Typical co-op buyer financial requirements in NYC include 20% down, a debt-to-income ratio between 25% to 35% and 1 to 2 years of post-closing liquidity.
Debt-to-income is a measure of what percentage of your income goes towards housing expenses (mortgage and maintenance payments) and other debts. Post-closing liquidity is a measure of how much in liquid assets you have after making your down payment and accounting for buyer closing costs.
The financial requirements for buyers of co-ops in NYC are typically much stricter than the lending guidelines for banks. This means that a typical buyer in NYC can usually afford a higher purchase price for a condo or a house compared to a co-op. In practice, most buyers shopping for a primary residence still opt for co-ops since they’re up to 40% cheaper than comparable condos in NYC.
The exact buyer financial requirements vary by co-op building in NYC. It’s not uncommon for stricter co-ops to require a down payment of 30% or more, a debt-to-income ratio as low as 25% and post-closing liquidity well in excess of two years. In the most extreme cases, some co-ops require buyers to have two times the purchase price in liquid assets post-closing.
Conversely, some co-ops have very flexible financial guidelines for buyers if any. A seasoned buyer’s agent can help you identify which co-ops are a good fit for you financially. The strictness of a co-op’s buyer financial requirements is typically correlated with how rigid or flexible a co-op’s sublet policy and other rules are.
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Most New York City co-ops require at least 20% down, a debt-to-income ratio of approximately 25% and one to two years of post-closing liquidity.
Co-ops in NYC have notoriously strict financial requirements which include a large percentage down as well as a required minimum debt-to-income ratio and post-closing liquidity requirement for applicants. The most conservative co-ops require between 20% to 50% down, a debt-to-income ratio of 25% to 30% and two or more years of post-closing liquidity.
Keep in mind that the exact financial requirements vary by building, so this is something you’ll need to consider during your search.
We explain each of these requirements in greater detail below, however the key thing to understand as a potential NYC co-op buyer is that co-ops typically have financial requirements which are much stricter than those of lenders. This means that the simple fact you have a pre-approval letter from a major bank does not guarantee that a co-op will accept you into the community.
The combination of strict financial requirements, a challenging board package and co-op interview process, greater subletting restrictions and more rules are some of the key explanations as to why co-ops in NYC are typically 10-40% less expensive than condos.
Despite the aforementioned challenges, co-ops typically work well for buyers who plan on remaining in NYC because you can get more for your money and they offer a stronger sense of ‘community’ compared to condos.
The most common down payment requirement for a co-op in NYC is 20%. Because each co-op is a private corporation, buildings can set their own rules regarding down payments and other financial requirements.
Co-ops also have different approaches to how the board reviews purchase applications, how frequently the meet and how long the entire board review process takes from start to finish.
Although down payment requirements vary by building, the chances of finding a co-op that is okay with less than 20% down are incredibly low. Other common down payment requirements in NYC for co-ops are 25%, 35% and 50%.
In some cases, a co-op’s policy will ‘permit’ a loan up to a certain loan to value (50% LTV, for example) however in practice the building and even the listing agents will discourage it and effectively require an all-cash purchase.
You may occasionally stumble upon a co-op building which permits 10% down, but this is an exception rather than the norm. We do not recommend that you begin a NYC co-op search with the desire to put down just 10% because of how uncommon it is to find a building that permits less than 20% down.
A typical co-op in NYC requires applicants to have approximately 1 to 2 years of post-closing liquidity after accounting for the down payment and closing costs. The simple fact that you have enough money for the down payment and closing costs does not mean that you will pass the financial requirements of a co-op in NYC.
Post-closing liquidity estimates for how many months/years your liquid assets will be able to cover your monthly mortgage and co-op maintenance payment.
For example, having two years of post-closing liquidity means that you can pay all of your co-op carrying costs (mortgage payment and maintenance) for 24 months using your liquid assets without having to rely on your income or needing to liquidate a less liquid asset (such as property, furniture, a car, etc.)
Co-ops like buyers to have a good amount of post-closing liquidity because it reduces the risk that a buyer may stop paying maintenance. When a unit owner stops paying maintenance, it increases the financial strain on fellow owners and makes it more difficult for banks to lend in the building.
Post-closing liquidity is calculated by taking the sum of your liquid assets and dividing that over your monthly co-op carrying costs. Carrying costs for a co-op include your mortgage payment and your monthly co-op maintenance payment. Here are a few examples of how post-closing liquidity is calculated for NYC co-ops:
Post-Closing Liquidity Example One (Financed Purchase):
Purchase Price: $1,500,000
Down Payment: $300,000 (20%)
Loan Terms: 30 years @ 3.93%
Mortgage Payment: $6,959
Buyer Liquid Assets: $200,000
Monthly Carrying Costs = Mortgage Payment ($6,959) + Maintenance ($2,795) = $9,754
Post-Closing Liquidity = Liquid Assets ($200,000) / Monthly Carrying Costs ($9,754) = 20.50 months
In the example above, the candidate has just over 1.5 years of post-closing liquidity to his or her name.
Post-Closing Liquidity Example Two (Cash Purchase):
Purchase Price: $1,500,000
Down Payment: N/A – all cash purchase
Mortgage Payment: $0
Buyer Liquid Assets: $200,000
Monthly Carrying Costs = Mortgage Payment ($0) + Maintenance ($2,795) = $2,795
Post-Closing Liquidity = Liquid Assets ($200,000) / Monthly Carrying Costs ($2,795) = 71.56 months
Because the buyer in this example is making an all-cash purchase and there is no mortgage payment, the monthly carrying costs will be significantly lower. The buyer’s post-closing liquidity is therefore significantly higher at just under six years.
Liquid assets always include cash, CDs and money market funds. Liquid assets almost always include brokerage accounts. Liquid assets sometimes include retirement accounts such as a 401K, SEP IRA, Roth IRA or a Traditional IRA. Liquid assets never include unvested stock, real estate, personal property and insurance policies.
The definition of ‘liquid assets’ is open to interpretation and varies by co-op board. As a general rule of thumb, any asset which can be converted to cash in 24 hours is considered liquid.
The following assets are typically considered to be liquid:
Cash – Checking / Savings Accounts, CDs
Money Market Accounts
Treasury Bills & Savings Bonds
Brokerage Accounts (Stocks & Bonds)
Cryptocurrency Wallets (likely subject to a large haircut)
Vested Shares / Stock Options
The following assets are not generally considered to be liquid:
Retirement – 401K, IRA, SEP IRA, Roth IRA