A co-op share loan is the loan most buyers use to finance a co-op apartment, and many lenders and buyers call it a co-op mortgage even though it is not secured by real property. Because you buy shares and a proprietary lease, not a deed, the lender takes your shares and lease as collateral, files a public notice of its claim, and signs an agreement with the cooperative that sets out what happens if you stop paying.
That structure explains most of what is different about co-op financing: a narrower choice of lenders, extra paperwork with the cooperative, and the fact that the building's finances matter to your loan as well as to your neighbours. This page explains how a share loan compares with a mortgage, what the UCC filing and the recognition agreement do, the limits boards can put on financing, and the questions to ask lenders. It gives no interest rates or down payment percentages, because those change and differ by lender; use the lender and regulator pages named below. For the basics of co-op ownership, start with what is a co-op apartment.
Share loan vs mortgage at a glance
| Feature | Co-op share loan (often called a co-op mortgage) | Condo or house mortgage |
|---|---|---|
| What you own | Shares in a corporation plus a proprietary lease | Title to the property |
| What secures the loan | The shares and the lease | A mortgage or deed of trust on the real property |
| How the lender records its claim | A UCC financing statement, plus documents with the cooperative | A mortgage recorded in the land records |
| Does the cooperative sign anything? | Yes: a recognition agreement and related documents | No |
| Who looks at the building's finances? | The lender, often closely | The lender looks at the property, less at the neighbours |
| Who decides if you can buy? | The board, and the lender | The lender (and, rarely, an association) |
| Choice of lenders | Narrower, varies by area | Wide |
A share loan can still have a fixed or adjustable rate, a standard term and monthly payments in the same shape as a mortgage. The difference is mainly in the collateral and in the extra parties involved.
What the building's underlying mortgage has to do with it
Many cooperatives already owe money on the building: the underlying mortgage. Your personal share loan is a separate debt. Your monthly maintenance includes your share of the corporation's debt service, as explained in what is a co-op apartment. So you may be paying two things: maintenance to the co-op (which includes part of the building's loan) and payments on your own share loan. Lenders look at both when they test whether you can afford the unit.
The UCC filing
When you take out a share loan, the lender needs a way to put the world on notice that it holds a claim on your shares. For personal property such as shares, that is normally done by filing a UCC financing statement, which is a notice filed under the Uniform Commercial Code. It sits on a public register and tells other creditors that the lender has a security interest in your shares and lease. Your closing lawyer or the lender's counsel handles the filing; ask for a copy.
When you pay off the loan, the lender should file a termination of the filing. Ask for evidence that it did so, because a leftover filing can complicate your sale.
The recognition agreement
A recognition agreement is a contract among the lender, the cooperative and you. In plain terms it sets out what the cooperative will do if the lender has to enforce its rights: whether the cooperative will let the lender take over the shares and lease, what notice the cooperative must give the lender before it terminates your lease for non-payment, and how the lender can sell the shares. Many lenders will not make a share loan without a recognition agreement signed by the cooperative, and many cooperatives have a standard form. If a building will not sign one, you may find it hard to borrow against shares there.
Fannie Mae, which buys many home loans from lenders, publishes rules for loans on co-op shares and notes that state laws on co-op ownership vary, so it publishes state-specific documentation for the states where it buys these loans. Its Selling Guide section on loan eligibility for co-op share loans is one place to see how a major purchaser of loans approaches the product; the current page, not our summary, is the authority. Fannie Mae's page describes eligible occupancy as a principal residence or second home, and says investment properties are not eligible.
Board financing limits
Boards can place their own limits on how much owners may borrow. Common examples, which differ by building:
- A cap on the percentage of the purchase price you may finance, so buyers put down a minimum amount.
- A requirement that the buyer keep a stated amount of liquid assets after closing.
- Limits on borrowing after purchase, such as a home-equity-style loan against the shares.
- A requirement that lenders sign the cooperative's own recognition agreement form.
These limits come from the building's rules, not from the lender, so ask the managing agent for the building's financing policy before you offer. A building that caps financing narrows the pool of buyers when you sell as well, because every buyer faces the same cap.
