, have ALL of your board mates been at the SAME employer for at least 5 years?

do you really think that matt is on a board? no way.

I was thinking 5 years (actually 5 and a half) was long time! Most people I know have not been at the same place that long. Considering I'm 30, having worked at the same place most of my profesional life I would have thought would be helpful... but who knows.

I think Matt is just the type of person who would be on a board. I've seen them in action and know them well. Matt is NIMBY personified. A self-professed social liberal yet ultimately averse to extending to others the same social opportunities he enjoyed. First time buyer right out of school? -- forget it! Starting a new career but flush with cash? -- forget it! Socked away 20% of your income for ten years but it's in a 401k? -- forget it! Retired but a million in the bank? -- forget it! Banker about to get a million bonus? -- forget it!

Matt is a middle class snob -- he's definitely on the board!

Yeah, go find a condo in the WV cuz there are so many to choose from. Great advice.

please...please...

do not base your thinking on your situation based on matt's lunacy. he is a blowhard, no nothing.

good luck.

And he's not only a middle class snob.... he's a middle class snob with FIDUCIARY responsibilities!

NIMBY. Nailed it.

Thanks, columbiacounty. I'm waiting to hear back from the seller. The bottom line is I can pretty comfortably afford this apartment, otherwise I would not even consider buying it. I just hope the board agrees.

This is the biggest prob with coops: There's so many a*holes on the Bd because the Bd is an a*hole magnet. Many are people who, deep down, know they are nebbishes, get on the Bd cuz it gives them a sense of POWER. 'I'm on the Bd, so I can impact your life in a major way, you little pion.'

This is not true of all Bds, but many are like this.

Coops have tougher requirements than lenders. Don't take this personally. When you live in the coop, you'll appreciate it.

"That's not the point. The point is that most of those 23.4% of people working in Education, Health and Human Services aren't about to buy co-ops in Manhattan."

Really? You mean you don't think doctors can afford to buy in Manhattan? An invasive heart surgeon can easily make $500,000 +. I know since I have a cousin who married one.

agree cc, but there are lots Matts out there sitting on lots Bds.

i have had very limited personal experience with this; luckily, never have run into anyone remotely close to matt.

I had a summer job in the coop closing dept of a managing agent. Reading meeting minutes was often a lesson in narcissism & pettiness. Many of these Bd members really needed to get a life.

Oh alpie. Your logic is so wonderfully and consistently illogical.

wv_coop - It may be true that coop boards dont count bonuses and that they may consider a 35% ratio as being on the high side. However, based on my experience it completely depends on the coop. Atleast half of my borrowers who were purchasing coops had ratios near or even above 35% and they all got approved by their boards. I did have one where the ratios were less than 20% and they got denied. So it depends. Coops vary from one another and the difference can be night and day. I know some board members and although they dont count bonus income, based on the consistency of it, they use it as a compensating factor sometimes. Along with job history, assets, etc. I think the fact that you already lease there will help somewhat. sunny.hong@bankofamerica.com

"They probably signed their closing checks with $20 left in their checking accounts."

Not here.

***

"And they're mostly corporate admins, educators, maybe an accountant, a mid level ad sales exec, perhaps an illustrator, decorator or mid-level book editor."

Network television executive here.

***

"People who still have CRT TV sets because they cant afford both a new flat screen and dinner out once a week."

I'm perfectly happy with my 25" color set. And I actually eat dinner out quite often

***

Hey Matt, have ALL of your board mates been at the SAME employer for at least 5 years?"

I can't speak for my "board mates", but I've been with the same company in one capacity or another for 19 years.

Hi Sunny, good to hear from you! You're the voice of reason.

Well for those that don't qualify for coops there's always Condos.
and if you naven't noticed not very many new buildings going coop.

What co-op will approve me if all my income comes from growing "medical" mariquana? Or will I require a condo?

you would require jail. growing pot is illegal.

Should a Sex Worker only consider a condo?

probably. unless he/she has a very good side job doing construction. or heart surgery.

Hey AR :)

Hey dwell :)

Growing pot in some states for medical purposes is legal. It's legal under California law but illegal under federal law. If my house was in Nevada, I could even operate a brothel in my basement legally.

""That's not the point. The point is that most of those 23.4% of people working in Education, Health and Human Services aren't about to buy co-ops in Manhattan."

Really? You mean you don't think doctors can afford to buy in Manhattan? An invasive heart surgeon can easily make $500,000 +. I know since I have a cousin who married one."

No, I mean that less than 1 in a 1000 of the people that work in health care are invasive heart surgeons. Most of them are phlebotomists, or nurse's assistants, or physical therapists. And the same goes for education. The NYU directors can buy in Manhattan, but the CUNY junior profs won't.

I'm a board vice president.
- not important enough to be president?

