NYC Post Closing Liquidity Calculator
Buying a New York City co-op or condo requires substantial capital. Requirements vary depending on the building. The down payment and closing costs will not be enough – you will also need enough money to meet the co-op or condo board’s post-closing liquidity requirement. Also, your lender has thoughts on the matter, and the question becomes complex. However, there are general rules that you can use to help guide. Use our Post Closing Liquidity calculator to help estimate if you meet the minimum of 1 year, depending on the building you’re applying for.
ELIKA New York: Real Estate Calculators
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What is Post-Closing Liquidity?
Post-closing liquidity is the amount the board of directors and your lender want you to have once closing your condo or co-op. You need to confirm what the board considers a liquid asset; this can vary by building. Indeed, cash and money market funds will qualify, while government securities, corporate bonds, and stocks typically count since you can readily convert them into cash.
It gets murkier when it comes to your retirement accounts, such as your 401k. Generally, the board counts these as illiquid assets, although they may decide to give you a certain amount of credit. Additionally, the board of directors will likely not consider any real estate you own in their calculation.
Typically buildings and lenders want to see 1 Year to 2 Years of post-closing liquidity. Calculate by taking your liquid assets after subtracting your planned down payment and estimated closing costs and comparing them to your combined monthly maintenance and mortgage payments.
What are the Requirements?
As you might imagine, co-op boards are typically more stringent than their condo counterparts. For a co-op, you should expect a board will want to see that you have liquid assets totaling one to two years following your closing costs. In our experience, two years’ post-closing liquidity is most common.
Banks usually look for six months to one year in post-closing liquidity. Post-closing liquidity requirements are more stringent in co-op apartments, and they could ask for up to 3 years of reserves rather than a condo, typically one year. The only way to avoid a building requires purchasing an apartment in a New Development or a sponsor.
Do Banks Require Post-Closing Liquidity?
Your lender also wants to make sure you have a reserve. Depending on the bank, they like to know that you have enough liquidity to cover at least one year of the mortgage and monthly maintenance fees after paying the down payment and closing costs. After all, if you do not have anything saved up in a rainy day fund, you could face a potential foreclosure if something happens, such as a job loss. Therefore, while your condo may not require you to have a reserve fund, the bank will almost surely want to see one.
Your lender will likely allow this money to come from elsewhere, such as a relative’s gift. However, a bank will want to ensure you have some post-closing liquidity on your own and meet its other requirementnts, such as its debt-to-income ratio.
Why do I need it?
It is good to have a safety net if you run into financial difficulties. Hopefully, it would help if you never had it, but it will help you sleep better at night. Co-op boards want to see minimized distressed sales, which hurt comps in the building. Lenders want to ensure you can pay back the borrowed funds, even should you experience an unexpected and unfortunate event.