If you want to become a homeowner, you better be prepared to spend a big chunk of change. According to the U.S. Census Bureau, the average sale price for a new home in August 2017 was $368,100. Because lenders and financial experts recommend keeping your mortgage payment under 30 percent of your income, that price can be prohibitive.
Worse, $368,000 might not buy you much if you’re in an area with a high cost of living. For example, you’d need $435,000 to purchase a 264-square-foot apartment in San Francisco.
Unaffordable housing is a major issue, but one way to avoid those sky-high prices is to join a housing cooperative. An alternative to traditional homebuying, co-op housing could reduce your costs. Here’s how it works.
What is cooperative housing?
Co-ops take the idea of teamwork to the next level. Instead of an individual buying a plot of land and a house, a group of people form a co-op, pool their resources, and purchase and maintain a property.
Most housing cooperatives are small nonprofit organizations. Tenants pay a fee each month to cover their share of expenses, such as property taxes, utilities, or maintenance costs.
Residents often have more control under a co-op than they do as renters with a landlord. Each person has a voice and can help make changes that better the community within the co-op. If the cooperation suggests installing a fitness center or community garden, you can vote for or against those changes.
However, there is one important distinction between buying a home and entering a co-op. In cooperative housing, you don’t actually own your home. Instead, you use your money to buy shares of the co-op.
As a shareholder, you have the right to live in a particular unit and stay there for as long as you want, as long as you follow the rules and regulations and pay your bills on time.
While owning shares rather than real estate might sound scary, living in co-op housing has a lot of benefits:
- Affordability: Because you’re purchasing shares within a co-op, you don’t need a large down payment like you would with a traditional mortgage. Co-ops have lower payments and lower closing costs.
- Steady housing costs: If you rent your home, your landlord can raise your rent when it’s time to renew your lease. With a co-op, the costs are much more steady. You typically only see nominal increases based on factors like increased property taxes or the need for building repairs.
- Tax deductions: According to the IRS, you’re still entitled to many of the same tax benefits and deductions as traditional homeowners. You can likely deduct your share of the corporation’s real estate taxes.
How to find co-op housing
Co-op housing is common in many urban areas. Large cities such as New York, Washington, D.C., and Seattle have several co-op developments.
If you live in a suburban or rural area, your chances of finding a co-op are lower. However, new cooperative housing units form every year, so it’s worth checking often to see if a development is opening near you.
The Cohousing Association of the United States maintains a comprehensive database of co-op properties in the U.S. You can also contact your local housing authority to find more information about properties in your area.
How buying into a co-op works
You shop for a cooperative just like you would a traditional home. You’ll probably need to choose a realtor who can help you find the right unit.
If you need financing to buy into a co-op — and most people do — you can take out a loan, but it won’t be a mortgage. Instead, it will be a share loan. Share loans work similarly to mortgages but typically require a smaller down payment because co-ops are so much cheaper than traditional homes.
Not all lenders offer share loans, so it’s a good idea to ask the co-op or your realtor for suggestions.
Keep in mind that your share loan is only a portion of your monthly expenses. You’ll also have a regular maintenance and upkeep fee you’ll pay toward the cooperative each month, in addition to the usual expenses for utilities. Even so, buying into a cooperative can make good financial sense in the long run.
For example, in Richmond, California, the median price for a two-bedroom home is $445,000. At that price, you’d need $89,000 to put down a 20 percent down payment for a mortgage. By contrast, you can buy a co-op unit in the same city for just $250,000 and would need $50,000 for a 20 percent down payment.
But just because a unit is available and you have the money doesn’t mean your acceptance is guaranteed. When you submit your application, you and your family will have to meet with the co-op board for an interview to see if you’ll be a good fit for the community.
Building equity on co-op housing
If your goal of homeownership is building equity, joining a co-op is likely not for you. In many cooperative housing complexes, there’s a limit on how much equity you can accrue. Co-op boards set those limits to keep members from selling their shares for huge profits, which would cause the prices to increase.
Instead, the true benefit of a co-op is that it provides an affordable housing option in areas with high costs of living. Instead of spending thousands to lease a modest apartment, you can get a home for a fraction of that price by buying into a co-op.
What to ask before joining a housing cooperative
Buying into a co-op is a huge decision. Every cooperative housing unit works differently and has its own rules, so make sure you ask the following questions before you buy any shares:
- What is the share price?
- Where can I get share loans?
- Do you accept pets?
- Can I make changes to my unit?
- What are the monthly costs?
Depending on where you live, co-ops can be restrictive. Some co-op complexes don’t allow you to make changes to your unit. If you want granite countertops or want to knock down a wall, you’ll have to ask the board’s permission first, and they can say no. Asking these questions can prevent misunderstandings later on.
Changing how you think about housing
If you’re struggling to find affordable housing, co-op housing could be the perfect solution. You can live in a unit for much less than you’d spend on a traditional mortgage or rent, and have the benefits of an established community.
If you’re not sure about what type of home is right for you, check out our ultimate guide to housing costs.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 5.64%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.28%3||Undergrad & Graduate|
|1.89% – 6.77%4||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 5.61%5||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews! |
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.
5 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.16% effective Sep 1, 2020 and may increase after consummation.