These days, people often meet the term an underlying co-op mortgage, which is one of the most encountered terms when it comes to buying apartments, buildings and condos. The term denotes a type of loan that we use for a cooperative apartment entity that uses a property as a collateral. The reason why it has “underlying” is because it comes under personal loans, which shareholders request for the goal of purchasing the personal apartments or buildings.
Also, the shareholders who use it do not actually own the building they buy it. Instead, these are owned by the cooperative which rents the space to the shareholders. It does sound a bit confusing, right? Here is more info to help you understand it better.
Property taxes are lower in co-ops than condos
While this may not be logical, it is related to the form ownership – the condos that are sold as the separate entities, the higher prices that are sold are recorded individually. What this means is that the higher prices come with higher property taxes due to the higher assessed values.
On the other hand, the co-ops are not recorded anywhere, which means that there are no tax payment unless the property is sold in the form of the entire piece. Considering that this is a very rare case, it means that co-ops come with the lower assessed value and therefore the taxes are zero, or at least very low.
Co-op fees can be higher than it is the case with condos
The co-op fees are usually higher as these fees, besides from the lawn care, common are maintenance, property taxes, insurance, trash removal or other additional services, include a part of the underlying mortgage.
This is where the co-ops have a great asset- in case that some building that the two own require some huge home improvement or renovation project that requires a larger amount of money, the co-ops are able to ask for money to supply the project, either from a bank or other financial institution that borrows money. On the other hand, the owners of condos have to get special assessments for similar projects.
Co-op financing is harder than buying a condo
Some approved banks can offer financial deals that go in favor of co-ops, which means that these banks offer more limited financing options, but higher interest rates. It means that they require bigger down payments and also have stricter requirements for the lenders.
In most of the cases, the banks have their own share of the building, which means that of you would want to have the building for yourself only, you would have to pay out the bank to get its part. Also, when buying a co-op, you get certain money from the underlying mortgage that is tied to your loan. It means if you have an underlying mortgage of $100,000 and on a co-op that is sold for $450,000 and one puts down 20%, the loan amount is going to be $360,000 minus $100,000. The final amount is $260,000. Upon selling the unit, you earn whatever the profit you make, minus the current mortgage that you have and all the selling expenses, INCLUDING the underlying mortgage.