When I was new in the real estate business and trying to understand coops, I couldn’t wrap my head around it. The question I continued to ask was “So, if someone gets approved by a bank, they can still get denied by a coop?” and the answer is YES! Now, is it common for buyers to get rejected by a coop? No, most of the time buyers have a realtor representing them to ensure they are qualified to get approved; but board rejections certainly happen.
In my first 6 months as a real estate agent, I was working with a wonderful client. She owned a successful business and had her eye on a particular Upper East Side building. To make a long story short, she was an all-cash buyer, with well over 2 years of post-closing liquidity and her debt to income was under 20% since she was paying cash. After working with her through negotiations, contract phase, and the board package (2 months of work) it was devastating when I got the call she was rejected. I was stunned. We went back and attempted to address the boards concerns but it was still a no. I should mention coop boards in NYC are not obligated to provide buyers a reason why they were rejected (yes, legally protected) so we offered added security like two years of maintenance payments in an escrow account which still didn’t work. At the end, my client got her deposit back and was so disheartened with the process she chose to rent.
The general rule of thumb to get approved by coop boards is the following:
- Your debt to income needs to be under 28%. To calculate this, you’ll need to breakdown your gross monthly income and then your monthly expenses to include your estimated mortgage, maintenance/tax, and any debts you have such as a car payment, student loans etc. Please note, if you have recurring expenses, you pay off each month than this is NOT a debt. So, for example, your gym membership isn’t calculated as an expense here.
Pro Tip: I love using the Wells Fargo DTI calculator: https://www.wellsfargo.com/goals-credit/debt-to-in... - Post-closing liquidity needs to be at least two years of mortgage and maintenance/tax. Keep in mind, you’ll need to back out your down payment and closing costs to ensure you have the full 2 years after you close.
Pro Tip: This is my favorite closing cost calculator: https://www.prevu.com/nyc-closing-costs-calculator
Are you looking to buy in NYC? I promise it isn’t as scary as it sounds 😊
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