In a cooperative housing arrangement, the buyer does not purchase real property. They purchase shares in the corporation that owns the building. A proprietary lease grants the shareholder the right to occupy the unit. This legal structure means that traditional mortgage financing does not apply. The loan is a share loan, not a mortgage, secured by the shares and the proprietary lease.
Fannie Mae Co-op Share Loan Program
Fannie Mae purchases co-op share loans under specific guidelines. The cooperative project must meet Fannie Mae project eligibility requirements. The borrower must be a primary residence or second home occupant (no investment co-op share loans through Fannie Mae). Maximum LTV is 90% for primary residences. A UCC-1 financing statement is filed against the shares rather than a mortgage or deed of trust recorded against real property.
Geographic Concentration and Lender Availability
New York City accounts for the large majority of U.S. co-op housing stock. Washington DC, New Jersey, Chicago, and parts of Florida have smaller co-op markets. Most national mortgage lenders do not offer co-op share loans at all. Local savings banks, credit unions, and co-op-specialist lenders are the primary source. In NYC, several community banks and thrifts have deep co-op lending experience.
What to Review Before Taking the Application
- ✦Review the co-op's most recent financial statements and underlying blanket mortgage status
- ✦Check board minutes for any pending litigation or special assessments
- ✦Verify owner-occupancy percentage meets lender requirements
- ✦Confirm the co-op is on your lender's approved project list or can be approved
- ✦Determine if the co-op's subletting restrictions are acceptable to the borrower
Aria can walk through co-op project eligibility requirements, Fannie Mae share loan guidelines, and how co-op underwriting differs from standard condo financing. Ask at vicariointel.com.
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