One of the most common questions home buyers have is “what’s the difference between a co-op and a condo?”. Although many of them will look the same from the outside, they operate completely differently.
Ownership Structure:
- Condominiums: In a condominium, each unit is individually owned by the occupant (known as “real property”). Common areas (e.g. hallways, elevators, and recreational facilities) are jointly owned and managed by all the unit owners through a homeowners association (HOA) or a condominium association. Owners have a title for their individual unit and pay property taxes on their unit directly to the local government. Some municipalities also charge property tax on your assigned parking spot. The units interior surfaces generally serve as boundaries of the owned space.
- Cooperatives: In a cooperative, the building is owned by a corporation or business trust, and individual residents do not own their units outright. Instead, they own shares in the cooperative corporation or trust, which entitles them to occupy a specific unit via proprietary leases or similar arrangements. Residents pay a monthly “maintenance” fee that covers their portion of the building’s expenses, including mortgage payments, property taxes, and maintenance costs.
Decision Making and Governance:
- Condominiums: Each unit owner has more autonomy in decision-making regarding their unit and its management. While they are subject to the rules and regulations set by the condominium association, major decisions typically require a vote by the association members.
- Cooperatives: Residents elect a board of directors or trustees to manage the cooperative corporation or trust. The board makes decisions on behalf of all residents, including issues related to finances, maintenance, and policies. Approval from the board is often required for various actions, including renovating or subleasing a unit.
Financing and Affordability:
- Condominiums: Financing a condominium is similar to financing a single-family home. Buyers can obtain a mortgage to purchase a condominium unit. Not all loan products work on all condominiums, speak with your mortgage broker for more information.
- Cooperatives: Financing for co-op units can be more complex. Lenders may require larger down payments and scrutinize the financial health of the cooperative corporation or trust. This can sometimes make it more challenging for buyers to obtain financing for co-op units. Co-ops also set their own down payment minimum. In Westchester, the average down payment minimums range from 10% – 20% with other buildings going as high as 25%.
Resale and Subletting:
- Condominiums: Unit owners have more flexibility in reselling or renting their units. Owners can sell or rent their units without the required board approval as found in co-ops. Although there’s more flexibility with condominium associations, there may still be rules and regulations regarding renting and selling.
- Cooperatives: Potential buyers and tenants need approval from the cooperative board to become a share holder. Boards have strict financial requirements that everyone has to qualify for. Potential buyers have to complete a sales application package which requires many financial documents from the buyers including tax returns, bank statements, and pay stubs. In addition, the average minimum credit score requirement is around 700 and DTI (debt to income ratio) needs to be sub 35% (these are averages in Westchester. Each building has its own set of requirements). You can find a worksheet to help you calculate your DTI here.
In summary, while both condominiums and cooperatives offer a form of shared ownership, they differ in ownership structure, decision-making processes, financing requirements, and rules regarding resale and subletting. Condominiums offer more individual ownership rights, while cooperatives emphasize collective ownership and governance.
Want to learn more about the home buying process? Check out our guide here.