Quick questions about co-op board approvals?

Generally they want to see two years of statements. They will likely require that your debt-to-income ratio does not exceed 25%. They will also want to see that you retain a good level of liquidity after the down payment.

i gen'l buildings have a formula. ex: a well-run coop i owned in that would be considered middle of the road in terms of finacial reqs for buyers--they req'd 2 years tax returns 6 mo copies of stamts for all financila accts--so have mommy tranfer funds now, so money shows in whatever acct well in advance of your coop board app submission (in case you got such a mommy)

40% down + ability to show liquid assets (in addition to down pmt) equal to 48 times monthly maintenance + mtge pmt. i dont recall the income req, but there was a formula for that also.

25% debt to income ration seems way high, tho bram amy mean ratio of monthly debt service to monthly income??

For assets: At least the most recent (often the two most recent) statements for all accounts. Ideally, the statements should all have the same cut-off date so the Board can verify that you're not shifting money around to inflate your net worth.

For income: Two years of tax returns, plus pay stubs.

If you're financing the purchase, the Board will also require all the loan documents, including the application file that will duplicate much of the information from the tax returns and account statements.

One big red flag is volatility. Another is inconsistency. Your numbers should tell one story - preferably a clear, simple one. Whatever a particular Board's formula may be, they have to trust your data before they can even apply the formula.

Thanks Bramstar. I have hi FICO (800 ); DTI well below 25% (I have virtually no debt); & I can escrow upto 2yrs of maint (@ approx. $2k a month). What level of liquidity are they looking for after that?

Also, I had been employed full time for 18 years & did quite well. (Never felt the need to go out & buy since I have been living in the ultimate rent stabilized converted 1BR in Midtown for 16 years). In 2010, I was laid off & remained unemployed for an entire year. I am since then, back on my feet & have been employed full-time, for over a year now. Will the one year unemployment influence the board's decision, even though it was in the past and I can meet all their other requirements?

My responses may be delayed as I am new to this board and my comments have to be reviewed. i appreciate any insight on this.

So W81, is my one-time unemployment considered "volatility", even though it's been a common economic trend nationwide since 2007? Or will they cut me some slack?

West--thanks for clarifying. I should have said two years of tax docs not statements. In our case the board wanted to see the most recent three months of bank statements.

Hey Sammy,

Boards fluctuate with how many months of statements they require. I have dealt with boards that require only the most recent bank statements to boards that require all quarterly statements, to a full 6 months-1 year. If you have any recent large deposits or withdrawals in the statements that are not gifted monies for the purchase or a downpayment for the purchase, that can be a red flag for a board.

Some general rules of thumb for co-ops: Boards generally expect your carrying costs (maintenance plus coop loan) to be no more than 25% of your income. Boards generally expect that after the purchase, the buyer will have at least 50% to 100% (sometimes more) of the purchase price of the apartment in liquid assets after the down payment is deducted. Liquid assets are defined as cash, stock, bonds, mutual funds, etc...only something which is immediately converted to cash is considered liquid. Real estate, retirement plans, life insurance plans (unless there is a cash value), stock options, etc. are NOT liquid. The most lenient co-ops would require a purchaser to have a minimum of 2 year’s maintenance and co-op loan payments in liquid reserves after the payment of the deposit. It’s uphill from there with the most stringent buildings requiring 3 times the value of the apartment in liquid assets after the purchase.

You might also have to be prepared, depending on where you fall within these general requirements, to put extra maintenance into escrow (boards may ask that of you). This can fall anywhere from 3 months maintenance to 2 year's maintenance. Again, it just depends on the board's comfort level with your financial picture.

If you'd like, I have a PDF - "Buying in NYC" - file that stipulates comparisons between co-ops & condos, financial requirements, closing costs, timelines and what to expect for the process. If you shoot me an email, I can happily pass that along to you.

Good luck!

Brad at Rutenberg
bmalow@crrnyc.com

What about retirement assets (401K/IRA etc), are these considered liquid? Do they discount them @ some rate??

"maintenance in escrow" - we just discovered a building that requires 3 months of maintenance in "escrow". Will we ever see any of this money again or is it a hidden "flip tax"? Is it like a security deposit and they will remove funds for damage, etc.

