difficulty getting a mortgage on a 4 unit co-op?

Your broker is speaking from experience. There are only a handful of lenders that will lend on these types of properties, and of those that ultimately can, some are much harder to work with than others. Feel free to email me at nycmortgage@gmail.com if you'd like to discuss further offline.

thanks. what is it about a 4 unit co-op that makes lenders cautious?

Risk

These mortgages cannot be sold to Fannie or Freddie, so the banks issuing them are old-fashioned types, the kind that issue loans and keep them on the books, rather than securitize. Also, many banks follow the same underwriting rules as Fannie Mae, even if they don't intend to resell their loans. Because the pool of banks is much smaller, and they assume risks, their rates are higher.
Do you belong to a credit union at work?

thanks bob420 - obviously they find it risky. i'm just trying to get an explanation as to exactly what those risks are. previously, we have bid on 6-8 unit co-ops and never heard any of this from our broker. what is the reason for this significant difference when there are 4? what factors might help to lessen this risk? a significant reserve fund? no underlying mortgage? i am admitting total ignorance here - anything you can do to illuminate the situation would be greatly appreciated!

maly - my ignorance abounds! what is a credit union and how would i know if i belong to one?

here's a perfect example for you... a roof needs to be redone, it costs $10K. each owner will have to dish out $2500. then the facade needs work and that costs $20K, etc.

there is always more risk of having expensive repairs for the coop owner in smaller coops. in larger coops, it is easier to get short term loans for these kind of things or pay the whole amount that will be split into many pieces. a large reserve definitely will help, but what the bank will consider large for a small coop is the question.

Or if 1 of the 4 defaults.

ab, it doesn't matter for the purpose of financing what is the underlying mortgage or the amount of the reserve, most banks will not finance in a coop with less than 5 units because of the new underwriting rules.
citygrad, credit unions are only available to employees of very large organizations. If you belong to one, you receive benefits like higher rates on CD or money market accounts, lower rates on loans, etc.
If you have never heard of it, chances are you don't belong to one! Your remaining options are: financing by the seller, financing by bank of mom and dad, financing by local banks (I can't think of the name, but there is a bank on the west side of Union Square that does community lending.)

It's likely that some lenders may already have a Fannie Mae waiver on the project. A very small handful actually offer them regularly, providing a niche over most other conventional lenders. This type of financing is common in Manhattan and Brooklyn because of the abundance of this type of property, you just have to know where to look.

There's only one way to find out definitively where to get financing and that's by having a mortgage professional researching the property and determining what kind of project approval is necessary or waiver would be applicable, which is only half of the battle. Then you must also meet the requirements of that lender, which is usually the easier part.

"citygrad, credit unions are only available to employees of very large organizations"

Not true at all.

Actors Federal Credit Union is open to anyone (freelancers especially) who belongs to entertainment labor unions like Actors Equity, SAG, AFTRA, WGA, DGA, IATSE, or any one of 60 other organizations.

Check out this page to see if you qualify: http://www.actorsfcu.com/about.html

true, I forgot to add: and union members, not just actors' unions.

<<<<<<
"citygrad, credit unions are only available to employees of very large organizations"

Not true at all.

Actors Federal Credit Union is open to anyone (freelancers especially) who belongs to entertainment labor unions like Actors Equity, SAG, AFTRA, WGA, DGA, IATSE, or any one of 60 other organizations.
>>>>>>

Not true at all. Credit unions can now come up with the most shallow affiliation to use as their "exclusive" membership criterion ... like living in the same county or city, or being a relative of a member of the credit union.

thank you so much for explaining about credit unions - i am a grad student / student teacher (hence my screen name) - it's possible i may be able to join a credit union through my university. i will definitely look into it.

i imagine there must be a significant number of lenders that will lend on a less than 5 unit co-op considering how prevalent they are in brooklyn. NYmortgage - you seem to be suggesting that only a mortgage broker will be able to open these doors for me. is that really the case? if so, what are the fees associated with using a mortgage broker? i don't know anyone who has used one and i myself have been discouraged from doing so by my family.

This has been an interesting read. Our attorney had also warned us about the size of the coop possibly affecting our chances of securing a loan, mostly for the reasons discussed above. However, we are just about to close on a coop in a 5 unit building in Manhattan and had no problems getting a loan through BoA (we used Sunny Hong who posts here often). The ability of getting the loan might be highly dependent upon the quality of the coop and/or the buyers' credit.

Citygrad: I highly recommend that you find a good mortgage broker or bank officer before you make a bid anywhere. He/she will tell you how strong of a chance you have of getting your loan on a particular place.

Good luck!

Citygrad: There's certainly not a significant number of lenders that can do this and I'm not suggesting a broker is your only option. But a good broker can survey multiple banks at once and will know fairly quickly where your unique scenario fits best. The alternative is that you start randomly applying at banks one by one which can be costly and quite time consuming with no guarantees of you stumbling upon a lender that can finance your unit. You would be getting the expert advice, legwork, and access to dozens of lenders at once, at no additional cost.

That being said, I'm not sure why you would have been so strongly dissuaded from using a broker when there are no additional fees when compared to working with a bank. As a matter of fact, not only would you get the same rates as you would by walking into the very same bank directly, often times you can get them even lower because wholesale brokers provide a much lower-cost business channel for the banks than their retail divisions.

My suggestion is to speak with a bank and a broker to experience the differences and decide for yourself.

