VA Borrowers Can’t Buy Co-ops –- and That’s a Big Deal in Some Cities

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Home loans backed by the Department of Veterans Affairs come with significant benefits for borrowers. For one, there are no down-payment requirements. They also require no mortgage insurance, and they offer bargain-basement rates, too.

They do have a drawback, though -- especially for those buying in a major urban center: VA loans can’t be used to buy cooperatively owned apartments, or co-ops, a buying arrangement in which homes are sold as shares in a corporation, with rights to a specific unit.

This can be a problem for veterans and military members buying in big cities, where co-ops often account for a sizable share of housing. For example, there were 693 signed contracts to buy co-ops in Manhattan in July, compared with 509 contracts to buy condominiums, according to Miller Samuel -- a real-estate appraisal and consulting company in New York.

Are you interested in buying a co-op with a VA loan? Here’s what you need to know.

What’s a Co-op, and What Does It Matter?

With co-ops, you buy a share in a corporation, which owns a building and all the units within it. The purchase entitles you to a specified unit within that building.

Co-ops are a common living arrangement in big cities, especially New York. In the Big Apple, more than 400,000 residential units are housed in co-ops or condo-ops, making up a huge chunk of the city’s multifamily buildings.

Other cities have co-ops, too. You’ll find them in Chicago, Atlanta and Washington, D.C., among other cities. All in all, more than a million co-op units exist across the country.

As of now, those are units that are off-limits for veterans and military members – at least if they’re hoping to use a no-down VA loan. Fortunately, a few members of Congress are working to change that.

What’s Being Done?

In early 2020, Rep. Carolyn Maloney (D-N.Y.) and Rep. Eleanor Holmes Norton (D-D.C.) introduced a bill dubbed the Fair Access to Co-ops for Veterans Act. As its name suggests, the bill aims to extend the VA loan program to cover co-ops for veterans and military borrowers.

To be clear, co-ops weren’t always off limits. The VA ran a pilot co-op program in the mid-2000s -- thanks largely to Maloney’s work. It was just a test run, though, and when the program expired in 2011, Congress did not renew it.

This new bill, officially introduced in February 2020, would make co-ops a permanent part of the VA loan program.

“In New York City, co-ops are ubiquitous, and our veterans shouldn’t be priced out of these housing options because they’re excluded from the VA’s loan program,” Maloney said when the bill was introduced. “Wherever veterans want to buy a home -- whether in rural or urban areas -- they should have equal loan support from the VA.”

As of now, the bill has made little movement in Congress. It was not put to a vote, though it was referred to the House Veterans Affairs Committee just after its introduction. There have been no further updates, according to Maloney’s office.

GovTrack, which monitors legislation that moves through Congress, shows the bill’s provisions could later “become law by being included in another bill. It is common for legislative text to be introduced concurrently in multiple bills [called companion bills], reintroduced in subsequent sessions of Congress in new bills or added to larger bills [sometimes called omnibus bills].”

What Veterans and Military Members Can Do Now

For now, veterans and military members interested in co-op housing will need to use alternative financing. This might mean a conventional mortgage or a co-op-specific loan, which some lenders offer. Sometimes, these are called “share loans.”

To use a conventional loan for a co-op, you’ll need a credit score of at least 620 and a down payment. You also will need to provide information regarding the cooperative corporation, including its budget, financial statements and more. The unit in which you’ll be living will need to be appraised.

Co-op or share mortgages aren’t as readily available. You’ll need to do some research to find a lender that offers this type of loan in your area. A mortgage broker may be able to connect you with the right company, as they have access to a variety of loan products and lenders across the nation.

The Bottom Line

As of now, VA loans can’t be used to purchase shares in co-op housing buildings. That could change, though, if Reps. Maloney and Norton’s bill goes through. Until that happens, veteran and military homebuyers in urban markets will need to look to other financing options.

– Aly Yale is a reporter for Three Creeks Media.

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