A home equity loan is a second mortgage that allows you to turn the value of your residence into cash. It's a common way to get funding for things like home improvements, debt consolidation or a new car purchase. For co-op owners, however, securing this type of loan can be difficult. While some banks may offer home equity loans on co-ops, your eligibility is subject to the co-op board's approval.
Determine Co-Op's Home Equity Policy
Contact your co-op's manager and find out what its policy is on home equity loans; do this before you apply for a home equity loan. Every co-op is different and some don't allow them.
Find a Lender
Consult with a lender that specializes in co-op home equity loans to determine which type is best for you. Note that many banks don't process co-op home equity loans, so it may take you some time to find one that does. In addition, do your own research to determine which type of loan will work best given your financial capabilities.
Figure Budget Restrictions
Calculate your finances to determine whether you can afford the monthly payment. A home equity loan makes cash readily available, but you'll have to pay it back in monthly increments. Ensure that your current and future income can support this. The co-op board also will seek assurances that you can afford the home equity loan.
Apply for the Loan
Apply for your home equity loan. The lender provides you with a list of items to include with your application. The information requested is similar to that which is required for standard home equity loans. However, because the property is a co-op, you'll likely be asked to also provide items such as your signed proprietary lease, stock certificates, the corporation's most recent financial statement and a copy of your monthly maintenance statement.
Secure Co-Op's Board Approval
Submit your home equity loan application for board approval. Your co-op will also have have a list of items that must accompany your application. In addition to a letter stating the reason that you're applying for such a loan, information about your current loan and signed commitment letters from the bank, your co-op may request details about current financial status. And, each co-op sets a maximum amount of financing that shareholders can place against a unit. So, if the home equity loan amount exceeds your maximum allowance, your application could be rejected.
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