Co-op board president here.

Echoing much of what has been said above, the usual "board package" would include:

- 2 years of tax returns (minimum)
- 6 months of bank statements (all accounts)
- Full credit report
- Statement from employer (if you rely on employment for income, otherwise a statement from your accountant or personal banker if your income is self-generated)
- 3 personal letters of recommendation
- Copy of valid driver's license or passport
- Contact information for your current landlord (if renting), mortgage company (if you hold a mortgage on your current primary home), and/or management company of your current apartment/condo/co-op
- Resume and/or employment history

Red flags:

- Huge lump sum of money appearing in your bank account within the past year
- Frequent job changes
- Debt-to-income ratio greater than 28% (my building is generous).

What we're looking for:

- Good (or at least decent) credit -- we understand in this economy, losing one's job for any length of time can wreck your credit for years, so post-Lehman we don't give quite as much weight to the FICO score as we used to. But we will be looking closely at your overall credit report.

- At least six months' worth of LIVING expenses, post-liquidity -- not just mortgage and maintenance. The reason for this is that in this climate of high unemployment, it's difficult to replace a job, and folks who lose their income and whose savings is ONLY six months' worth of mortgage and maintenance tend to use up a few months' worth of mortgage and maintenance payments for things like food and the ConEd bill, which is perfectly understandable. But now it's more like a two or three month cushion for US getting paid. Not good.

- Solid job history with at least 5 to 7 years of industry tenure. Again, we realize how quickly jobs can come and go, but we want to see that you've at least established yourself in a particular industry.

Thanks Brad, I sent you the email.

when you are talking about debt to income is this pre tax income or after tax?

Pretax.

Ok. This is all very, very helpful. My one other question is regarding assets overseas (cash as well as real estate)? Are those helpful in the evaluation process or not really??

SJTMD,

There is usually a time period allotted to your maintenance when it is put into escrow for a board. Generally, after you close, if you pay your maintenance for that set amount of time (can be 1 year), the money is returned to you.

Meaning - after you live there for the year. (Not paying the year upfront - just to clarify).

sjtmd --

the climate is bad and boards are currently nuts.

At this point, anything up to five years could be on the table. (I just heard an anecdote of a hedge-funder being asked for multi-year escrow on an East Side purchase.)

Use your broker and atty to negotiate the length of the escrow. It's not a secret tax; monies will be returned to you at the end of the term.

ali r.
DG Neary Realty

Thanks Ali - do you negotiate with the board, realty corp, or the seller?. Would very sound financials and no mortgage help persuade them that such a contingency is unnecessary?

"(I just heard an anecdote of a hedge-funder being asked for multi-year escrow on an East Side purchase.)"

With all due respect, Ali, hedge-funders are among the riskiest applicants out there right now.

Give me a nurse or a public school teacher over a Wall Streeter as an applicant any day.

sjt,

I have some thoughts but I don't want to share them here. Email me at work ali [at] dgneary [dot] com -- or even better, call me on my cell anytime after 4:30 today.

ali

I put 30% down, had 1.5 years of mortgage adn maintenance in liquidity and have under 25% debt to income ratio and was still asked to put one year's maintenance in escrow for 2 years. My attorney did successfully negotiate to change the wording on the escrow agreement in my favor (was not specific about the circumstances of giving escrow back). And the board analyzed a full year of bank statements and asked about some purchases I had made 6 months prior (furniture).

Still I feel lucky to have been accepted even conditionally because my DP was gifted to me. And the financials of the coop are stellar, so they are super strict about who gets in.

"Co-op board president here."

Did you get a promotion?

Yes, as a matter of fact I did.

"Give me a nurse or a public school teacher over a Wall Streeter as an applicant any day."

So you can turn them down because they don't make enough money?

I am on the board of my Upper East Side co-op. The first thing we look at is net worth. If the applicant's net worth is less than the purchase price of the apartment then any other data is irrelevant.

Beyond that, I agree with the other responses about liquidity after purchase. Two years living expenses (including maintenance and mortgage if any) allows a shareholder with financial problems ample time to get a new job, or else realize that they need to sell the apartment and do so before reaching a crisis point.

