My fiance and I are currently in the process of purchasing a co-op, but I'm a little concerned about getting through the board. Here is our general financial picture: 1. If you just include salary, we will have a debt to income ratio of 28% (gross). I've heard for some boards that is fine, and for others they like to see closer to 25% or less. If you include our expected bonus income, our ratio... [more]
My fiance and I are currently in the process of purchasing a co-op, but I'm a little concerned about getting through the board. Here is our general financial picture:
1. If you just include salary, we will have a debt to income ratio of 28% (gross). I've heard for some boards that is fine, and for others they like to see closer to 25% or less. If you include our expected bonus income, our ratio drops to 26% (neither of us are in finance jobs and our bonuses are pretty steady).
2. We both anticipate raises next year, which should comfortably drop our debt to income ratio to 25% or less. However, we are very unlikely to have our raises in place by the time we submit our board package and go before the board. We are trying to get our bosses to write letters showing our historical raises and saying something to the effect of "based on current performance, I expect this upward compensation trajectory to continue." However, they are unlikely to be able to say they guarantee a certain % raise. Will most board's accept this type of statement?
3. After down payment and closing costs, we will still have over half the apartment's value in liquid assets (over 8 years worth of monthly carrying costs), so I feel we have substantial assets despite borderline salaries.
4. We are both relatively young (late 20s) and so we don't have a long history of this type of income, although we have both shown a consistent history of salary increases.
I'm told this is a "reasonable" board, but wanted to get any opinions here on whether or not we might have trouble getting through based on our qualifications above. Thanks.
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Response by front_porch
about 15 years ago
Posts: 5316
Member since: Mar 2008
You are the perfect candidates to ensure board approval by simply increasing your down payment a little bit.Sounds like kicking in another 5% down will put you where you want to be.
ali r.
DG Neary Realty
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Response by dtc1804
about 15 years ago
Posts: 10
Member since: Jul 2010
Thanks for the suggestion. That might be something we consider. However, we're already laying out 25% for a down payment, and even though we'll still have a lot left over, we'd rather not have to put down another 5% if we can avoid it.
If the board did have concerns over our application that another 5% down could alleviate, is it likely they might come back to us and request we put down another 5%, or would they likely reject us outright. In other words, if the board requested that we put down more money, we likely would, but given the choice we'd rather not. But I'm not sure if boards will typically make a request like that or just reject you outright.
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Response by front_porch
about 15 years ago
Posts: 5316
Member since: Mar 2008
a lot depends on the communication between the board and the broker but typically, you only get one shot.
ali r.
DG Neary Realty
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Response by dtc1804
about 15 years ago
Posts: 10
Member since: Jul 2010
That's good to know. Do you think we would likely be rejected be a reasonable board if we didn't put down additional money?
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Response by Mikev
about 15 years ago
Posts: 431
Member since: Jun 2010
See this is where i question whether there is a broker on both ends. All these questions should be answered by your broker, if you have one, or by the sellers broker. It would be assumed based on what is said on these boards that the reason the brokers get such large fees is for the service they are providing in order to make sure the sale gets completed.
Most of the time a board will have a certain reputation that the brokers are aware of and will make sure that you are putting together the best picture possible so that there are no issues.
I am not sure whether putting down 5% more is necessary unless it is an unreasonable board. you are sitting on more liquid assets then most if you are really left with 50% of apartment value.
Also from what i remember they are only looking for i think it is 2 years worth of monthly payments to be around, since of course the assumption is that you could more than afford the monthlies out of current salary.
I wish you good luck as this is why i avoided coops on my current search. I really have issues that you are at the whim of a few people who can reject you for whatever reason they feel like and then everyone in the process will have wasted months of time and money. Seems to me to be a ridiculous thing to put yourself through.
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Response by dtc1804
about 15 years ago
Posts: 10
Member since: Jul 2010
Thanks Mikev. We do have brokers on both ends and they said we should be fine with getting through the board. I'm mostly just being paranoid and wanted to get some third party opinions.
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Response by printer
about 15 years ago
Posts: 1219
Member since: Jan 2008
I think having such a letter from your employers can't hurt. And I don't know that going from 25 to 30% down makes all that much difference. From the board's perspective, they want to make sure that you will be in no danger of not being to pay your maintenance. Having the extra liquidity of the 5% helps. At 75% ltv they already have good protection for the unlikely situation where you default after not having made several months of maintenance payments.
good luck.
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Response by kharby2
about 15 years ago
Posts: 279
Member since: Oct 2009
If there is a professional managing agent/property manager for this building, ask your broker to contact them and find out what the DTI ratio expectation is. You might find out it's 30%--as I just did for one of my clients. I agree with printer, if the building is a 25% down building, you should be fine with 25% down.
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You are the perfect candidates to ensure board approval by simply increasing your down payment a little bit.Sounds like kicking in another 5% down will put you where you want to be.
ali r.
DG Neary Realty
Thanks for the suggestion. That might be something we consider. However, we're already laying out 25% for a down payment, and even though we'll still have a lot left over, we'd rather not have to put down another 5% if we can avoid it.
If the board did have concerns over our application that another 5% down could alleviate, is it likely they might come back to us and request we put down another 5%, or would they likely reject us outright. In other words, if the board requested that we put down more money, we likely would, but given the choice we'd rather not. But I'm not sure if boards will typically make a request like that or just reject you outright.
a lot depends on the communication between the board and the broker but typically, you only get one shot.
ali r.
DG Neary Realty
That's good to know. Do you think we would likely be rejected be a reasonable board if we didn't put down additional money?
See this is where i question whether there is a broker on both ends. All these questions should be answered by your broker, if you have one, or by the sellers broker. It would be assumed based on what is said on these boards that the reason the brokers get such large fees is for the service they are providing in order to make sure the sale gets completed.
Most of the time a board will have a certain reputation that the brokers are aware of and will make sure that you are putting together the best picture possible so that there are no issues.
I am not sure whether putting down 5% more is necessary unless it is an unreasonable board. you are sitting on more liquid assets then most if you are really left with 50% of apartment value.
Also from what i remember they are only looking for i think it is 2 years worth of monthly payments to be around, since of course the assumption is that you could more than afford the monthlies out of current salary.
I wish you good luck as this is why i avoided coops on my current search. I really have issues that you are at the whim of a few people who can reject you for whatever reason they feel like and then everyone in the process will have wasted months of time and money. Seems to me to be a ridiculous thing to put yourself through.
Thanks Mikev. We do have brokers on both ends and they said we should be fine with getting through the board. I'm mostly just being paranoid and wanted to get some third party opinions.
I think having such a letter from your employers can't hurt. And I don't know that going from 25 to 30% down makes all that much difference. From the board's perspective, they want to make sure that you will be in no danger of not being to pay your maintenance. Having the extra liquidity of the 5% helps. At 75% ltv they already have good protection for the unlikely situation where you default after not having made several months of maintenance payments.
good luck.
If there is a professional managing agent/property manager for this building, ask your broker to contact them and find out what the DTI ratio expectation is. You might find out it's 30%--as I just did for one of my clients. I agree with printer, if the building is a 25% down building, you should be fine with 25% down.
K. Harby
Rutenberg Realty
kharby@crrnyc.com