For Lenders, Ownership Profile Is a Factor when Co-ops Look to Refinance
Dec. 6, 2012 — Each loan officer evaluates potential borrowers in his or her own way, giving more or less weight to individual parameters. And each lender has a loan appetite that's slightly different from that of its competitors. While these differences tend to be subtle, they can, at times, result in varied loan terms. One very important factor: your building's ownership profile.
The ownership profile of a co-op often determines what type of loan the building will get, its interest rate, and, in some cases, whether it can get a loan at all. One of the first questions that most loan officers will ask a prospective borrower is, “What percentage of your building is sold?” Buildings with significant sponsor ownership (i.e., more than 10 percent) undergo another level of scrutiny focused on sponsor identity, monthly rent-versus-maintenance cash flow, and sponsor financial condition.
Most lenders like to see
some shareholder turnover.
After the “percent sold” question comes the “percent owner-occupied” question. In other words, of the non-sponsor “sold” apartments, how many are occupied by their owners as their principal residence? Buildings that place no limits on investor-owned rental units and former resident sublets sometimes find it difficult to secure financing on attractive terms. Capping these non-owner-occupied units at five percent or less can alleviate such problems.
Also, most lenders like to see some shareholder turnover. It’s not that low turnover is bad (although that sometimes can be a problem). It’s just that multiple apartment resales give lenders some idea of current market values and likely future values. For example, over the last several years, have sales prices been rising, falling, or remaining relatively stable? Buildings without turnover need not despair, though, because almost every lender will order a professional appraisal of the property as part of the loan process.
Patrick B. Niland, a mortgage broker, is the principal of First Funding of New York.
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