Applying for a Co-op in New York City: Guide on How to Get Approved
In New York City, getting any kind of living situation will mean meeting certain standards—many of which may be pretty shocking to people who haven’t lived in the Big Apple for too long.
For example, apartment landlords may require rental insurance or a guarantor in order to get approved.
Buying a house in the city often requires an exorbitant income, as well as great credit.
If you’ve been searching for a new place to live, you already may have heard these things.
These standards are pretty well-known by most, but for many people, there’s still one kind of living situation that can be elusive for many: the co-op.
On the one hand, co-ops remain a popular choice, especially for many first-time buyers, as they often tend to be more affordable in comparison to their condo counterparts.
To learn more about the differences read What's the Difference Between a NYC Co-op and a Condo?
Co-ops can be viewed as a more exclusive choice of living, and to a point, they are correct.
The standards for getting into a co-op can be very strict, especially if you are looking for a unit in one of the most expensive communities in New York City.
Co-ops can also be surprisingly expensive and luxurious. Read up on New York City's 13 Most Expensive Co-ops.
So, what does it take to get into a co-op? Here’s what every applicant should know…
Financing of a Co-op
Co-ops behave a lot like a mix between a home and an apartment.
Almost like renting an apartment, you’re expected to pay maintenance fees on a monthly basis.
You technically own shares of a corporation and can, therefore, build equity. However, the shares are represented in the form of an apartment on the corporation's property.
When you purchase these shares, you are granted a lease for the apartment you have chosen.
Although co-ops deal in shares, you actually buy and sell a co-op unit, just like you would any other home. You also may get similar tax breaks to home ownership.
However, there are some differences.
You don’t get a full say on who can purchase or rent your apartment. You also have rules you’re required to follow as a shareholder of the co-op.
Even trying to get approval for a co-op can be difficult on a financial level.
Can I take out a mortgage for a New York co-op?
There was a time when buying a co-op meant that you’d have to pay everything in cash, but this is no longer the case. There are ways to finance a co-op today, and in many cases, mortgage lenders will help you out.
If the co-op you want to buy doesn’t approve outside lenders, ask the board whether they offer financing.
There are cooperatives that require all-cash buyers.
However, this may spell bad news for a prospective home-buyer as it can mean that the co-op is suffering from poor cash flow, dire financial circumstances, problems with co-op tenant, or all the above.
Because the corporation's finances are bad, no lender is willing to finance a purchase at that particular co-op and so they are looking for all-cash buyers.
You wouldn't buy stock from a company that is tanking. Nor should you buy into a co-operative that is essentially a bad investment.
It's best to ask the co-op management company or listing broker for a list of lenders that they know are working with the building.
Co-ops put out financial statements every year, which lenders who are considering approving fund for a client must review in order to determine the financial soundness of that co-op.
How much do you need to put down in order to buy your co-op?
The financial requirements for a co-op vary from place to place.
Down payments can range from anywhere between 10% to 50% of the overall co-op’s price.
Most down payments will be between 20% to 40% of the price in New York, which is on the higher end.
While 20% is an industry standard, nowadays it's not unusual to encounter buyers who are putting down less and sometimes next to nothing.
This almost never the case with buying into a co-op, who usually want to see that new co-op owners have a lot of liquidity and financial stability.
Why is showing liquidity important for buying a co-op?
Liquidity refers to the cash you have on hand, and co-ops typically do have liquidity requirements for people who want to buy a unit.
In most cases, they require one to two years of post-closing money in order to get approved for a unit.
When they refer to post-closing liquidity, co-op boards mean the amount of months’ worth of “rent” you have on hand.
These requirements vary from co-op to co-op, with some being more stringent and others being more lax.
A co-op wanting to attract new buyers may be more flexible.
What about my credit?
Much like any landlord or mortgage lender, the board of a co-op will run your credit before they will approve you for the co-op.
Typically, you will need a score above 650 to qualify. It’s a lot like a mortgage in this respect.
Again, how good your credit score has to be will depend on the individual co-op's requirements.
If you're having trouble your credit score, read up on How to Improve Your Credit Score.
Important Facts to Know About a Co-op's Finances
You would never invest in stock of a corporation you knew was tanking.
