Feb
07

What Co-op Boards look for in your Financials

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Many co-op boards do a cursory examination of your application:  review financials, check references, interview and make a decision.  But what does it mean ‘review financials’?  In the old days, if the bank gave the ok for financing, that was ‘good enough’; but not anymore.

So what do they look at? 

  • Debt-to-income ratio    
    • Mortgage lenders generally want no more than 28% of a buyer’s gross monthly income to the mortgage payment (Principal, Interest, Taxes and Insurance), or a maximum of 36% for PITI and recurring debt (loans, credit card payments, child support, etc)
    • Co-op Boards usually want to see something closer to 25-30% debt-to-income
  • Income – liquid income
    • Generally the last 3 years of tax returns are reviewed for gross income and adjusted gross income
    • Earning Potential – if your earnings are less than board guidelines, or assets are too weak, but you can show potential for increased income, the board may approve with conditions such as a year’s maintenance held in escrow.
    • Debts
      • Boards also consider other debts, student loans, car loans, other mortgages.
  • Other Factors
    • Location – locations such as Brooklyn or Queens may be less likely to look for large assets and permit more financing than a building on Park Avenue in Manhattan
    • Building size – larger buildings could be easier to buy into than smaller buildings because one or two arrears owners have less impact in a 200 unit building than a 20 unit building.

Boards want to protect their co-op, choosing people who are the right fit.  They also need to stay within the boundaries of discrimination laws.  Reviewing the financials allows the board to decide whether to move forward or not without violating the discrimination laws.

Excerpted from Habitat article

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