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Cover story: Financing for condos, co-ops different
When Heidi Krieger, who recently purchased a one-bedroom co-op in Cleveland Park, first started looking at co-ops and condos, her first concern was to find a home she loved. Her second priority was to make sure the monthly fees were affordable.
“I fell in love with Cleveland Park, the Tudor-style co-op building and, most important, the unit itself,” Ms. Krieger said. “Once I did the research and understood how co-op financing works, I was ready to buy.”
Co-op ownership differs from condominium ownership in one essential way: The homes are not owned by individuals. Instead, the co-op owners are members of a nonprofit corporation, known as the cooperative association, which owns the property. Members own co-op shares according to the size of their homes.
“Co-op owners don’t really own real estate; it is more like a lease,” said John Heithaus, chief marketing officer of Metropolitan Regional Information Systems (MRIS) in Rockville. “The co-op shares have the potential to appreciate, and homeowners still have the ability to deduct their mortgage interest in the co-op loan.”
Susan Isaacs, a Realtor with Coldwell Banker Residential Brokerage in the Dupont Circle office, said there are approximately 120 co-op buildings in the city. Her website (www.susanisaacsre.com, click on Tools2Use) provides extensive information about purchasing a co-op and lists co-op buildings in the District.
“While some buyers assume that buying a co-op is complicated, the process is actually not nearly as scary as it sounds,” Ms. Isaacs said. “Co-ops tend to a have a lower price per square foot than condos, and even though they often have higher co-op fees, those fees include property taxes, and some even include utilities and a maintenance staff.”
Financing a co-op purchase is similar to paying for any other property, except that not all lenders offer co-op loans. Financing a co-op requires approving both the borrower and the building, so lenders need to review the building’s assets in addition to qualifying the borrower, Mr. Heithaus said.
“Buyers need to find out which lenders provide co-op loans, but most co-op buildings have a list of lenders who have approved other loans in the building,” said Charles Vance, an area sales manager for Wells Fargo Home Mortgage in the District.
“Lenders who provide co-op loans usually have a list of buildings that have already been approved for a loan, but if the building isn’t on the list, the lender will need to review the co-op’s financial information and insurance. Approving a building can add a few weeks to the loan process.”
“Only conventional loans are available on co-ops, and they are limited to owner-occupants,” he said. “Borrowers will have to make a minimum down payment of 10 percent for a co-op.”
Other than the larger down payment, Mr. Vance said co-op borrowers will need qualifications similar to those of conventional-loan borrowers, including a solid credit score and sufficient income and assets to handle the mortgage payments.
As Ms. Krieger found out, buying a co-op requires not only financial approval from a lender, but also personal approval from the co-op board.
“My interview with the co-op board went really well, and then I was elected to the board as soon as I moved in,” Ms. Krieger said. “The building has just 13 homes, and it seems like a pretty relaxed group of homeowners.”
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