Co-Ops and Condos: What’s the Difference and Why You Should Care

By Peter Norden

You’ve probably heard of cooperative grocery stores: member-owned, mostly independent shops that specialize in natural, whole-ingredient foods.

The grocery co-op isn’t the only type of cooperative enterprise out there. It’s not even the most common. In some major cities, particularly in the eastern United States, cooperative housing accounts for a significant chunk of the owner-occupied multi-family segment. If you’re looking to buy in the heart of a major city, there’s a fair chance you’ll at least consider purchasing shares in a co-op.

What exactly does co-op ownership entail? Let’s take a look at some of the key differences between co-op housing and traditional condominiums.

What’s a Co-Op?

Is it fair to say that a co-op is a “home you don’t technically own,” as puts it? Perhaps. Co-op dwellers own shares in a business entity—a corporation—that in turns owns the co-op building or complex. Each share has equal value, with each owner’s equity determined by the number of shares he or she owns. Naturally, the occupant of a penthouse suite owns more shares than the person in the second-floor one-bedroom.

Co-op owners’ financial responsibilities are directly proportional to their shareholdings. Larger shareholders pay more for building and common-area maintenance, shared utilities and overhead expenses—and, naturally, have larger tax bills.

As corporations, co-ops have governing structures. Co-op boards exert significant influence over the day-to-day activities and finances of the co-op writ large. Individual shareholders can make their wishes known by exercising their voting rights, just as corporate shareholders do. However, unlike many corporations, co-ops typically don’t operate on the “one share, one vote” principle; instead, each shareholder has an equal say at the ballot box, regardless of the size of their ownership stake.

What’s a Condo?

A condominium isn’t exactly a single-family house inside a multi-family building or development; however, condos do lack the overarching governance structure that controls the activities of housing co-ops. Aside from monthly fees paid into a homeowners association account to cover shared maintenance, improvements and utilities, condo owners have little shared responsibility. And, unlike co-op owners, they actually own the deed to their unit—not shares in the corporation that owns the underlying real estate.

Why You’d Want To Live in a Co-Op

In some cities, you might not have much choice. According to the Huffington Post, co-op housing accounts for roughly three-quarters of the Manhattan housing market. That’s an extreme example, and there’s evidence that the tide is turning: Most new housing projects in New York City are condos.

Assuming you do have choice in the matter, co-ops are appropriate for homeowners willing to cede some control to a self-interested peer group willing and able to make rational decisions that uphold shareholders’ financial and personal interests.

Co-op boards are very particular about whom they allow into the fold, which cuts both ways: If you don’t make a good impression on the board, you might find your application denied in a hurry; if you do earn admission, you can exercise your right to choose your neighbors. You don’t have this freedom in condo buildings, as each individual owner is free to sell to whomever he or she wishes, provided they meet lenders’ underwriting criteria.

Why You’d Want To Live in a Condo

Generally speaking, condo life is lower-key than co-op life. You’re free to buy wherever you wish and sell to whomever you like, financial constraints notwithstanding. You’re also not beholden to a co-op board, though you’ll likely have to follow well-worn homeowners’ association bylaws that limit your agency.

Since condo owners don’t have as much skin in their community’s collective game, condo developments tend to be more individualistic. If you value anonymity and adhere to a live-and-let-live philosophy, condo living probably appeals to you. If you prefer to share more with your neighbors—or simply know your neighbors—you might struggle to find meaning here.

Need More Space?

If you’re looking to buy in a major city’s urban core, you’re more likely than not to settle on one of these two housing types. If you live in a less populous area, or you’re willing to endure a longer commute in exchange for lower per-square-foot costs and more space to spread out, chances are good that you won’t end up in a co-op or condo.

In small cities, suburbs and rural towns, single-family homes are much more common than multi-unit, owner-occupied developments. Single-family homes present a slew of advantages and challenges all their own, but that’s a topic for another day.

Bio: Peter Norden is CEO HomeBridge Financial Services, Inc., a New Jersey-based residential mortgage lender.

These Factors Affect Your Mortgage Rate – What To Do About It

By Peter Norden

Numerous factors affect your mortgage rate. Not all are intuitive. If you’re in the market for a new house, you’ll need to know what to expect when you start shopping for loans—and how to avoid sticker shock.

These eight factors are all very important. How many are on your radar?

