Does anyone know how the typical Coop/Bank operates when it comes to financing for 2 combined units? Here's the situation: I'm looking to combine my existing 2 br/2 ba unit with the next door neighbor's 2 br/2 ba unit. I have a mortgage on the current apartment. When we initially purchased our unit 2 years back, we bought for $1.3M (with 25% down), and have put another $200k into the unit for... [more]
Does anyone know how the typical Coop/Bank operates when it comes to financing for 2 combined units? Here's the situation: I'm looking to combine my existing 2 br/2 ba unit with the next door neighbor's 2 br/2 ba unit. I have a mortgage on the current apartment.
When we initially purchased our unit 2 years back, we bought for $1.3M (with 25% down), and have put another $200k into the unit for renovations (new custom kitchen, windows, floors, heating/cooling units). Without actually listing it on the market to sell, we are estimating with broker we could sell for $2M+/- now. So value has certainly increased with renos.
My questions:
1) How does the process work with the bank if we buy the second unit? Will they come in and re-assess our current unit as part of appraisal? Or will that only happen after we've gone through the sale process for the second unit as a single unit, and then further taken steps to combine the 2 & refinance the combined place?
2) How does a typical Coop look at finances for a 2nd unit purchased in the building? If you intend for the 2nd unit to be your primary living space, but need to renovate to make that happen, is there any leniency at all on the debt to income ratio?
3) Any other major things I should be thinking about before venturing down this path?
Thanks!
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Response by alanhart
almost 11 years ago
Posts: 12397
Member since: Feb 2007
1. Does your local market support $4+ million 4+ BR apartments?
2. Will the resultant floorplan be a gracious and lovable home, or an awkward collection of compromises and bad flow?
3. Will the combined maintenance make it difficult to sell, versus a purpose-built large apartment?
4. These4. These are considerations that the board, and maybe even the bank/appraiser, will ponder. Not just you.
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Response by Curiosity123
almost 11 years ago
Posts: 23
Member since: Nov 2011
Hi Alanhart, thanks for the follow up. Here's a few more details:
1) UES, 70s and 3rd - I believe there's a market. Combined, it'd be a 5 br/4 ba (flex to 6 br, but would make an office) with large kitchen/dining room/living room.
2) Floorplan is not awkward, actually quite useful even with the 2 entrance options.
3) Maintenance would be ~$6800
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Response by AVM
almost 11 years ago
Posts: 129
Member since: Aug 2009
1. Some banks (e.g., Chase) will come in and do an appraisal of both units as if they are combined. The new loan will be secured by the shares of both units. It will fund at the closing of your purchase of the 2nd unit, and a portion of the proceeds will pay off your existing mortgage. Also the bank will holdback some of the cash proceeds into escrow. The escrowed amount should be fairly modest -- minimum $10k but probably not much more. Months later, whenever the 2 units are legally combined, the escrowed monies will be released and paid to you. This is how it worked a few years ago anyway...of course things may have changed.
2. I would not expect additional leniency from the coop. You should look to the total maintenance for both units + P&I on the new larger mortgage, and use this total in the income ratio.
3. In addition to what Alan said...
On the first unit, will the value of the renovations you're already made remain intact? Or are you essentially starting from scratch on both, and hence relinquishing the value of the $200k that you already put in? That's not necessarily a deal breaker, but it does make it tougher for the numbers to work if you're starting over again as a gut reno. Another consideration: can you buy any of the building's hallway space to enlarge the entryway or improve the flow? Often when apartments are combined, hallway space becomes available.
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Response by Curiosity123
almost 11 years ago
Posts: 23
Member since: Nov 2011
AVM - thanks! The value of existing renovations would remain intact. Would basically just re-work floorplan of 2nd unit.
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Response by deanc
almost 11 years ago
Posts: 407
Member since: Jun 2006
So in 2008 we did this in Brooklyn heights, if you look here or brownstoner you'll find some of my previous posts however the short version is this.......
In 2008 we banked with Chase but they wouldn't allow combination financing..... so to purchase and combine 2 units we took out a mortgage with Citi providing funding for both purchasing both (80%) and we paid cash to do the combination renovations, there was also a "escrow" and a time limit to complete the combination I don't remember how long but I think a year.
In 2012 we combined another apartment (downstairs rear).....the irony was this time Citi wasn't doing combination loans but Chase was.......so we moved our banking back to them........ (though have since refinanced with Wells Fargo).
As far as the coop was concerned the 2008 renovation no probs, the 2012 combination....some were against it but approved in the end.
Do it is my advice as its a great way to generate capital value.
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1. Does your local market support $4+ million 4+ BR apartments?
2. Will the resultant floorplan be a gracious and lovable home, or an awkward collection of compromises and bad flow?
3. Will the combined maintenance make it difficult to sell, versus a purpose-built large apartment?
4. These4. These are considerations that the board, and maybe even the bank/appraiser, will ponder. Not just you.
Hi Alanhart, thanks for the follow up. Here's a few more details:
1) UES, 70s and 3rd - I believe there's a market. Combined, it'd be a 5 br/4 ba (flex to 6 br, but would make an office) with large kitchen/dining room/living room.
2) Floorplan is not awkward, actually quite useful even with the 2 entrance options.
3) Maintenance would be ~$6800
1. Some banks (e.g., Chase) will come in and do an appraisal of both units as if they are combined. The new loan will be secured by the shares of both units. It will fund at the closing of your purchase of the 2nd unit, and a portion of the proceeds will pay off your existing mortgage. Also the bank will holdback some of the cash proceeds into escrow. The escrowed amount should be fairly modest -- minimum $10k but probably not much more. Months later, whenever the 2 units are legally combined, the escrowed monies will be released and paid to you. This is how it worked a few years ago anyway...of course things may have changed.
2. I would not expect additional leniency from the coop. You should look to the total maintenance for both units + P&I on the new larger mortgage, and use this total in the income ratio.
3. In addition to what Alan said...
On the first unit, will the value of the renovations you're already made remain intact? Or are you essentially starting from scratch on both, and hence relinquishing the value of the $200k that you already put in? That's not necessarily a deal breaker, but it does make it tougher for the numbers to work if you're starting over again as a gut reno. Another consideration: can you buy any of the building's hallway space to enlarge the entryway or improve the flow? Often when apartments are combined, hallway space becomes available.
AVM - thanks! The value of existing renovations would remain intact. Would basically just re-work floorplan of 2nd unit.
So in 2008 we did this in Brooklyn heights, if you look here or brownstoner you'll find some of my previous posts however the short version is this.......
In 2008 we banked with Chase but they wouldn't allow combination financing..... so to purchase and combine 2 units we took out a mortgage with Citi providing funding for both purchasing both (80%) and we paid cash to do the combination renovations, there was also a "escrow" and a time limit to complete the combination I don't remember how long but I think a year.
In 2012 we combined another apartment (downstairs rear).....the irony was this time Citi wasn't doing combination loans but Chase was.......so we moved our banking back to them........ (though have since refinanced with Wells Fargo).
As far as the coop was concerned the 2008 renovation no probs, the 2012 combination....some were against it but approved in the end.
Do it is my advice as its a great way to generate capital value.