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While the economy seems to be improving, lenders are still reluctant to loan money for residential purchases and refinances. Shortly after the economic downturn in 2008, banks began to significantly tighten requirements, and as late as May 2011, we're still seeing deals fall thru as a result of condos and coops that are unable to present satisfactory financial documentation.
In particular, banks want to see a certain level of financial responsibility on the part of Condos and Coops, including the following.
1. Reserve allocation in the annual budget. Typically, smaller condos and coops do not have a line item in their budget for "Reserves." Rather, whatever positive income exists at year-end increases the "savings" of the property. Since expenses (like water, fuel, and insurance) often increase annually, keeping income positive at year-end often requires a regular maintenance-fee increase, which can, in-turn make apartment resales less attractive. So, smaller condos and coop Boards are often reluctant to increase annual fees, which in-turn leads to lower savings.
Lenders generally want to see that "Reserves" are part of the budget - meaning money is budgeted for annual savings. Lenders look for at least 10% of revenue be allocated to that "Reserve" line in the budget. A healthy reserve fund is an equitable means of spreading the cost of building maintenance and repair to all users, and is an indication of the well-being of the building, which enhances the value of the property and unit owners' investments.
2. High owner-occupancy One of the common reasons folks prefer condos over coops is the "freedom" a condo owner has - rather than owning shares in a (coop) corporation, condo owners own their apartment, and the guidelines (Bylaws) that govern condos are generally more lenient than the Proprietary Leases that govern Coops.
In particular, the right to rent one's apartment may be less subject to rules in a condo. However, banks prefer to lend to condos/coops where owners occupy at least 50% of the units. When that percentage edges higher, lenders fear that owners aren't caring for the property, and that renters may not be taking appropriate care. Therefore, banks are less likely to loan when owner-occupancy rates are high.
3. Low arrearage Finally, banks like to lend when they know that other owners are demonstrating financial responsibility and that the Condo/coop Board is ensuring all owners are paying their fair share. When there's a higher level of unpaid monthly fees, banks get concerned. Generally, when more than 10% of owners are
behind on monthly fees, the red flags rise for lenders.
To discuss your property's finances, please call Brownstone's Chief Financial Officer, Sandy Silverstein (718.499.6030 extension *6), or sandy@brownstonemgt.com. Or, call your Property Manager. | 