1. Your Credit Score

Many prospective homebuyers assume that credit score is a make-or-break factor for lenders. That’s not exactly true—“make-or-break” is a strong term. But it’s undeniable that excellent credit is a strong positive for lenders wary about prospective buyers’ abilities to repay their loans.

Before you apply for a mortgage, get at least one credit report at, a completely free service authorized by federal law. If you’re disappointed by your score, don’t give up. Instead, put off home shopping for another season and take meaningful steps to improve your score, like reducing your debt-to-income ratio (see below).

2. Your Debt-to-Income Ratio

Your debt-to-income ratio plots your gross monthly debt obligations against your gross monthly income. The higher the ratio, the higher your loan rate is likely to be. (If your ratio is too high, you may not qualify for a loan at all.) Paying down debt over time is the only sure way to reduce your debt-to-income ratio.

3. Where You’re Buying

Location matters. Mortgage rates vary slightly by state, so it’s crucial to check prevailing rates in your area rather than rely on national averages. Rates vary somewhat more significantly along the urban-rural divide. Some lenders avoid working in rural areas altogether, so you’ll need to cultivate relationships with local banks (or seek out national lenders that play in rural areas) to get the best rate. The upshot: Many rural buyers qualify for USDA loans, which aren’t available to city slickers.

4. Your Loan Size

Size matters too. Every market is different, but larger loans sometimes carry higher interest rates than average-size loans. Same goes for below-average-size loans, though smaller loans’ monthly payments are likely to be more manageable for most buyers. At the market’s extremes, mortgage calculators tend to be less effective. Again: When in doubt, go directly to the lender.

5. Your Down Payment

Your down payment influences your loan size, which in turn affects your mortgage rate, but it’s also important in its own right. As a general rule of thumb, larger down payments lead to more favorable loan terms—including lower rates. On the other hand, putting 20 percent down is easier said than done, especially for younger buyers in pricey coastal markets (and buyers of modest means anywhere). If you’re committed to getting the best possible rate on your loan, it may be worth your while to wait until you can afford a larger down payment, even if it means putting a hold on home shopping for now.

6. The Loan Term

All other factors being equal, longer loan terms mean higher rates. Many buyers opt for 30-year terms, the longest available to most borrowers. If you’re looking at shorter-term loans—15 years is common—then you’ll likely catch a substantial break on your rate. The catch: Due to the shorter term, your monthly payments will likely be higher, even though you’ll pay less interest over the full term of the loan. If protecting your monthly cash flow is important, a longer-term, higher-rate loan may still be the best choice.

7. The Loan Type

Certain borrowers qualify for special loan types that aren’t available to the general public. For instance, VA loans are available only to current and former servicemembers, FHA loans are designed for borrowers with lower credit scores, and USDA loans (mentioned above) are reserved for rural residents of modest means. Each loan type has its own set of features and restrictions that may (or may not) affect rates.

8. The Loan’s Rate Structure

Novice buyers may assume that all mortgage loan rates are fixed, but that’s decidedly not the case. Adjustable-rate loans typically have lower starting rates than fixed-rate loans. That’s good news in the short term. But adjustable-rate loan rates can adjust upward, sometimes significantly, after a set period of time. Adjustable-rate loans typically make more sense for homebuyers who plan to refinance or sell relatively soon after buying. To determine which rate structure makes more sense for your needs, use a mortgage calculator.

Bio: Peter Norden leads HomeBridge Financial Services, Inc., a leading residential mortgage lender based in New Jersey.

Lesser-Known Mortgage Products for Nontraditional Buyers

By Peter Norden

If you can’t afford a down payment equal to 20 percent—or even 10 percent—of your home’s purchase price, you’re not alone. Lots of prospective homebuyers, especially first-timers with credit issues and limited resources, are in the same boat.

Fortunately, a variety of loan options exist for borrowers who worry about their ability to afford homes of their own anytime soon. These five mortgage products all fit the bill. Some are available only for certain classes of people or residents of specific geographic areas, while others apply only to specific housing types. But all work toward a common end: making homeownership more affordable for deserving buyers.

FHA Loans

FHA loans are issued by private lenders and guaranteed by the Federal Housing Administration, which has backed tens of millions of such loans since the mid-20th century.

FHA loans are designed for borrowers with limited resources and challenged credit histories, though they’re also available to prime borrowers who’d likely qualify for conventional loans as well. They require buyers to put down as little as 3.5 percent of the purchase price; however, they also require upfront and ongoing mortgage insurance premiums that can significantly add to their total cost.

