Condo vs. Co-Op

I don't come across many buyers looking to buy a co-op but there are a few on the market. In this post, I reference Bankrate's "Condo or Co-Op? What's the difference?" for the comparison.

Both condos and co-ops are considered "common interest developments." A common interest development is a housing development in which their are individual ownership of units with the right to use/share common space.

In a...

• Condo, "each unit owner owns an individual apartment in fee simple. In addition, the buyer owns an undivided interest in the common elements such as the exterior walls, roof, pool and other recreational area."
  
  
• Co-Op, "the building containing the residential units (or apartments) is owned by a 'copperative housing corporation.'"

Both condos and co-op owners have monthly maintenance fees to pay. The key differences are:

• Form of ownership "A condo is considered real property and a cooperative is considered intangible personal property. A condominium owner actually owns the apartment in fee simple, like any other homeowner, and owns an undivided interest in the common areas like parking lots, recreations areas, lobbies and hallways. In a cooperative apartment complex you don't actually own any real estate. Rather, you own shares in a not-for-profit corporation. As a shareholder you get the right to lease space in the building. The corporation owns the common."
  
  
• Property Taxes "Because condos are owned individually, they appear in the property tax rolls as separate entities and, accordingly, individual owners are taxed separately. The entire property co-op is owned by the corporation, so it appears on the tax rolls as a single piece of property. The corporation pays the property taxes and passes along the cost to the tenant-shareholders, usually as part of the monthly maintenance fee."
  
  
• Financing "Since there is no fee simple ownership of the unit in co-ops, it is sometimes difficult to obtain financing because the security for the loan is the resident's shares in the corporation. Many lenders will not lend money on a co-op at all... [Those that do typically] offer far fewer mortgage options, normally require larger down payments and charge higher interest rates. [Additionally,] most co-op owners cannot get a home equity loan or line of credit and in a co-op each individual is dependent on the solvency of the entire project. If the corporation were to go bankrupt, all shareholders would feel the pinch. Individual condo owners are responsible only for mortgage debt and taxes solely on his property."
  
  
• Federal Tax Deductions "In the condo situation, each individual is able, easily, to deduct payments made for mortgage interest and property taxes if he resides in the unit and further deductions for such things as depreciation and maintenance if the condo is used as a rental property. The co-op tenant-shareholder can only easily deduct his proportionate share of the property taxes and interest on the underlying mortgage."
  
  
• Monthly Fees "Maintenance fees, paid usually on a monthly... basis, generally are significantly higher in a cooperative because the corporation is collecting mortgage and property tax payments from each shareholder in addition to [costs] for... [landscaping, security, and insurance.] However, because co-ops are able to borrow funds for costly repairs or capital improvements projects, unit owners are less likely to face large assessments to their monthly fees as condo owners would.
  
  
• Ownership Transfer "One of the good things about not being considered real estate is when the lease rights to a unit in a co-op change hands (because a seller sold his stock shares to a buyer) there is much less in the way of state and local taxes on the transaction and far less in settlement costs because there's no appraisal, survey or title work to be done."
  
  
• Powers of the Board "Despite the fact that many condo associations contend that they are empowered to either approve or disapprove the transfer of ownership, the reality is that they have almost no power at all. Co-ops, on the other hand have the right to approve or deny the sale of shares on the basis, for example, of the buyer's perceived inability to make the payments."

Source: BankRate.com

Consumer's Guide to Lock-In Mortgage Rates

It's important to know your rights. In this blog, I provide excerpts from the Consumer's Guide to Mortgage Lock-Ins, which is published by HSH Associations.

About this Guide...

"he Federal Reserve Board and the Office of Thrift Supervision prepared this booklet on mortgage lock-ins in response to a request from the House Committee on Banking, Finance and Urban Affairs and in consultation with many other agencies and trade and consumer groups. It is designed to help consumers understand an important aspect of home financing."

What is a Lock-In?

"A lock-in, also called a rate-lock or rate commitment, is a lender's promise to hold a certain interest rate and a certain number of points for you, usually for a specified period of time, while your loan application is processed. Depending upon the lender, you may be able to lock in the interest rate and number of points that you will be charged when you file your application, during processing of the loan, when the loan is approved, or later.

A lock-in that is given when you apply for a loan may be useful because it's likely to take your lender several weeks or longer to prepare, document, and evaluate your loan application. During that time, the cost of mortgages may change. But if your interest rate and points are locked in, you should be protected against increases while your application is processed. This protection could affect whether you can afford the mortgage. However, a locked-in rate could also prevent you from taking advantage of price decreases, unless your lender is willing to lock in a lower rate that becomes available during this period.

It is important to recognize that a lock-in is not the same as a loan commitment, although some loan commitments may contain a lock-in. A loan commitment is the lender's promise to make you a loan in a specific amount at some future time. Generally, you will receive the lender's commitment only after your loan application has been approved. This commitment usually will state the loan terms that have been approved (including loan amount), how long the commitment is valid, and the lenders conditions for making the loan such as receipt of a satisfactory title insurance policy protecting the lender."

The guide also answers important questions, such as:

• Will your lock-in be in writing?
• Will you be charged for a lock-in?
• How long are lock-ins valid?
• What options are available for setting the mortgage terms?
• What happens if the lock-in period expires?
• How can you speed up the approval of the loan?

If you are planning on buying a home soon, and are currently working with lenders, I encourage to read this resource.

Source: Consumer's Guide to Mortgage Lock-Ins