NYmortgage - i'm not quite sure why my family has dissuaded me from working with a mortgage broker - perhaps they had a bad experience. i'll have to look into it. also - i would have no problem paying a fee to a mortgage broker if it helped my chances of securing a loan, but it's nice to know that there is no additional cost to me. how does the mortgage broker get paid? can you recommend someone?

khd - you mean bank of america right? we got our prequal from them but through a representative in arizona. i got tired of working with him because he wasn't at all familiar with closings for co-ops. he kept saying we had to put aside money to pay the state tax stamp which, as far as i know, is not applicable in the sale of co-op shares. anyway, i will check out sunny hong. thanks for the recommendation!

I worked with a mortgage broker the first time I bought an apartment. They get paid a commission by the bank, but it is unlikely going to the bank directly would get you a better deal. I used Manhattan Mortgage, but as with all brokers, some are better than others, so this is not a recommendation for MM. If you are buying in Brooklyn, I recommend you call Adam Dahill. He's a regular poster on Brownstoner and would know which banks are most likely to lend in your situation. Don't listen to people who say their banks were fine with 5-unit coops or 4-unit condos, it is irrelevant to 4-unit coops. Unfair? maybe, but for now the rule is there. Good luck!

citygrad, people in Arizona tend to be very linear.

But the best thing is that if you work with a local mortgage broker, it becomes his job to slap the mortgage officer around regarding things like coops vs. condos.

Mortgage brokers developed a bad reputation in lower-income neighborhoods for pushing very bad loans, but you won't be in that situation, and besides you can run everything by your family members and/or attorney to get their buy-in before signing on a mortgage.

citygrad: yes, Bank of America. Sunny was great, and he's local. Good luck!

There's a significant difference in financing a 4 unit coop vs a 5 unit coop. And there is certainly plenty of blame to go around, especially for some mortgage brokers. But brokers seem to have received a disproportionate share of the blame.

Citygrad: Banks have two channels: retail and wholesale. When you call a bank directly that employee you're dealing with a has a high, fixed overhead (his salary, benefits, assistants, payroll taxes, etc...). On the wholesale side, banks only have to pay brokers a commission for delivering a loan to them so the business generated here is usually much cheaper for them. This is why they can offer rates as low and even lower than by going directly to the very same bank. And this is why there's no additional cost to you. Feel free to email me at nycmortgage@gmail.com. I work at Guardhill Financial and would be more than happy to help.

spoke to a lender today who said we would have to get a fannie mae waiver for the property in order to get a mortgage with them in a 4 unit building. the loan officer didn't seem particularly phased by this. anyone have any experience with this process?

citygrad - yes, you would have to get a fannie mae waiver for a 4 unit coop. I just closed a 4 unit coop in Brooklyn not too long ago. Aside from financials being ok and the units being owner occupied, the biggest thing that fannie mae looks for is closed comps within the last 6 months in other 4 unit coops. Without this fannie mae is not likely to approve the waiver. I personally know the person as fannie mae that approves these waivers and through my experience with waivers, I would find out from your broker to find at the very least 1 comp that closed in another 4 unit coop. The one I closed would serve as one as long as its nearby. Appraiser also must note that 4 unit coops are common to the area. sunny.hong@bankofamerica.com

Try National Coop Bank, ncb.com
or Ridgewood Savings Bank.

Reputable Mtg Broker: Banner Mortgage in Hartsdale, has experience with small bldgs.

- an attorney

shong- i would love to know which 4-unit co-op you just closed? shong how much did it cost to get the the fannie mae waiver?

lawyerNY ridgewood is no good, they won't do it. you will need a portfolio lender or a fannie mae waiver,

I'm in a similar if not tougher boat - looking for 3 unit coops comps for a 2 bed floor thru in Carroll Gardens.

I've been working with an excellent guy from BofA - they're one of only 2 banks willing to entertain a deal in a small building (defined as one with 5 units or less). Citibank was the other but since their exposure is limited to only 1 mortgage per building, they couldn't help. The sellers and I have had a long list of requirements. The reserve was one but this only needed to be 10-15% of the annual budget.

If anyone can tell me about any 3 unit coops in Carroll Gardens, Cobble Hill, Park Slope or similar within the last 3 months it would be a great help.

In a similar vein, I recently tried to refinance the mortgage on my coop and was told that while I have excellent credit, etc., and bank who sells their loans to Fannie Mae won't underwrite my building anymore because of new rules. Specifically, the language used to decline my building was:
"Project declined - Not eligible for Non-Agency - presale under 51%. Not eligible for Agency."
My coop board chair said to seek a loan from a credit union but I work for a small nonprofit. Does anyone know if there are other options? Thanks!

Going through this process right now on a 4 unit coop in Manhattan. Many commercial banks will not even entertain the waiver process. I'm working with Wells Fargo right now and they are about to submit the waiver. The WF mortgage representative is from Brooklyn and said he has had others like this (Brownstones in Brooklyn) go through. I received my commitment letter yesterday from the bank, and I have to expect that they think the waiver will work; otherwise they would have not gone through underwriting.

4 unit coops are a problem because they break the normal underwriting rules that Fannie establishes that no one owner can hold more than 20% ownership (fear of default of a single person could cause the entire building issues). In a 4 unit building, owners hold 25% each.

Smallbuilding: WF will underwrite and approve your loan without any consideration for whether they believe your waiver will be approved or not. They will simply make one of the conditions of your commitment letter that your building must receive the waiver in order to proceed. If you get it, great. If not, no loan.

The 4 unit coops are an issue for most banks for many of the reasons already stated here. The WF, BofAs of the world will always issues on these properties. But there are many banks that portfolio all of their loans and never sell to Fannie/Freddie so they're not beholden to these rules.