Housing cooperatives are a great option for individuals and families looking to enjoy all the pros of home ownership without having to deal with the cons, such as repairs and maintenance.
Some consider housing co-ops to be unconventional, but that’s not true anymore. Housing co-ops have been on the rise with more and more people finding it to be a helpful alternative type of home ownership.
We hope to help you understand what housing cooperatives are and decide if it may be the right option for you.
What are housing cooperatives?
Housing cooperatives are a type of housing that is owned by a corporation, but in this case the corporation is made up of the owners within the co-op program.
What this means is that you aren’t actually purchasing a unit, but instead you’re buying a share of the corporation. By owning this share, you are entitled to a unit for you and your family to reside in.
Expenses of maintenance and services are shared by every shareholder tenant. Co-op boards are usually elected from the shareholder tenants for decision making and collection and management of membership fees (these are usually to cover property taxes, amenities and building maintenance), especially in small housing cooperatives, where there aren’t many units and tenants.
Larger housing cooperatives sometimes hire external help from management companies, to aid with management issues and even day to day decision making. All members have the right to vote on the rules they wish to establish in the building and on how the building will be managed.
Types of housing cooperatives
- Market Rate Cooperatives – this option allows housing co-op tenants to buy and sell their shares at whatever rate the market will bear.
- Limited Equity Cooperatives – this option sets restrictions on the price which you’re allowed to purchase and sell shares.
- Leasing Cooperatives – this option allows the housing cooperative corporation to lease the building instead of own it and it does not accumulate equity value. If the building is ever put up for sale, the housing cooperative corporation may have a cash reserve on hand.
How to Purchase a Co-op
There are a few steps you need to follow in order to purchase a share of the corporation you’re interested in, and moving into your housing co-op. Let’s go step by step.
- Step 1 – Getting approved for a loan. To buy a share of the housing co-op first you must be approved for a “share loan”, which have basically the same criteria as a regular mortgage loan. They will verify your income, assets, credit and the property’s purpose and value.
- Step 2 – Review of the Co-op association by the lender to determine stability.
- Step 3 – Apply for approval from the Co-op board. The board may decide to interview you and verify your financials to determine if you will be able to keep up with your expenses.
**Keep in mind that housing cooperatives must comply with the Fair Housing Act, which states they may not refuse your application because of your race, sexual orientation, religion, disability, etc. **
Even though Housing Cooperatives must abide by the Fair Housing Act, their ownership requirements are usually much more restrictive than alternative housing options.
The rules made for purchasing shares of the co-op are set by the co-op’s board. They may require things such as background checks, net worth or a certain bet-to-income ratio, aside from being able to meet the financial obligations of the purchase of the co-op.
Things to Consider Before Buying
There are a few things you must consider before buying a share in a housing co-op. We made a list of a few things we think are key for you to purchase a share that you will be happy with when you purchase it and in the long run.
Co-ops Financials – It’s a good idea to check out the co-ops financials before purchasing a share. Co-ops going through financial trouble may not be a good investment.
Co-op Members – Take some time to talk to the other members of the co-op. If you decide to purchase, these people will be your business partners and your neighbors.
Insurance Requirements – Each co-op has insurance requirements you must comply with
Location – Find a co-op in a place that fits your needs, like close to your place of work or to family
Costs – Make sure you’re aware of how much your expenses will be, insurance fees, quotas, etc.
Amenities – Ask about amenities available to residents, such as pools, gyms or common areas
Pets Policy – Ask about their pet policy in case you want to bring your current pets, are planning to get one in the future or if you prefer a building that’s pet-free.
Hopefully, we’ve helped you better understand what a housing cooperative is and if it’s the right option for you. Remember to get as much information on the housing cooperative you’re interested in before purchasing to ensure that you’re happy with your purchase now and in the future!