ADMISSIONS, P.2

A board wants to know your financial history in order to satisfy itself that you have a steady, legal source of income and can afford your monthly charges and mortgage, as well as any possible assessments. The board will scrutinize your credit report for the same information a lender does, such as how you're financing the purchase – and, if you've been overextended in the past, what you paid off first, your credit cards or your residential debt.

In determining whether you can make your payments, one rule of thumb is that an applicant's debt service should be no more than twice his or her annual income. But different boards have different guidelines. "What I look for," says one co-op board treasurer in Manhattan, "is the 'income versus coverage' ratio. What is your after-tax income versus your mortgage and maintenance payments? If it starts going over 50 percent, that's a real flag for me. The old bank number was 28 percent but that's changed over time. You should not be spending more than 25 to 30 percent of your income on your mortgage and maintenance. [A board] should also ask, 'How certain is the income?' If [your] salary and bonus are all commissions, that's a real problem. If you have a bad year, it can be a problem for all of us."

Community Values

After the board examines your financial information, they generally have you in for a formal interview to assess your compatibility with the co-op and its character. The interview will likely include questions designed to reveal attitude, knowledge of cooperative living and general fitness. A good board will also give you the opportunity to ask your own questions about the co-op.

"We look to make a determination as to whether or not the individual intends to become a resident of our community, or is just interested in 'flipping' the unit," says Carolyn Greene, president of a Fifth Avenue co-op. "If they're currently in a one-bedroom co-op unit, and this is a one-bedroom co-op unit and there's little or no difference in the square footage, that's suspicious. Or, we've had applicants who own homes in New Jersey, Connecticut, and elsewhere, and that's basically their primary residence. And they know little or nothing about the neighborhood. That's suspicious. It looks like they might want a pied-à-terre."

Afterward

Following the interview, the committee will discuss the applicant and then give a recommendation to the full board, which will vote on you purchase. A letter will be sent to the seller stating the decision, with copies to you and to the co-op's attorney. If you're accepted, the co-op attorney will communicate with all the other attorneys involved in the sale, and with the banks to arrange for a closing.

In the end, the approval process is about more than simply who your neighbors will be. It is also about the kind of community in which you want to live. As much as the board will learn about you, take the opportunity to learn about the board – and extension, about the building and its people.

Adapted from Habitat October 2005. For the complete article and more, join our Archive >>