A co-op board does not have to reject your application outright. If they have a concern about your financials (e.g., short job history, insufficient earnings, etc.), the board may provide you a way to still move forward in the process. One option is to purchase the unit with someone else (i.e., co-application). Therefore, you are both co-owners, and you and the other party must go through the entire process (obtain a mortgage, board application, interview) together. You may wish to own your apartment outright, which means this is not an option.
There is another route you may take, though. The board can request that you find a guarantor. You are the co-op unit’s sole owner, but there are other considerations that you should know.
What it means
The concept is simple enough. The board, for whatever reason, is not completely comfortable that you can meet your monthly maintenance payments. Typically, this occurs with a first-time buyer. Perhaps you have recently graduated from school and have a short employment and credit history.
Under certain circumstances, they will request that you find a guarantor. He or she merely agree to make your monthly maintenance payment; in the event, you cannot do so. Should this occur, legally, your guarantor is required to make these disbursements.
This way, if you cannot meet your monthly obligation, the co-op can continue to run smoothly. There is no need for the board to come after you for the missing payments. Hopefully, you can breathe a sigh of relief since your guarantor is paying the maintenance while you work out your issues. For instance, perhaps you lost your job, but you expect to land on your feet shortly.
What it does not mean
Agreeing to become your guarantor does not mean he or she owns the apartment or is on the hook for anything other than the monthly maintenance should you miss a payment. That situation occurs when he or she is a co-applicant. Importantly, the lender will not call on him or her to pay your loan should you fall into arrears, assuming you qualified for a mortgage on your own.
This can vary by building. Some co-op boards may not permit a guarantor, believing they should not approve if you cannot qualify on your own. Your agent, such as those at Elika Real Estate, can steer you towards co-ops that allow guarantors.
But, if they do allow it, and it is the only way the board is going to approve your application, there are specific requirements he or she must meet. For starters, he or she is likely going to have to fill out at least part of the same financial disclosure forms that you had to endure. That means your guarantor needs to disclose assets, liabilities, bank accounts, and income (W-2 statements, tax returns). The board is likely going to want to see credit reports and scores, too. He or she probably does not have to attend the board interview.
Remember, your guarantor does not have to present his or her financials to your lending institution. The board is concerned that you may not cover your maintenance. This has nothing to do with your mortgage.
Who to choose?
There are probably only a few people you can ask to become your guarantor. After all, you are requesting that someone backstops your payments if you cannot make them. This requires an extensive financial background check and potentially puts him or her on the hook for your maintenance.
Therefore, the person needs to have strong financials, a good job, and a credit report that checks out. This eliminates a lot of people. Then, there are the people you feel comfortable asking to take on this legal obligation. This is likely limited to close relatives. Typically, it is a child asking a parent to become the guarantor. Remember, this could complicate your relationship, mainly if you fall behind in your payments.
When all else fails
Ideally, you should have a good idea about what you can afford. Many New York City sellers want to see that you have been pre-approved for a mortgage. This is also beneficial to you since this allows you to know how much you can borrow. Your mortgage and maintenance payments are your two major housing expenditures. Therefore, you should have a good idea of your budget. Remember, you likely need one to two years of post-closing liquidity.
Despite this preparation, you may still run into a co-op board that balks at your application. If they ask for a guarantor and you are unable or unwilling to supply one, this co-op unit is likely not going to work for you.
If you have been rejected by other co-op boards, you may not have the financial wherewithal to buy these units (of course, there may also be non-financial reasons at play). You can try purchasing a condo, which typically has less restrictive requirements, or look at lower-priced co-op units. The latter may require a compromise, such as giving up specific amenities, seeking smaller units, or looking at different neighborhoods.