Co-ops can provide a less-expensive option to home buying than a condo, but this alternative to traditional home ownership has its own complexities. Find out what a co-op is, what is required to get into one, and why a mortgage loan isn’t an option for buying a co-op.
Definition of a Co-Op
Co-op is an abbreviation of the term “housing cooperative” Co-ops are buildings owned by a corporation. The corporation is made up of owners within the co-op. The corporation owns the entire building, including the interior and exterior of each unit, and all common areas.
Buying Into a Co-Op
In a traditional real estate transaction, you buy property. This can be a house and the land it sits on, or a condominium which is space in a building al;though you don’t own the land or exterior. With a co-op, you buy shares in the corporation controlling the co-op. This makes you eligible to live in the co-op.
A co-op (aka a housing cooperative) is a type of housing owned by a corporation made up of the owners within the co-op. The corporation owns the interior, exterior, and all common areas of the building. Instead of buying property as you would in a traditional real estate transaction, you’re buying a share of the corporation that controls the co-op, which entitles you to living space.
Think of it as buying shares in a project, with the building being the project. You get to live in the building, and split costs for maintenance and services with the other shareholder/tenants. The co-op association manages membership fees to cover these items as well as any additional amenities and the property taxes. As a co-op member, you can vote on rules and management of the building, and run to sit on the board.
Co-Ops and Mortgages
There may be a mortgage on the whole co-op, but it is held by the corporation. There isn’t a home loan that covers buying into a co-op, because you’re not buying property, you’re buying shares in the corporation. Whether or not you’re approved to join the co-p is up to the current co-op board.
Since you can’t get a mortgage loan for a co-op, you’ll have to come up with another way to get the money together. This could mean savings, a personal loan, a specialized co-op loan, or a gift from a friend or family member.
Alternatives to Co-Ops
If you don’t have the cash to buy shares in a Co-Op, a condominium gives a similar experience of living and can qualify for a mortgage loan. A townhome/townhouse is another option. Talk to your Loan Officer about the different types of mortgage loans you can apply for to achieve your dream of homeownership with minimum hassle.
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