We, along with a growing number of boards, are no longer counting bonus money as "income"
If someone earned money the prior year and it is in the bank, is that money ignored?

unless we can get a written statement from your employer that your "bonus" is a *guaranteed* part of your compensation.
Or unless North Korea will renounce nuclear weapons

Unfortunately, you have something else going against you ... working in FINANCE. It's viewed today by many boards as one of the most volatile employment situations.
Because the media industry in New York is not facing declines. Because doctors aren't facing pricing pressure and regulation. Because New York is the finance capital of the world and has been so for how long, and finance jobs in NY have accounted for significant employment for how many years? Because the New York Stock Exchange is based in Atlanta.

And what is your earnings history? You stated just five years at your current employer, but what is your total industry tenure? If you have at least 15 solid years of industry tenure with a proven earnings track record, a board MIGHT look a bit more favorably on your application.
Because no one who has worked for less than 15 years should be allowed to buy.

I'll take a solidly employed retail or construction worker with a salary over a finance guy whose major source of income is not guaranteed.
Because the person who puts his money into a FDIC insured guaranteed bank deposit will become more wealthy than someone who diversifies amongst non-guaranteed investment options. Because wealth is built with a passbook savings account.

"and, of course, the construction business is rock solid...no drop there." More solid than banking, sweetie.
Because New York's first bank, the Bank of New York, founded by Alexander Hamilton, the first Secretary of the Treasury, still doesn't occupy 1 Wall Street in New York City, just steps from Federal Hall and George Washington's statue.
Because New York isn't still the capital of banking and finance in the U.S. and globally.
Because we have consistently been building buildings in New York, and there are never booms and busts and layoffs.

I was responding to "So if it came down to your construction guy at $250k and a finance guy at $200k salary + $800k bonus, you would disregard the $800k and roll out the red carpet for the construction guy?
Really, because one has potential to make more, that is consider worse?

I can't speak for my "board mates", but I've been with the same company in one capacity or another for 19 years.
Because no headhunters ever call.

"Because New York's first bank, the Bank of New York, founded by Alexander Hamilton, the first Secretary of the Treasury, still doesn't occupy 1 Wall Street in New York City, just steps from Federal Hall and George Washington's statue.
Because New York isn't still the capital of banking and finance in the U.S. and globally. "

***

Don't kid yourself. The Bank of New York is no longer Alexander Hamilton's bank -- it was bought by MELLON BANK several years ago. They agreed to keep the name.

And Chase Manhattan? Bought by Bank One. That's right -- they kept the name.

Two of New York's biggest banks aren't really New York banks anymore.

Go figure.

"I can't speak for my "board mates", but I've been with the same company in one capacity or another for 19 years.
Because no headhunters ever call."

***

Frankly, because every time I tried to leave, they'd sweeten the pot.

"I'll take a solidly employed retail or construction worker with a salary over a finance guy whose major source of income is not guaranteed.
Because the person who puts his money into a FDIC insured guaranteed bank deposit will become more wealthy than someone who diversifies amongst non-guaranteed investment options. Because wealth is built with a passbook savings account."

***

Actually, I don't care about how "wealthy" they become. As a board member, I care only about their current *income*, and how solid it is. As a result, we don't count bonus money. We also don't count lottery or sweepstakes winnings, either.

"And what is your earnings history? You stated just five years at your current employer, but what is your total industry tenure? If you have at least 15 solid years of industry tenure with a proven earnings track record, a board MIGHT look a bit more favorably on your application.
Because no one who has worked for less than 15 years should be allowed to buy."

***

I didn't say that.

I indicated that if someone's income doesn't quite reach our criteria, we look at other factors that might work in their favor. But if your income drops below our criteria AND you don't have a substantial track record, it could further work against you.

We understand the new realities of the job market, and that many employees these days hopscotch from employer to employer. If you don't have significant tenure with one employer, at the very least we'd like to see significant tenure in your industry.

Unfortunately, particularly with the attention-deficient Gen-Y crowd, the notion of "significant tenure" or "extensive experience" seems to have shrunk considerably. I see this all the time in resumes that cross my desk. "I have extensive experience in [such and such] ...", and then I look at their education profile and see they graduated in 2005. These kids work for 10 minutes somewhere and then consider themselves experts.

I'm sorry, but at this particular time, if your first day of work in your industry didn't happen in a year with a "19" in front of it, your industry tenure isn't "significant".

Deal.

So you will turn me away if I win 60 million in the lottery?

Steve Jobs gets paid a salary of $1 at Apple. Clearly, he would be a terrible co-op candidate and would struggle to pay the maintenance. Never mind the fact that he is worth billions - his salary is simply too low.

reminded me of a lottery joke

A man and woman very unhappily married discuss a what if;

The man asks his wife, "What do we do if we win the lottery?" She replies "Well we would split the winnings and I would leave."
The man replies, "Ok, here is my winning ticket, I won $10 , here is $5, get the fcuk* out."