I disagree with the idea of an escrow request being negotiable. If an an applicant were unwilling to put two year's maintenance in escrow he or she would not be approved. If they attempted to have a lawyer or attorney get involved? Absolutely not approved. After the two years has expired, the escrow is returned, with interest.

No industry or job is preferred or forbidden - the biggest change is that bankers are no longer considered to have the advantage they once did.

Boards are concerned you will be a good neighbor, both personally and financially, so at the end of the day all they are seeking is to be sure that the rest of the shareholders will not be compromised. No one should take that personally.

Finally a real answer.

thx Targert

My husband and I have substantial liquidity but proportionaly less income. He worked on Wall Street for a number of years but has now switched to the non-profit sector and has no intention of going back. I am also in the non-profit world. Our combined income is 250k, and due to my husbands former career, we have about $5 million in liquid, non-retirement savings.

My question is: would our substantial liquidity be a mitigating factor in the eyes of a co-op board?

Based on the 28% rule frequently cited, would we only be able to buy a coop with total carrying cost of 6k a month, or something on the order of $1.75mm buying power in spite of our liquidity? (assuming 50% down and maintenance of about 2500 a mont.

Interested in what Target and front porch think

I wonder if a nurse or public school teacher would have an easier time passing a co-op board than an unemployed "freelancer" who gives tours of tv station studios and who ignores credit scores that everyone else seems to think are important.

Target, front porch any thoughts?

to co-op board president - nycMatt I'm giving my son the DP for a low cost co-op, under $300000. He presently rents in a high price rental, I've been subsidizing him. He has excellent credit and no debt, except 12,000 student loan. He works for the NYCDOE for 5 years. BUT- he doesn't have the liquidity that I see here is required. Do you think a co-op board will approve him if I give him 6 months escrow?

Is it customary for a co op board and/or realtor to request our full bank account numbers?

Sammy300, care to answer patsch???

"Co-op President here." How many times and in how many threads do we have to hear this moron rant on about his self-importance. What a creep. Obviously has nothing to do but log on to this site and preach to everyone how fabulous and all-knowing he is. Gag me with a spoon, fella.

patsch: The board will request the statements (which will have the account numbers on them). In my application package (and on the preliminary docs provided to the broker), on the statement copies I blacked out all but the last 2 digits of the account number. Nobody asked about it.

delly123, why dont u educate your son to move to a low price rental and save some money? or you should just pay for his rent so that he could save some money

@Aaron,

I totally agree, I am very cautious about what I do/don't give to boards the way they photocopy out these records without care for security etc.

My husband and I are trying to put a board package together right now, which includes the REBNY financial statement. Our broker says that the numbers on the financial statement need to line up exactly with the numbers on our bank statements.

However, our bank statements don't all line up to the same day. e.g. some end mid-month, others go to the end of the month, and one of our accounts only does quarterly statements.

Given that the financial statement seems to be a snapshot of everything at one time, how have other people filled it out? If I use the most recent statement from each of our accounts, we run the risk of double-counting funds if anything moved from one account to another (which we had to do in order to write a check for the contract deposit).

We requested Verification of Deposit forms from all of our banks, which contain an account's current balance on a given day. But our broker said the VOD form would be unfamiliar to the board and seems adamant that we use only bank statements.

In regards to net worth, my question is:

Is this calculated before the purchase of the apartment, or after?

For example, let me throw out some hypothetical numbers:

Lets say I'm buying a $1.5 million co-op. I'll be putting $750K down, financing $750K. I have $1.75 million in liquid assets.

So, when they calculate my net worth, before buying the apartment it would be $1.75 million.

Where I get confused is after I buy the apartment. After putting the $750K down, using liquid asseta alone, theoretically my post purchase net worth would decline to a mere $250K, no? ($1.75M liquid -$750K down -$750K new debt).

Or, is my net still $1.75million? ($1.75M liquid + $1.5 million market value of co-op -$750K down -$750K new debt)

Your net worth is the same. The deposit is an asset. But your liquidity ratios change. The deposit or a real eatate investment is not liquid.