Of course all coops differ. These rules are the most common and in my opinion cover about 95% of the coops in Manhattan.
The most common down payment requirement for a co-op in NYC is 20%. Because each co-op is a private corporation, buildings can set their own rules regarding down payments and other financial requirements.
Co-ops also have different approaches to how the board reviews purchase applications, how frequently the meet and how long the entire board review process takes from start to finish.
Although down payment requirements vary by building, the chances of finding a co-op that is okay with less than 20% down are incredibly low. Other common down payment requirements in NYC for co-ops are 25%, 35% and 50%.
In some cases, a co-op’s policy will ‘permit’ a loan up to a certain loan to value (50% LTV, for example) however in practice the building and even the listing agents will discourage it and effectively require an all-cash purchase.
You may occasionally stumble upon a co-op building which permits 10% down, but this is an exception rather than the norm. We do not recommend that you begin a NYC co-op search with the desire to put down just 10% because of how uncommon it is to find a building that permits less than 20% down.
Post Closing Liquidity Need:
A typical co-op in NYC requires applicants to have approximately 1 to 2 years of post-closing liquidity after accounting for the down payment and closing costs. The simple fact that you have enough money for the down payment and closing costs does not mean that you will pass the financial requirements of a co-op in NYC.
Post-closing liquidity estimates for how many months/years your liquid assets will be able to cover your monthly mortgage and co-op maintenance payment.
For example, having two years of post-closing liquidity means that you can pay all of your co-op carrying costs (mortgage payment and maintenance) for 24 months using your liquid assets without having to rely on your income or needing to liquidate a less liquid asset (such as property, furniture, a car, etc.)
Co-ops like buyers to have a good amount of post-closing liquidity because it reduces the risk that a buyer may stop paying maintenance. When a unit owner stops paying maintenance, it increases the financial strain on fellow owners and makes it more difficult for banks to lend in the building.
How is Post Closing Liquidity Calculated?:
Post-closing liquidity is calculated by taking the sum of your liquid assets and dividing that over your monthly co-op carrying costs. Carrying costs for a co-op include your mortgage payment and your monthly co-op maintenance payment. Here are a few examples of how post-closing liquidity is calculated for NYC co-ops:
Post-Closing Liquidity Example One (Financed Purchase):
Purchase Price: $1,500,000 Down Payment: $300,000 (20%) Loan Terms: 30 years @ 3.93% Mortgage Payment: $6,959 Maintenance: $2,795 Buyer Liquid Assets: $200,000
Monthly Carrying Costs = Mortgage Payment ($6,959) + Maintenance ($2,795) = $9,754 Post-Closing Liquidity = Liquid Assets ($200,000) / Monthly Carrying Costs ($9,754) = 20.50 months
In the example above, the candidate has just over 1.5 years of post-closing liquidity to his or her name.
Post-Closing Liquidity Example Two (Cash Purchase):
Purchase Price: $1,500,000 Down Payment: N/A – all cash purchase Mortgage Payment: $0 Maintenance: $2,795 Buyer Liquid Assets: $200,000
Monthly Carrying Costs = Mortgage Payment ($0) + Maintenance ($2,795) = $2,795 Post-Closing Liquidity = Liquid Assets ($200,000) / Monthly Carrying Costs ($2,795) = 71.56 months
Because the buyer in this example is making an all-cash purchase and there is no mortgage payment, the monthly carrying costs will be significantly lower. The buyer’s post-closing liquidity is therefore significantly higher at just under six years.
The following assets are typically considered to be liquid:
Cash – Checking / Savings Accounts, CDs
Money Market Accounts
Treasury Bills & Savings Bonds
Brokerage Accounts (Stocks & Bonds)
Cryptocurrency Wallets (likely subject to a large haircut)
Vested Shares / Stock Options
The following assets are not generally considered to be liquid:
Retirement – 401K, IRA, SEP IRA, Roth IRA
Debt to Income Requirements for Coop's (DTI):
The typical debt-to-income ratio for a co-op in NYC is between 25% to 30%. There are always exceptions, and many co-ops do not even have a stated rule / official policy regarding debt-to-income ratio or post-closing liquidity.
Considering that sellers pay all real estate commissions in NYC, hiring a buyer’s agent to help you navigate the complexities of co-op financial requirements (and the board package) is a no-brainer.
Aside from the debt-to-income ratio itself, co-op boards also consider your employment track record and multi-year income history. Boards like to see a history of consistent employment and stable or rising income for at least the past three years.
If you work in finance and rely on a large annual bonus, a board will likely want to see that you’ve received a bonus for at least two consecutive years before including the bonus amount in the debt-to-income calculation.
If you are self-employed, you will likely need to show at least 3 years of business income history and provide a notarized letter from your accountant in the board package.
It’s worth mentioning that many co-op boards will take a more holistic approach to analyzing your financials. What that means is if your debt to income ratio is slightly above the target (31.5% vs. 30%, for example) but you have substantial post-closing liquidity (i.e. 5 years) and strong employment history, the board will approve you anyway.
How is DTI Calculated:
Debt-to-Income Ratio Example One (Financed Purchase):
Buyer Salary Income: $8,000 Buyer Dividend Income: $500 Co-op Maintenance Payment: $1,400 Co-op Mortgage Payment: $2,000
Total Monthly Income = Salary Income ($8,000) + Dividend Income ($500) = $8,500 Total Monthly Liabilities = Maintenance Payment ($1,400) + Mortgage Payment ($2,000) = $3,400 Debt-to-Income Ratio = Total Liabilities ($3,400) / Total Income ($8,500) = 40%
Debt-to-Income Ratio Example Two (Cash Purchase):
Buyer Salary Income: $2,000 Stipend from Parents: $2,000 Co-op Maintenance Payment: $1,400 Co-op Mortgage Payment: $0 (all-cash purchase)
Total Monthly Income = Salary Income ($2,000) + Stipend ($2,000) = $4,000 Total Monthly Liabilities = Maintenance Payment ($1,400) Debt-to-Income Ratio = Total Liabilities ($1,400) / Total Income ($4,000) = 35%