"So you will turn me away if I win 60 million in the lottery?"

Only if you can't prove adequate post-closing liquidity.

"Steve Jobs gets paid a salary of $1 at Apple. Clearly, he would be a terrible co-op candidate and would struggle to pay the maintenance. Never mind the fact that he is worth billions - his salary is simply too low."

We consider all guaranteed INCOME, not just "salary" -- combined with other assets.

He'd be a fine candidate.

Actually, I don't care about how "wealthy" they become. As a board member, I care only about their current *income*, and how solid it is. As a result, we don't count bonus money. We also don't count lottery or sweepstakes winnings, either.

So if I won 10K a week for life in the scratch offs but had no other income, you would turn me away?

"So if I won 10K a week for life in the scratch offs but had no other income, you would turn me away?"

Of course not. That's GUARANTEED income.

I was talking about lump sum lottery winnings as an indication of future earnings.

What lottery or sweepstakes are you talking about? Local bingo hall stuff?

But Steve Jobs' assets are largely tied up in Apple stock, which you have also decreed as being an unacceptable form of post closing liquidity (on a different chat thread). And his income beyond the $1 salary is in the form of option grants, which are far from being "guaranteed income." So in your board's estimation, Steve Jobs effectly has no salary and no assets. Yet he would be a "fine candidate?"

"But Steve Jobs' assets are largely tied up in Apple stock, which you have also decreed as being an unacceptable form of post closing liquidity (on a different chat thread). And his income beyond the $1 salary is in the form of option grants, which are far from being "guaranteed income." So in your board's estimation, Steve Jobs effectly has no salary and no assets. Yet he would be a "fine candidate?"

I can't speak to his candidacy without a board package in front of me, but I'm guessing that among all those assets, in some bank account somewhere he has at least one to two years' worth of mortgage and maintenance.

Of course, I'm just guessing.

Do boards consider dividends and captial gains or ONLY base salary?

I have 0 debt. I want to buy a pied de terre, co-op. I am in a rental unit currently with a year lease. Do they consider income from AGI or raw income? I have stocks, etc., and make sure to take my losses of (3000), and other deductions bringing my AGI down to 119K. I was told my rent was considered debt where a co-op board was concerned. My mortgage broker, who pre-approves me for a mortgage over 200K said to allow the Board to believe that I will live in the co-op. Question...seller's broker who has a cash offer (supposedly with a bit of a mortgage), says the board will look at the rent and call it debt and considering my small income (of 119K), that will put me in 34% debt to income ratio. Seller's broker told me to up the cash (my offer was listing price...the other cash offer was "a bit below it.") I am like, yes...welcome to the Manhattan real estate fun house for co-op buyers. Are these people trustworthy? Stupid question. So my choice to bring it in line with the board's 25-28% debt to income ratio (meanwhile, I have excellent credit and would get a 100,000 mortgage)...is to raise 260,000 in cash. Can I do it? Yes. Do I want to? Not for the co-op. If I sell stock, I take a tax hit. I have liquidity for the low maintenance out 2 yrs. I don't want to lie about the rental, like the mortgage broker told me, meanwhile...the seller's broker knows, though. I could lie and say, yes...I am moving into the pied de terre and giving up the apartment (different location of the city). And I guess what annoys me is that though I have 0 debts, the monthly rent is now named debt. I am in debt. Regardless of my assets (stock portfolios and IRAs and stability of income), I am called on for the rental debt, regardless of my ability to pay and of course, the seller's broker is "afraid" the Board will deny me...meanwhile, only a submit offer has been given by me. But the seller's broker likes the cash...she probably knows the cash offerer. I'm walking. Go for it, cash offer.er All the best. I love the comments about back in the day when these folks barely had 2 dimes to rub together to get the apartment and now think they are sitting on gold. I have a friend who sat on the Co-op Board and she tried to reason with their insanity...they didn't listen to her, ignored her logic and advice and she resigned out of frustration because they think they are Lloyd Blankfein...when they are Mickey Mouse (sorry Mickey...don't want to insult you). They are adding to the Manhattan real estate fiasco of offshore folks bringing in cash that is untraceable to plunk down on co-ops. They are adding to the middle class (including themselves) being squeezed out of Manhattan...to protect and raise their golden investment. They are suicidal and genocidal. What goes around comes around...and their contribution to making the situation lousy in NYC is beyond good business sense. But they are not looking into the long term. And they are adding to one person who has the cash-in this particular building-he owns 20 units which he rents out, to putting the whole co-op in jeopardy...as he has a monopoly of power and the rest of the board are his creatures...afraid of him. The more units he purchases, the more power he has until he can take over the entire building and do as he pleases. The board is too stupid to see this. Why in blazes do I want to buy in this building??? I must be nuts. This platform has allowed me to share my thoughts and helped me make a decision...confirmed...I'm out of there. Good luck to all co-op buyers.