You may have heard that co-ops in NYC have onerous financial requirements for potential buyers. In this article, we explain the most common NYC co-op financial requirements including post-closing liquidity, debt-to-income ratio metrics and the average co-op down payment requirement.
We help you answer the following question: how much NYC co-op can I afford?
Table of Contents:
What are the typical NYC co-op financial requirements?
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. Although the financial requirements for co-ops in NYC vary by building, a conservative estimate for a NYC co-op’s financial requirements is as follows: 20% down, 25% debt-to-income ratio and at least two years of post-closing liquidity.
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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’ than condos.
What is the average NYC co-op down payment requirement?
The most common down payment requirement for a co-op in NYC is 20%. Because each co-op is a private corporation, they can set their own rules regarding down payments and other financial requirements.
Although down payment requirement varies by building, the reality is that you will virtually never come across a co-op which permits anything less than 20% down. 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.
What is the post-closing liquidity requirement for NYC co-ops?
A typical co-op in NYC will require applicants to have approximately 1-2 years of post-closing liquidity to his/her name after closing. As a co-op buyer, 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 the co-op.
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, if you have two years of post-closing liquidity it means that you can pay all of your co-op carrying costs (mortgage payment and maintenance) 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.)
How is post-closing liquidity calculated?
Post-closing Liquidity Calculation
Post-closing liquidity is calculated by taking the sum of your liquid assets and dividing that over your monthly co-op carrying costs (maintenance and mortgage).
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.
What qualifies as liquid assets when calculating post-closing liquidity?
The definition of ‘liquid assets’ is open to interpretation and varies by co-op board, however 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