Conventional 97 Loans

The Conventional 97 loan is a relatively new product that allows cash-poor buyers to put as little as 3 percent down. Unlike FHA loans, the mortgage insurance premium is cancelled at 78 percent LTV (loan-to-value, or the ratio of the loan amount to the appraised value of the house), and the borrower can request cancellation at 80 percent LTV. Like “regular” conventional loans, Conventional 97 loans also don’t require upfront mortgage insurance premium payments. That’s a big financial advantage over FHA loans.

Conventional 97 loans generally require better borrower credit, so they’re not an ideal FHA replacement for subprime borrowers. Some other restrictions apply as well, including a mandate that at least one borrower be a new homeowner (defined as not owning within the past three years) and a prohibition on adjustable-rate structures. Conventional 97 loans are therefore ideal for first-time homebuyers with good credit and limited financial resources.

VA Loans

The VA loan caters specifically to servicemembers, veterans and their families.

According to the U.S. Department of Veterans Affairs, VA loans can be used to purchase a move-in ready, single-family home; purchase and renovate a single-family home; purchase a condominium in a VA-approved project; purchase a manufactured home or lot for a manufactured home; and make certain energy-efficient upgrades to an existing or purchased home. As long as the assessed value of the home doesn’t exceed the purchase price, there’s no down payment requirement. There’s also no private mortgage insurance requirement.

VA loans are generally issued by private lenders, not the VA itself; however, they’re guaranteed by the U.S. government—an important consideration for lenders.

Before shopping for VA loans, you need to obtain a certificate of eligibility, or CoE. Requirements vary by branch and date of service, but borrowers generally need to demonstrate several months of continuous active-duty service in one of the major branches of the military or several years of occasional service as member of the Reserve or the National Guard. You’ll need to pass credit and income requirements too.

USDA Loans

The USDA loan is designed for prospective homeowners in rural areas—in most cases, counties or municipalities not included in census-defined metropolitan statistical areas (MSAs). (Use the USDA’s property eligibility finder to determine if you’re buying in a covered area.)

USDA loans are designed for low- to moderate-income buyers. Income requirements may vary somewhat by region, so it’s important to check the specific thresholds in your area. The Department of Agriculture issues some direct loans to very low-income borrowers, but most are private loans guaranteed by the department. All USDA loans are subject to standard underwriting requirements.

Condo Loans

Condominium loans are specifically designed to facilitate the purchase of condominium units. Condo loans are different than conventional loans for single-family homes in some key respects. Most important, during the underwriting process, lenders must evaluate the financial stability of the condominium association or development—not just that of the borrower, as is the case with conventional loans for detached homes.

It’s important to note that condo loans aren’t necessarily designed for credit-challenged borrowers. Unlike the other loan types on this list, condo loans cater to mainline buyers seeking a specific, less common type of housing—in this case, condo units in multi-family developments. However, since modestly sized condos can be quite affordable relative to single-family homes in many markets, condo loans are absolutely on the table for buyers without ample savings and incomes.

Bio: Peter Norden is CEO of New Jersey-based residential mortgage lender HomeBridge Financial Services, Inc.

There’s No Golden Ticket to a Mortgage, But This Checklist Can Help

By Peter Norden

Buying a house is no easy task, and the mortgage application process is a big reason why.

This checklist won’t prevent every potential hiccup, or guarantee that you end up in the home of your dreams, but it’ll definitely keep your expectations in check and reduce the risk of unpleasant surprises during what’s supposed to be an exciting, potential-filled phase of life.

Start Saving Early

Having an ample financial reserve increases your chances of qualifying for a home loan on borrower-friendly terms—and, in many cases, qualifying for a loan at all.

So when should you start saving?

Trick question. You should be saving right now. And if you’re living paycheck to paycheck and can’t afford to set funds aside on a regular basis, you should begin saving regularly as soon as your circumstances allow.

The sooner you start saving (and avoiding common, counterproductive savings mistakes), the sooner you’ll be ready to shop for an owner-occupied home of your own.

Stick It Out at Work

Lenders prefer borrowers with steady jobs and predictable pay. If you’re currently employed but actively seeking a new position, dial back your search until you’ve closed on your home. Any blip on your employment record, no matter how brief, is likely to count against you during the underwriting process—even if you leave voluntarily with a new job lined up.

