WHAT ARE CO-OP BOARD FINANCIAL REQUIREMENTS??

Each co-ops board of directors is charged with safeguarding the economic health of the building on behalf of its shareholders. For that reason, co-ops impose strict financial requirements for applicants in order to ensure that prospective purchasers will not be at risk of defaulting on monthly maintenance fees or special assessments.

In general, the two main financial requirements considered by co-op boards (and sellers’ when deciding to accept an offer) are the applicant’s debt-to-income ratio and post-closing liquidity.

1. Debt-To-Income Ratio (or DTI) is your total projected housing costs (mortgage plus maintenance) divided by monthly income and shows how much debt you can afford on a monthly basis.

• Post-Closing Liquidity is the total number of months’ worth of housing costs (mortgage plus maintenance) you will have “liquid” or left over after your down payment.

DEBT-TO-INCOME RATIO  

Most co-op boards want to see a maximum of 25%-30% of your gross income going towards your housing costs (mortgage plus maintenance). The debt-to-income ratio is the sum of the monthly maintenance and mortgage multiplied by 12, then divided by your gross income.

For Example:

If your anticipated housing costs are $60,000 per year and the maximum allowable DTI ratio is 30%, you would need to have at least $200,000 in gross income per year ($60,000 / $200,000 = 30%).

POST-CLOSING LIQUIDITY   

Co-ops have “post-closing liquidity” requirements – meaning you must have a certain amount of liquid assets left over after your down payment. A common co-op post-closing liquidity requirement is an amount equivalent to 2 years of housing costs (mortgage plus maintenance). 

For Example: 

If your anticipated mortgage payment is $3,500 per month and your maintenance is $1,500 per month, you would need to have at least $120,000 in liquid assets left over after your down payment ($5,000 x 24 months = $120,000). 

EXAMPLES OF LIQUID ASSETS –

• Cash
• Checking Accounts
• Savings Accounts
• Money Market Funds
• Contract Deposits 
• Mutual Funds
• Treasury Bills
• Certificates of Deposit (CD’s)
• Stocks
• Bonds

EXAMPLES OF ASSETS THAT ARE NOT CONSIDERED LIQUID –

• Real Estate
• IRA’s
• 401(K)’s (If you’re below the age of 59)
• Keogh Accounts
• Pension Plans
• Life Insurance
• Stock Options
• Profit Sharing
• Deferred Compensation
• Limited Partnership