What Is a Co-op Condo?
A co-op condo is a type of housing where an owner owns an interest in a corporation, rather than a specific part of building. Owning a co-op condo is different from owning a condo in other ways as well. A buyer who is interested in a co-op condo should understand all the differences between a standard condo and a co-op condo to make certain that a co-op condo will meet her specific needs.
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How it Works
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A buyer of a co-op condo purchases shares in a co-op corporation that owns the building. Owning these shares allows the owner to lease space in the building. When buying a standard condo, the owner buys a specific unit in a building. As with standard condos, owners in a co-op pay a monthly fee for maintenance of the common areas of a building, taxes, building insurance and other costs. These fees may also cover some of the condo owner's utilities.
Price
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Co-op condos are generally less expensive than a standard condo. One reason that co-op condos are less expensive is that the co-op board has the right to approve or reject the buyer of the condo. This makes buying a co-op condo a little more difficult and can increase the time it takes for the approval of the sale. The increased difficulty and time reduce the number of potential buyers, which works to lower the market value of the co-op condo. If there is a mortgage on the co-op building, a person who buys a co-op condo is also assuming a portion of the mortgage. Often, the monthly condo fee that the owner pays will include this cost, which works to increase the expense of owning a co-op condo.
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Financing
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As a co-op condo owner buys shares in a corporation instead of actual real estate, arranging financing for the purchase may be difficult. Traditional mortgage lenders such as banks and credit unions might not write loans for co-op condos. However, many co-op condo buildings have arrangements with lenders that will write loans for these purchases. Lenders will likely require a large down payment and may charge higher fees and interest rates than traditional mortgages. Also, owners cannot use a co-op condo for a home equity loan or line of credit, as the owner does not own specific real estate.
Renting
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Co-op boards typically have broader power to limit the renting of condo units in a building than does a standard condo board. This can be both a positive and a negative for an owner. Having only owners living in the condo can create a stable atmosphere in the building. However, being unable to rent the condo limits the financial options for an owner. Though some co-op condo boards may allow renting of a condo, for an owner who may move in a few years and want to use his condo as a rental property, a co-op condo is probably not the best choice.
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