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Latest posts by Larry Rothman (see all)
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- Negotiating Issues After A Home Inspection - April 28, 2018
Getting through a co-op board application and interview can be a rigorous and stressful experience with success far from guaranteed. Part of your preparation involves filling out a REBNY financial statement. Virtually all co-op sales include presenting these financials as part of the package you submit. Remember, the board often has more stringent financial requirements than your lender. Therefore, a pre-approved financing letter is only the first step. The REBNY financial statement is an essential part of the process, and you need to understand how to fill it out the form.
What is a REBNY financial statement?
The Real Estate Board of New York (REBNY) is a trade association. The organization provides a financial statement that is widely used by listing real estate agents and sellers to quickly compare the financial strength of the potential buyers.
The form is only two pages, but there is a lot of information to provide. There are two columns, the applicant, and co-applicant (such as your spouse). It may feel invasive, but sellers do not want to entertain an offer that is going to be rejected by the board. For its part, the board wants to ensure that you have the proper assets and income to afford the unit and not run into any financial trouble down that road.
Example of REBNY Financial Statement Form – Download
The first section requires you to list your assets. The board carefully examines your liquidity. Boards have different requirements, but many want to see that you not only have the down payment and closing costs covered but enough liquid assets to cover your mortgage and maintenance fees for a period, such as one or two years.
The form starts with your most liquid assets, with cash in the bank and money market deposits the first two lines. These are pretty straightforward. Next up is the contract deposit.
You are asked about investments in bonds and stocks, with a schedule on page two where you are expected to provide details, such as the number of shares and description (e.g., 1,000 shares of Microsoft that have a marketable value of $66,000) for each security you own. This is easy for securities that readily trade on an exchange, such as a publicly listed equity. If you have other invests that are not as liquid, such as an investment in a private company, this is more challenging. If you have these types of investments, do your best to accurately depict its value.
In fact, you should do your best to accurately reflect the fair market value of several other asset categories, such as an investment in your own business (if applicable), and any real estate that you own (there is a separate schedule on page two to provide details). Retirement funds should be fairly straightforward, but do not forget to aggregate the total if you have more than one plan. These are not considered part of the liquid assets the board considers for the year or two of required reserves. For your knowledge, if you need the funds and withdraw before reaching a certain age, there is a penalty, and you will owe taxes on any gains.
After your offer is accepted, supporting statements such as bank and brokerage statements are going to be required to validate each entry.
Besides what you own, the board also wants to see what you owe. This section asks about your liabilities, which is relatively straightforward. This includes mortgage balances, real estate taxes, credit cards, and any other loans owed to banks or others.
Income & Expenses
The first two sections can be considered your balance sheet. Equally important, the board wants to see that you have the income to afford the co-op. This includes your wages and dividend/interest income.
The board can now access a very important ratio, debt to income. Lenders typically want to see the ratio of your income going to your housing expenses (e.g., mortgage, real estate taxes, maintenance, and homeowner’s insurance) at no more than 28%. The board may have more stringent requirements, with a 25% debt/income not uncommon.
Lastly, the form asks for your projected expenses. These are not your current expenses, but what you would pay if you owned that apartment. This means your maintenance fees, financing cost, and bank/auto loans. Obviously, this changes depending on the coop you are bidding on, so this needs to be updated.
You may feel sharing personal information with strangers is too much. However, it is a standard process in buying a New York City co-op, and no offer should be submitted without a financial statement.
Assuming you have the financial wherewithal to purchase an apartment, the form can give you a leg up in the competitive process. An inferior offer may end up being the winning bid based on your finances and greater ability to pass the board’s muster.