What is the difference between a condominium and a cooperative?

The main difference between condominiums and cooperatives comes down to who owns the property. If you live in a condominium, you have ownership of your individual unit. If you live in a cooperative, you own shares in a company that owns the building. As a cooperative owner, you do not own the unit. Instead, you have the right to live in the building and be part of the community that runs it.

This difference in ownership can lead to other disparities between co-op and condo living. Here are some other ways these types of houses may differ:

affordability

Cooperatives are more suitable for short-term dwellers, while condominiums may be more suitable for those looking for something more long-term. This is because buying a condo is a form of real estate investment, and each of your monthly payments will help you build equity over time.

Co-ops can have high down payments depending on where you are, ranging from 20% to 30% in popular cities. However the Washington Post found that most co-ops tend to be cheaper than condominiums per square foot. Another trade-off is that co-ops tend to have cheaper closing costs than condos, since you won’t have to pay for things like title insurance.

At a glance, it may seem like condos have cheaper monthly payments than co-ops. However, co-op payments are often more comprehensive, covering things like utilities, building maintenance, and other costs not included in a monthly condo payment. Please note that with a cooperative you may be asked to contribute to the general upkeep of the building, including common spaces or upgrades.

Governance

It is common for condo dwellers to answer to a condominium association, which like a homeowners association (HOA), creates and maintains community guidelines. However, at the end of the day, the inhabitants of a condominium have ownership of their unit, which gives them the freedoms that a typical owner has, such as the ability to renovate.

Cooperative residents, on the other hand, only pay for the right to live in the building. Since cooperatives are collectively owned, any changes a resident wishes to make must go through shareholder approval. Most cooperatives also hire a management company or hold a meeting of shareholders to make decisions and carry out day-to-day tasks. This includes the collection of fees and the management of common spaces.

By nature, cooperative communities are often close-knit. While great for camaraderie, this can make the approval process to join a co-op intimidating or lengthy. Also, if you want to make changes to your living space, you will need permission before doing so.

Mod cons

If you’re looking for a community with lots to do, a condo is probably your best option. Condominiums tend to offer residents a broader range of amenities. These are some of the most common:

  • pool access
  • Roof terrace or living room
  • Gym
  • Courts and recreational sports areas
  • space event

However, that does not mean that cooperatives do not contribute anything. Many cooperatives also provide shared spaces for residents; game rooms and lounge areas are among the most common. And with a cooperative you’ll also have peace of mind knowing that your fellow residents are equally interested in preserving and caring for the building and community spaces.

It is also common for both condominiums and co-ops to have some type of third-party reception and security service to keep residents safe.

sublease

If you’re looking to get into real estate investing and think subletting might be something you’re interested in, co-ops aren’t the best option. Most cooperative boards do not allow subletting, and those that do generally only allow it in very particular circumstances.

Condominiums, however, are a great option for buyers looking to generate passive income by renting their home. Very rarely do condo associations have rules against subletting, because, after all, it is your property.

Eligibility

At first, the mortgage approval processes for cooperatives and condominiums seem quite similar. You must get approved for a loan and choose your lender. Next, your lender should review the property you’re interested in financing to make sure it meets criteria like construction status and occupancy requirements. Only then will your lender move forward with approving a mortgage.

But when it comes to moving into a co-op, there are a few more steps involved with eligibility. Not only is it more difficult to obtain financing for this type of housing, but you will also have to go through the approval process established by the board of the building you are interested in. This involves an in-depth application process, interview and obtaining board approval before you are allowed to purchase cooperative shares.

Availability

While condominiums are widely available in both cities and suburban areas, co-ops are a bit more difficult to find. Co-ops, most often found in dense cities and metropolitan areas, may not be the best option for buyers yearning for a more bucolic lifestyle.

Financing

Since a condo is considered real estate, most lenders aren’t afraid to work with borrowers looking to finance one. Because of this, the process of buying a condo is almost identical to buying a house. These are the types of mortgages generally available for condominiums:

  • Conventional
  • FHA
  • USDA
  • Virginia

Financing a cooperative, however, is where it gets tricky. Not only are lenders reluctant to accept cooperative loans, but the cooperatives themselves may have strict rules regarding financing. Depending on how you plan to finance, the cooperative’s board may declare you ineligible.

Also, when it comes time to leave co-op life, it can be hard to find someone to sell your shares to. Even if he finds an interested buyer, he still needs the approval of the cooperative’s board of directors before he can sell.

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