Condo vs. Co-op Mortgages in Westchester | Biagio Maffettone

If you are shopping for an apartment in Westchester County, you will quickly find two kinds of listings that look almost identical: condos and co-ops. Same square footage, same views, sometimes the same street in White Plains, Yonkers or New Rochelle. But the way you finance them, the paperwork involved and the timeline to close can be very different.

I have helped Westchester buyers finance homes for more than two decades. In that time, the condo vs. co-op question has come up more than almost any other. Westchester has one of the largest co-op markets outside New York City, so many buyers face it for the first time here.

This guide explains how a condo mortgage and a co-op loan actually work, what lenders and boards will ask of you, and how to decide which is right for your situation.

What you actually own: real property vs. shares

The biggest difference between a condo and a co-op is legal, and it drives everything else.

When you buy a condo, you own real property. You receive a deed to your unit plus a percentage interest in the common areas, like the lobby, roof and grounds. Your condo mortgage is a standard real estate mortgage secured by that unit, and it is recorded with the Westchester County Clerk.

When you buy a co-op, you own shares in a corporation. The corporation owns the entire building. Your shares come with a proprietary lease, which gives you the right to live in a specific apartment. Because you do not own real property, a co-op loan is technically a share loan, secured by your stock certificate and lease rather than a deed.

That distinction explains why co-op financing has its own rules, its own documents and a smaller pool of lenders willing to offer it.

How a condo mortgage works in Westchester

A condo mortgage looks a lot like a mortgage on a single-

house, with one extra layer: the lender reviews the building, not just you.

• Project review and warrantability. Lenders check whether the condo project meets agency guidelines. They look at owner-occupancy levels, how much of the budget goes to reserves, whether any single investor owns too many units, and whether there is pending litigation. A "warrantable" condo opens the door to conventional financing with competitive rates. A non-warrantable condo can still be financed, but usually through portfolio or specialty loan programs.
  
  
• The condo questionnaire. Your lender sends the management company a questionnaire covering the budget, insurance, delinquencies and rental rules. A slow or incomplete response is one of the most common reasons condo closings get delayed, so I ask for it early.
  
  
• Common charges count toward your debt-to-income ratio. Your monthly common charges are added to your principal, interest, taxes and insurance when lenders calculate what you can afford.
  
  
• More loan options. Depending on the building, condo buyers can use conventional, jumbo, and in approved projects, FHA or VA loans. Down payments can be lower than most co-ops allow.
  
  

The condo board generally has a right of first refusal, but it rarely uses it. In practice, the lender's project review matters far more than the board.

How a co-op loan works in Westchester

Co-op financing in Westchester has two gatekeepers: the lender and the co-op board. You need both to say yes.

• Fewer lenders offer co-op loans. Many national lenders do not make share loans at all. Working with a loan officer who regularly closes co-ops matters, because the lender has to know the building and the paperwork.
  
  
• The recognition agreement. In place of a recorded mortgage, the lender, the buyer and the co-op corporation sign a recognition agreement. It confirms the lender's interest in your shares and lease. The lender also files a UCC-1 financing statement.
  
  
• The board sets its own financing limits. Many Westchester co-ops cap how much of the price you can finance. Some allow 80% financing, some 75%, and some require 25% or more down. This is a building rule on top of the lender's guidelines, so ask about it before you make an offer.
  
  
• Post-closing liquidity. Boards often want to see that you will have cash reserves left after closing, sometimes a year or more of mortgage and maintenance payments.
  
  
• Maintenance covers more than you think. Your monthly maintenance usually includes your share of the building's property taxes and its underlying mortgage. That makes it higher than a typical condo common charge, but you will not pay a separate property tax bill.
  
  
• The board package and interview. Expect to submit tax returns, bank statements, reference letters and an employment letter, then meet the board. The board can decline an applicant, which is why I make sure your financing is solid before the package goes in.
  
  

Condo vs. co-op mortgage at a glance

In short, a condo buyer owns real property and takes out a standard mortgage, approved by the lender after a review of the building. A co-op buyer owns shares and takes out a share loan, which needs approval from both the lender and the co-op board.

Condos usually allow lower down payments and may qualify for FHA or VA financing in approved projects. Co-ops often require 20% to 25% down or more, and FHA or VA loans are rarely an option.

