How to Distinguish Between Condos and Co-ops

Condominiums (condos) and co-operative apartments (co-ops) are similar to single family homes, in that home ownership offers tax advantages and property appreciation, as well as many of the traditional rights and responsibilities unique to property owners. Condos and co-ops may be the only affordable choice for home ownership in heavily populated areas such as New York City. There are some differences between condos and co-ops, and it's important to know what those differences are before you buy.

Instructions

1. Ask if you are buying an interest in a corporation or an interest in real estate. If the unit you want to buy is in a building that is owned by a non-profit co-operative housing corporation and requires its owners to purchase shares in the corporation, then the unit is a co-op. If the unit is considered real estate and the homeowners own their units outright, as well as undivided interest in the common areas, then it is a condo.

2. Find out what your monthly fees cover. While both co-ops and condos will require monthly fees, where the money goes is indicative of what kind of unit you are dealing with. In co-ops, the corporation pays for everything (including the underlying mortgage, taxes, insurance, maintenance, large projects, and usually utilities), and then passes the costs on to its shareholders. In condos, your monthly fees would cover only maintenance of the common areas, while mortgage payments, taxes, insurance and utilities are paid by the individual condo owners and are not part of the monthly payment. If a large project is needed (such as new roofing or resurfacing the parking lot), a large assessment is made to all of the condo owners.

3. Check out the property tax situation. Condos appear on the tax rolls as separate properties, so each homeowner is taxed individually. Co-ops appear on the tax rolls as one piece of property, so the corporation is liable for paying the taxes (and then passes the cost onto its shareholders).

4. See what financing options are available. Condos are financed just like single family homes, where individuals can go to different lenders and choose from a large array of mortgage products. Financing a co-op purchase is much trickier. Lenders are more reluctant to give financing to something where they do not have real property for collateral. In addition, some co-ops will not allow financing at all, meaning you have to pay all cash for the unit. In today's market, there is usually a common ground: the co-op corporations work with specific lenders to help the shareholders secure financing. However, the down payments are higher and there are fewer options from which to choose.

5. Determine the asking price of the unit. For the reasons mentioned in the steps above, co-ops are usually less expensive than comparable condos.

6. Figure out how much power the board of directors has. Condo homeowners' associations have terms and by-laws that bind the owners. These include regulations regarding unit modifications, pets, quiet hours, and lawn decorations or structures. Co-op boards also make similar rules, but their rules tend to be stricter (for instance, many will forbid subletting).

7. See what kind of qualification process there is to get into the building. For condos, the approval process basically consists of securing financing for your unit and proving you can make the monthly maintenance fees. Co-ops require a lengthy approval process for prospective buyer-shareholders. You must show that your income is four times your monthly carrying costs (your monthly payment to the corporation plus all other debt and obligations). Most co-ops require letters of recommendation, criminal and credit background checks, and a live interview. They can accept or reject candidates on any basis they choose, except for those classes protected by the federal fair housing laws.