What Is a Cooperative Mortgage?

A cooperative mortgage is a loan to assist with the purchase of cooperative housing such as a condominium or home in a cohousing community. Traditional lenders may be reluctant to extend loans to buyers because of the increased risks associated with cooperative housing, and traditionally, cooperative mortgages have come with higher interest rates and other unfavorable terms. Some lenders specialize in this type of home loan and may offer a better deal than a conventional lender.

Cooperative housing is typically owned by a corporation or similar organization. Members buy shares in the corporation, rather than own their own housing, and make monthly payments to cover maintenance of common areas, insurance, and other costs associated with running the cooperative. Loans for cooperative housing can be risky for lenders, as the risk of default is higher and the corporation may have a loan on the property, which would make the cooperative mortgage a second loan. This can create problems in the event the lender needs to pursue collection action.

The terms of a cooperative mortgage can vary by lender. Some lenders offer deals for low down payment loans, where borrowers may put down as little as 5% of the total purchase price, while others require 20% or more. The interest rate may be higher than that of a conventional mortgage unless the borrower has excellent credit and appears to be a low risk. Other terms, such as requirements to carry mortgage insurance, may also be included in the loan.

Borrowers can use a cooperative mortgage to buy a share in cooperative housing and must abide by the terms of the housing corporation as well as the mortgage. The cooperative may have an owner-occupied requirement, which is a mandate that a certain percentage of units be occupied by owners rather than renters. This is supposed to reduce risks for the cooperative, as new tenants typically need to pass a board interview and demonstrate that they are suitable additions to the community, and a constant turnover of tenants would be a nuisance for the cooperative.

Buyers interested in cooperative housing who know they will need a cooperative mortgage can talk to a broker about their options. A member of the cooperative may have a recommendation for a specific mortgage broker or loan product, but it is advisable to research independently as well and get a broad overview of the available options. Loan rates can also be highly variable, and it is important to review all loan offers to determine when they expire, as a low rate might not last very long and the borrower will need to move quickly to lock it in.