Financing A Co-op Property

So, you have a borrower looking to finance a co-op property?

While a co-op property may seem similar to a strata in nature, there is in fact, one major difference.  This main difference lies in the nature of the ownership of the co-op and how that ownership works.  Nowhere is this difference more glaringly obvious than it is through the eyes of your lender.

Co-ops are often alluring to first time and young buyers because they often come with a lower price tag than their strata counterparts.  Unfortunately for these hopeful borrowers, they’re unlikely to receive the answer they’re looking for from their lender when it comes to financing.  Most lenders will in fact decline an application to purchase or refinance an ownership interest in a co-op property.

However, the all-important question still remains…

If you can finance a strata-titled property, why not a co-op?

Simply put, an ownership in a co-op property is not a direct interest in title.  However, what you do own is an interest in the co-op (usually a corporation).  And it is the co-op itself, who holds the title to the property.  Together with your interest in the co-op, you are purchasing a right to occupy a certain unit in the development.

So, while it feels like ownership and looks like a strata development, it is in fact quite different.  This is because despite having exclusive use of your unit and being able to buy and sell your interests in the property, your lender is unable to register a direct interest.  Without them being able to register a direst interest, they will typically not finance deals of this type.

Therefore, in order for your borrower to purchase an interest in a co-op, they’re likely going to require all cash for a purchase of this type.