Condo owners pay common charges plus a separate property tax bill, while co-op maintenance typically includes the building's taxes. Condo closings tend to move faster and condos are usually easier to rent out. Co-op closings take longer because of board review, and many buildings restrict subletting.

How closing costs differ in New York

Closing costs are where the condo vs. co-op difference shows up in real dollars, and New York has rules many out-of-state buyers do not expect.

Condo closing costs include New York's mortgage recording tax, which is charged on the loan amount when the mortgage is recorded. On a large loan, this is often the single biggest line item. You will also pay for an owner's and lender's title insurance policy.

Co-op closing costs are typically lower on the financing side. Because a share loan is not a recorded mortgage, the mortgage recording tax generally does not apply. Instead of title insurance, a lien search confirms there are no claims against the shares. However, co-ops bring their own fees, such as board application and move-in fees, and some buildings charge a flip tax, usually paid by the seller.

Both condos and co-ops are subject to New York's mansion tax of 1% on residential purchases of $1 million or more. Some Westchester cities also charge their own local transfer taxes, so the exact figures depend on where you buy. I walk every client through estimated closing costs for the specific building early, so there are no surprises at the closing table.

Condo or co-op: which is right for you?

Neither is better across the board. The right choice depends on your cash, your plans and how much paperwork you are comfortable with.

A condo may suit you if you want a lower down payment, plan to rent the unit out later, need FHA or VA financing, or want a faster, more predictable closing.

A co-op may suit you if you have a strong down payment and savings, plan to live in the apartment long-term, and value the lower purchase prices co-ops often carry in Westchester. Many buyers also like that boards screen neighbors carefully.

Thus, Before you make an offer on either, here is the checklist I give my clients:

1. -Get fully pre-approved, not just pre-qualified, with a lender who finances that specific type of building.
2. -Ask the listing agent for the building's financing rules: maximum loan-to-value, reserve requirements and any rental restrictions.
3. -Request recent financial statements and check the building's reserves.
4. -Factor common charges or maintenance into your monthly budget, not just the mortgage payment.
5. -Ask about pending assessments, flip taxes and planned capital projects.
6. -Start gathering board package documents early if it is a co-op.

Frequently asked questions

Is it harder to get a mortgage for a co-op than a condo? Usually, yes. Co-op loans need approval from both the lender and the board, and boards often require larger down payments and more savings. With the right preparation, though, co-op financing is very achievable.

Can I use an FHA or VA loan to buy a co-op in Westchester? It is rare. FHA and VA financing is more common for condos in approved projects. Most Westchester co-op buyers use conventional or portfolio share loans.

How much do I need to put down on a co-op in Westchester? It depends on the building. Many co-ops require 20% to 25% down, and some ask for more. Always confirm the board's rules before making an offer.

Why are co-op maintenance fees higher than condo common charges? Co-op maintenance usually includes your share of the building's property taxes and underlying mortgage. Condo owners pay property taxes separately, so the comparison is not apples to apples.

Do I pay mortgage recording tax on a co-op in New York? Generally no, because a co-op loan is a share loan, not a recorded mortgage. Condo buyers do pay it.

About the author

Biagio Maffettone (NMLS ID 409994) is an award-winning loan officer, sales manager and real estate financier based in Westchester County, NY. For more than 20 years, he has helped buyers and investors across Bedford, Rye, Yonkers, Scarsdale and the surrounding area finance condos, co-ops, jumbo homes, new construction and investment properties. He has held senior sales leadership positions at several mortgage banks and has been named a Five Star Mortgage Professional for 14 consecutive years. He is also the author of The First to Rise, a book on leadership.

Thinking about a condo or co-op in Westchester? Contact Biagio Maffettone or call +1 (914) 841-2226 to review your options before you make an offer. You can also explore his full range of lending services. Follow Biagio On Facebook!

Disclaimer

This article is for general educational and informational purposes only. It is not financial, legal or tax advice, and it is not a commitment to lend or an offer of credit. All loans are subject to credit approval, property and building eligibility, and underwriting guidelines. Loan programs, interest rates, down payment requirements, taxes, fees and co-op or condo building rules vary and can change at any time.  The figures and examples in this article are general ranges, not guarantees for any specific property or borrower. Before making a decision, speak with a licensed loan officer about your financing, and with a real estate attorney or tax professional about the legal and tax aspects of your purchase. Biagio Maffettone, NMLS ID 409994. Equal Housing Opportunity.