Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.
In the process of buying an apartment in New York, several concepts are essential to understand. Calculating Coop post-closing liquidity for a mortgage in NYC is one of them. In summary, it means what it says: after closing, how much money will you have available? You need far more than a down payment to buy a co-op in New York City. When purchasing a co-op in NYC, you will need to meet the building’s post-closing liquidity and debt-to-income ratio requirements. Many co-ops have specific requirements. Others take a holistic approach to evaluating a buyer’s financials. This information will be presented in your board package before scheduling an interview.
It means the amount of liquid funds a buyer will have after they close on their home. Buyers should consider what their liquid assets will be after their down-payment and closing costs are paid. To get to this number, you will have to look at your finances and total assets. Then, subtract the downpayment plus any other closing costs involved. The final amount will show your available cash on hand.
In other words, Coop post-closing (post-close) liquidity forecasts how many months’ worth of apartment carrying costs you will have readily available in liquid assets after you close on your apartment.
This concept becomes relevant when you are purchasing a co-op. Condos do not require a specific amount of cash if you are planning to get a mortgage. However, this figure will likely be taken into account by your lender. This means that regardless of the type of property you are buying, you will need to have some cash put aside if you plan to finance it.
Generally, co-op boards will require post-closing liquidity of 24 months of your mortgage & maintenance payments. As a result, you should aim to have 24 months of cash or cash equivalents post-closing. Some buildings require even more. For example, if a buyer has 24 months of post-closing liquidity, it means that he or she has enough liquid assets to pay the monthly co-op maintenance and mortgage bills for 24 consecutive months.
An asset is liquid if you can convert it to cash in a day or two. Buyers frequently ask us about their life insurance. Well, according to this definition, the cash surrender value of your life insurance plan would generally be included in the calculation, but the death benefit would not be included. The definition of “liquid assets” is open to interpretation and varies by the co-op board.
Like many aspects of real estate in New York, the definition of liquid assets will vary by building. Some co-ops are more flexible and will allow you to include your 401k, life insurance, and other retirement funds. Unfortunately, other coops (and this is becoming the trend) will require all liquidity to be cash or cash equivalent. The latter includes bonds, stocks, etc. Not having enough available cash post-closing is one of the top reasons a board might reject you.
There is not a unique way to calculating Coop post-closing liquidity. When preparing your REBNY financial statement, NestApple will assess your post-closing liquidity for each property you are interested in to determine whether you are qualified to pass the co-op board. We will factor in the monthly maintenance, assessments, your monthly mortgage payments, and taxes/mortgages/rental income on any other properties you own.
We usually take (Liquid Assets – Down Payment – Estimated Closing Costs) divided by (Monthly Mortgage P&I + Maintenance + Assessments + insurance)
It is typically two years’ worth of carrying costs. Most boards in co-ops will require two years’ worth of carrying costs. They want to ensure that you have enough cash to cover the mortgage payments + maintenance + taxes. Therefore, this is a number they will meticulously analyze. Before submitting an offer on a co-op, it’s essential to have your buyer’s agent confirm the co-op’s financial requirements. If a building does not specify its post-closing liquidity requirements, a conservative rule of thumb is to have at least two years of post-closing liquidity.