Likewise, it's important to get the facts about a co-op's finances to make sure you are making a sound investment.
Just as the co-op is vetting your financial qualifications, you and your attorney should also be looking into the co-op itself to make sure the finances are handled soundly.
Your attorney should be reviewing board meeting minutes, and your lender will most definitely be reviewing the annual financial statement provided by the co-op.
To learn more about how your real estate attorney can help you, read Why You Need an Attorney in NYC to Purchase Real Estate.
How Do I Put Together a Co-op Board Package?
You will need a lot of stuff. At the bare minimum, expect to send out:
- A cover letter
- Reference letters (both professional and personal)
- Tax returns
- The last three pay stubs from your job
- An Employment letter
- Statements on all your assets and liabilities
If you’re financing, you also will need the following:
- Your loan application
- A loan commitment letter
- The sales contract
- Recognition agreements (issued by your lender)
Some co-ops may also have additional requirements. They will go over it with you when you ask about the application process.
Each co-op's application will outline all the required documentation. When in doubt, it's best to arrange your package in the order of requested documents listed on the application.
Your board package should also include all the included forms, disclosures, and signs, completely filled out and signed.
Any incomplete sections, errors/discrepancies, and unremitted fees will delay the process. Multiple requests for corrections and documents can even result in additional fees.
Do I have to organize a board package all by myself?
Though you are going to have to be the one to provide all the documents, you don't have to be the one who has to organize it all.
If you are working with a real estate agent, they should be putting it together for you. That's why it's important if you have an agent experienced with co-op board packages.
It could mean the difference between getting approval or not.
Believe it or not, but the actual board package can get costly. Not only is there a board application fee, but other fees particular to each co-op, most of which are due at the time of submission.
Some co-ops require a copy for each board member. With some co-op boards being large, you might be looking at eight or more binders, hundreds of pages each!
Working with a real estate agent might help you mitigate some of those copying/printing fees.
I don’t have much documentation. Can I still get a co-op?
As mentioned prior, a co-op behaves a lot like a mortgage when it comes to the finance approval process.
It’s not uncommon for co-ops to ask potential buyers to furnish pay stubs, tax returns, and other proof of income as a way to qualify you.
If you don’t have much in terms of income or a way to prove you earn what you claim you do, you won’t be approved for a co-op in most cases.
Can I use a guarantor?
New York City apartment landlords are known for waiving income minimums if the renters in question have a guarantor that will back them up.
It’s understandable why people may believe co-ops would behave the same way. If you assumed that this is true with co-ops, you’re right.
Depending on the community, you might be able to get a co-op mortgage otherwise out of your reach if you work with a guarantor.
That being said, applying with a guarantor doesn’t always guarantee that the board will agree to you using one, even if they are applying as a co-applicant.
In fact, many boards will require that the person who is applying with you reside in the apartment with you the majority of the year as an official resident and the co-op as their permanent address.
The Social Standards
What’s interesting about co-ops is how much scrutiny they can involve during the process.
Unlike other living situations, many (if not most) co-ops also have a certain level of social minimums they require.
Co-ops are known for requiring reference letters as a way to determine who is worthy of making the cut.
The references they ask for are a mix of both personal and professional. If you can’t furnish references, it’s grounds for rejection.
I have a criminal record. Should I even bother applying?
Sadly, criminal records are grounds for rejection in almost every, if not every, co-op in New York City.
Co-ops do extensive background checks, so if you do want to give a co-op a try, make a point of being honest about any criminal history you have.
That way, you might be able to tell your side of the story before they make a decision.
Do I have to also write them a letter?
While some board applications require a cover letter, other do not request one. However, if your application doesn't require one, should you still submit one?
Along with a letter showing that you’re committed to moving into the co-op, you should include a cover letter as part of your application.
It could only work to your advantage, as this is your opportunity to introduce yourself and state your case as not only a worthy applicant, but a contributing neighbor and community member.
The cover letter itself doesn’t have to be extremely lengthy or quirky; it just needs to give the board a good idea of who you are and why you’d be a good choice for the co-op’s community.
How should I prepare for a co-op board interview?
Part of the application process for co-ops in New York City will include an interview with the co-op’s housing board.
The interview can range from a simple formality to an in-depth procedure that involves a deep look into your lifestyle.