Maintain a Favorable Debt-to-Income Ratio

Mortgage lenders look favorably upon borrowers with low debt-to-income ratios—the ratio of household installment and revolving debt to household income. What’s considered “low” varies by lender and can be affected by other underwriting factors, but there’s no reason to test the limit.

Remember that some debt is perfectly fine; in fact, the fastest way to build your credit is to use credit cards and other debt instruments responsibly. Just don’t lean too heavily on your credit lines or fall behind on your monthly payments.

Set a Strict Budget

How much house can you afford? It’s best to know the precise answer to this question before you start shopping.

If you’re not sure how the homes you’re considering will affect your cash flow, input a range of scenarios—different sale prices, interest rates, loan terms, rate structures and down payments—into a mortgage calculator.

The old-school rule of thumb, which is subject to much debate and not always easy to achieve in pricier housing markets, says your monthly housing costs (i.e., your principal and interest, tax, insurance and other line items) shouldn’t exceed 30 percent of your income.

Check Your Credit Score

Do you know your credit score? Before you apply for a mortgage loan, you’ll need to. Under federal law, you’re entitled to one free credit report per year from each of the three major consumer credit reporting bureaus.

Take Steps To Improve Your Credit Score

Credit score not what you thought it would be? Building and improving your credit takes time, but it’s not rocket science. Take simple steps like:

  • Paying your bills on time
  • Using credit cards and other revolving debt instruments responsibly
  • Limiting your debt utilization
  • Refraining from closing too many inactive accounts within a short period
  • Refraining from applying for multiple credit lines or debt instruments within a short period

Look for Loans With Low Down Payment Requirements

Not all mortgage loans require 20 percent down payments. Many borrowers can qualify for loans that require far less upfront—as low as 3.5 percent for FHA loans and 3 percent for Conventional 97 loans. Certain groups of borrowers, including veterans and residents of rural areas, may qualify for no-money-down loans—though eligibility requirements are strict and the loan products are typically more restrictive than conventional loans.

Get Your Financial Documents in Order Early

Lenders love to work with well-organized borrowers. During the underwriting process, you’ll be asked to provide a slew of financial documents and records, some of which you may not have handy. You’ll avoid needless delays and keep your underwriter happy by collecting everything before the process begins.

Get Pre-Qualified

Before you start shopping in earnest, shop for rates and get pre-qualified for your loan. Many real estate agents shy away from buyers who aren’t pre-qualified. Even if you are able to find help, trying to get qualified after you’ve put in an offer can interrupt the process—a major inconvenience, especially in active housing markets

Be Forthright and Communicative During the Underwriting Process

Originating a mortgage is not a sprint. During the underwriting process, you’ll almost certainly be asked to provide additional documentation or clarification on documents you’ve already submitted. In the interest of avoiding delays, it’s best to respond to these requests promptly and forthrightly, however tedious they seem.

Bio: Peter Norden is CEO of HomeBridge Financial Services, Inc., a leading residential mortgage lender based in Iselin, New Jersey.

CEO of Homebridge Financial – Peter Norden

Considered by his peers as a visionary and true professional, Peter Norden, CEO of HomeBridge Financial Services Inc., has over thirty five years of experience in the residential mortgage industry. In April 2012, Mr. Norden was appointed as the CEO of HomeBridge Financial. Before that, Mr. Norden served as the CEO and president of Opteum Financial Services, Inc., which he founded in 1999.

In his leadership role at Opteum Financial Services, Mr. Norden grew the mortgage origination and servicing business into a national platform licensed to operate across nearly all of the United States with revenues exceeding $60M per year. Six years after founding Opteum Financial Services, Mr. Norden sold the company to Bimini Capital Management, but stayed on as the Executive Vice President.

In the years before HomeBridge Financial and Opteum Financial, Peter Norden held leadership positions at several different residential mortgage companies. Acquiring Old Town Mortgage Corporation, formerly known as First Town Mortgage Corporation, Mr. Norden stepped in as the president and CEO. In 1999, Old Town Mortgage was sold to Chase Manhattan Mortgage Corporation.

Today, Peter Norden serves on the Fannie Mae CEO Advisory Board and is a former president of the Mortgage Bankers Association of New Jersey. In 1975, Mr. Norden received his B.S. in Accounting from Fairleigh Dickinson University.