All About Post Closing Liquidity for NYC Co-ops

You’ll need to contend with the dreaded “post closing liquidity” requirement if you’re trying to buy in an NYC co-op. Read on to find out what it is and why it’s not as terrible as you might think. 

What is Post Closing Liquidity? 

Post closing liquidity is the amount of money you have left over after your down payment. 

Requirements can range from 6 months of mortgage and maintenance, one year of maintenance alone or upwards of 2 years of mortgage and maintenance. 

Most Manhattan co-ops tend to want to see at least 2 years of mortgage and maintenance. Meanwhile, co-ops in Brooklyn, Queens, the Bronx and Staten Island tend to have a wider range of requirements. 

But what does this look like in terms of actual dollars and cents? 

Here’s an example. 

You’ve found a co-op where your monthly mortgage is going to cost you $2500 per month. And the apartment has monthly maintenance of $1000 per month. This means your total monthly cost would be $3500. 

If a building required that you have 12 months’ worth of mortgage and maintenance in post closing liquidity, then you’d need to have an amount equal to $42,000 ($3500 x 12 months) left over after your down payment. 

What Counts as Post Closing Liquidity? 

The following usually counts as “liquid assets” – i.e. something you can readily convert to cash within a few days and thus would be included in a post closing liquidity calculation: 

  • cash
  • checking accounts
  • savings accounts
  • money market funds
  • contract deposit
  • mutual funds
  • treasury bills
  • certificates of deposit
  • stocks
  • bonds

What Doesn’t Count as Post Closing Liquidity? 

By contrast, these assets aren’t considered liquid and won’t count towards post closing liquidity for most buyers: 

  • real estate
  • IRAs
  • 401(K)s (if you’re below the age of 59)
  • Keogh accounts
  • pension plans
  • life insurance (if there’s no cash surrender value)
  • stock options
  • profit sharing
  • deferred compensation
  • limited partnership

It’s worth noting that some co-ops might consider retirement accounts as part of your “liquid assets” picture. This is because first time buyers are permitted to make a withdrawal to purchase a home. But you shouldn’t bank on this. So be sure you understand what your financial situation looks like both with and without retirement accounts counting as liquid. 

We should also discuss the elephant in the room – cryptocurrency. 

Cryptocurrency is still a bit of a wild card these days. Even though you can convert it into cash fairly readily, its value is still quite volatile. As a result, many co-ops are still reluctant to count it towards a prospective buyer’s liquid assets. This is likely to change in the coming years, but be sure you’re aware that it might not go into the “asset column” that you hope it might. 

Why Does This Requirement Even Exist?! 

Co-ops have the post closing liquidity requirement for two reasons. The first is to guard the prospective buyer against unexpected circumstances such as lost income or lost employment. The second reason is to give the co-op board added peace of mind that other shareholders won’t have to shoulder your costs if those circumstances come to pass. If you’re unable to pay your monthly maintenance, it falls on the other shareholders to pay it for you. And in smaller buildings, that can be especially burdensome.  

The Post Closing Liquidity Requirement Can Be A Good Thing

Even though it presents an additional hurdle to home ownership for many, the requirement isn’t necessarily a bad thing. By ensuring that you have money left over after your down payment, the requirement is effectively preventing you from becoming “house poor.”  You’ll be better positioned to handle the ongoing costs of home ownership plus other unexpected financial surprises. In fact, meeting these requirements is one of the surest signs that you’re actually ready to become a homeowner. 

And speaking of being “ready” for home ownership, if you think you might be, then let’s have a chat! You can schedule a call with me here – Schedule a Call

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