A good rule of thumb is that the interview will be more difficult to ace as the price of the co-op increases.
Can I just wear some casual clothes to the interview?
NO! It’s best to opt for something conservative and classy. Most co-ops can and will judge applicants based on the clothes they wear to an interview, and the overall manner in which they present yourself.
If you work with an agent or broker who has worked on deals in the co-op before, they should be able to give you a pretty good idea of what kinds of questions to expect.
The board will most likely bring up any discrepancies, questions, and red flags that they saw in your board package. So, be prepared to answer any potential financial questions.
In any case, also be prepared to answer personal questions about your life.
Your willingness to be open and honest about such things will affect how the board feels about you, so it's best not to be secretive or offended.
Are they going to accept me right at the interview?
Every board is different, but you will probably get a good sense at the time of the interview. If you bomb the interview, you might be able to tell it from the expressions on their faces.
Vice versa, if you do well, you'll probably already know. They might even tell you that you should be receiving the approval in writing.
It can take weeks, or even months, before you get an answer one way or another.
Why would they ask for all this?
For people who aren’t on a co-op board, it can be very difficult to understand why people get so heavily grilled during a co-op application.
The truth is that it’s a way to cut down on risk.
Co-ops aren’t as temporary as many apartment situations, and boards don’t have an easy time evicting co-op dwellers.
Co-ops aren’t just buildings, per se. They’re communities inside a building.
You will end up sharing space with these people if you end up moving in.
As a result, it’s a matter of making sure the community is one that lifts up others, rather than causing chaos in shared spaces like recreation rooms.
To avoid lengthy legal proceedings, co-ops tend to do whatever they can to avoid picking the wrong client.
Moreover, some co-ops actually use their stringent standards as a way to market themselves as exclusive communities in New York City.
Did you apply for a co-op, only to be turned away? Don’t worry, it happens to the best of people.
Even celebrities have struggled with getting into some of the more elite communities in New York City!
Thankfully, there are pointers that can still help you get a good place nearby.
I don’t know why I was rejected. What happened?
Believe it or not, co-ops have a right to reject you for almost any or no reason, except in cases of discrimination.
They don’t have to tell you why, and at times, it’s best not to know. It hurts, but at this point, you can’t change their minds.
There are many common reasons why people get rejected for co-ops, including their fame, working from home, perceived untruths about finances, or a really bad interview.
The best you can do is brush yourself off and look for a new opportunity,
I really think that I was discriminated against. Can I sue?
Though co-ops are more discerning than most other living situation, they still cannot discriminate against applicants based on race, age, religion, creed, citizenship, marital status, sexual orientation, disability, sex, children, or occupation.
They are still bound by the Human Rights Law.
It may be difficult to prove that you were discriminated against on these grounds, but not impossible.
But I really want a co-op! Are there any loopholes?
There is one very easy way to get in and bypass the entire process and that is through a sponsor unit.
When a landlord or building owner decides to convert their building into a co-op and basically sell of most or all of their units, these originating apartments are considered sponsor units.
The building owner is the sponsor.
As such, it isn’t bound by typical co-op restrictions. You wouldn’t have to gain approval from a board to buy it!
More often than not the sponsor will give their tenants the right of first refusal in purchasing a unit.
Oftentimes, the sponsor will sell of most of the units, and might keep a few for continual rental income.
They will also not be allowed to sell off any rent-controlled or rent-stabilized units until these become deregulated by the tenant moving out.
Sponsor units come up more rarely than resale units, and some co-ops may be completely 100% co-op regulated.
It's much easier to find a sponsor unit in buildings that are struggling to meet a co-op conversion deadline, or from a sponsor who is trying to unload all their units.
Again, working with an agent who has worked much in a particular co-op building can help you locate sponsor units.
Are co-ops always what they’re hyped up to be?
Not always. A well-managed co-op can be an amazing way to experience New York City, save money, and enjoy a community you otherwise would never see.
A poorly-managed one, on the other hand, can be an extremely overpriced nightmare complete with a draconian set of rules you’re expected to follow.
At the end of the day, co-ops are just like any other kind of property you’d buy or rent in terms of what you get.
Some co-ops are worth every penny, and can even help you save money. Others aren’t.
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