What lenders typically look at
Lenders differ and policies change, so ask each lender for its current co-op requirements in writing. In general, expect them to look at:
| Area | What the lender is checking |
|---|---|
| You | Income, debts, credit history, savings and what you will have left after closing |
| The unit | A valuation of the shares and lease, typically through an appraisal |
| The cooperative | Its financial statements, reserves, the underlying mortgage and any arrears, plus whether the building meets the lender's project standards |
| The documents | The proprietary lease, bylaws, share certificate, recognition agreement and the cooperative's consent |
| Occupancy | Whether the unit will be your home or a second home, and whether the lease allows it |
The consumer protection agency in the United States, the Consumer Financial Protection Bureau, publishes plain guidance on comparing loan offers and on the loan estimate form. Use it to compare offers from several lenders. Compare the annual percentage rate, fees and the cash you must bring to closing, not just the headline rate.
How much cash will you need?
There is no universal figure. Cash needed typically includes the down payment, the lender's and lawyer's fees, filing and recording costs, any transfer or move-in fees the building charges, and any required reserve of savings. A table to fill in before you offer:
| Item | Your estimate | Where to get it |
|---|---|---|
| Down payment (price minus loan) | Lender's maximum financing and the building's policy | |
| Lender fees and appraisal | Lender's loan estimate | |
| Your lawyer | Fee quote | |
| UCC and recording costs | Lender or lawyer | |
| Building fees at closing and move-in | Managing agent | |
| Government transfer taxes, if any | Your lawyer | |
| Savings you must keep after closing | Lender and building policy |
Practical steps
- Ask the managing agent for the building's financing policy and financial statements before you make an offer.
- Ask two or three lenders whether they lend on that particular building, and whether they will accept the cooperative's recognition agreement form.
- Get written loan estimates and compare the annual percentage rate and total cash to close.
- Have a lawyer review the proprietary lease, the recognition agreement and the contract.
- Keep the paperwork on the UCC filing and ask for the termination when you pay off the loan.
Regulated co-ops
Limited-equity and government-regulated co-ops, such as HDFC co-ops and Mitchell-Lama co-ops, have price caps and buyer rules that affect which lenders will lend, how big a loan they will make and how the lender may sell the shares if you default. Ask any lender early whether it has experience with the specific programme. Some buyers in these co-ops pay cash.
Refinancing and later borrowing
You can often refinance a share loan, but the new lender needs the same set of documents and the cooperative's cooperation, so it is not a quick swap. Borrowing against your shares for other purposes may be restricted by the building's rules. Check before you plan on it.
Selling with a share loan
At closing, the lender is paid from the sale proceeds and files a termination of its UCC filing. Your buyer's lender repeats the process for the new loan. A building's flip tax is also paid at closing. Add up everything that comes out of your proceeds before you accept an offer.
Frequently asked questions
Is a co-op mortgage the same as a share loan?
In everyday use, yes. A co-op mortgage is usually a share loan secured by the shares and lease, not a mortgage on real property.
Can I get a normal mortgage on a co-op?
Not in the usual sense, because you are not buying real property. You borrow against the shares. Ask lenders about co-op loans specifically.
What is a UCC filing on a co-op?
A public notice, filed under the Uniform Commercial Code, that the lender has a security interest in your shares and lease. It is how the lender records its claim.
What is a recognition agreement?
An agreement among the lender, the cooperative and you that sets out how the cooperative will treat the lender if you default, including notice and the lender's right to sell the shares.
Can the board limit how much I borrow?
Yes, many do, through a cap on financing, a post-closing savings requirement, or limits on later borrowing. Ask the managing agent for the policy.
Do I need a bigger down payment on a co-op?
It depends on the lender and the building. Ask both. No standard percentage is published.
Can I use a share loan for an investment co-op apartment?
Lender rules differ, and Fannie Mae's guide describes eligible occupancy as a principal residence or second home. Many buildings also restrict subletting. Check both.
Do I need insurance on a co-op apartment if I have a share loan?
Lenders typically require it, and your lease may too. See cooperative insurance.
Where to go next
References & further reading
This guide is researched against primary sources. Where we cite figures, they reflect the most recent data published by these organisations at the time of writing.
- 1.B4-2.3-04, Loan eligibility for co-op share loans — Fannie Mae Selling Guide
- 2.Cooperative resources & education — NCBA CLUSA
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