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How to Take Equity Out of a Co-op

Q: I own a co-op in Brooklyn that’s worth about $450,000. I would like to take some equity out of the apartment for other uses, but my options seem limited. Reverse mortgages are not allowed in co-ops. I am a senior and worry that I would not qualify for a HELOC because of my age. And I do not want a mortgage. What are my options?

A: Your age should not impact your ability to take out a mortgage or a home-equity line of credit, known as a HELOC. But your co-op might have some restrictions on how much you can borrow.

Like banks, co-ops set rules about how much shareholders can borrow, often tying the loan to the value of the apartment and your debt-to-income ratio. But, most co-ops do allow cash-out refinances or HELOCs.

Start with a conversation with your managing agent about the co-op’s rules about loans. “Most managing agents will assist the shareholder with the process and provide guidance,” said Mark A. Hakim, a real estate lawyer with the Manhattan law firm Schwartz Sladkus Reich Greenberg Atlas. Even if you do not talk to the managing agent ahead of time, you will need to inform the board of any new loan or risk defaulting on your proprietary lease.

A reverse mortgage is not an option because banks typically do not offer them in co-ops. Unlike a condo, a co-op is not real property. Instead, you own shares in a corporation. “Because of those complications and because co-ops are so unique to the New York marketplace, banks don’t allow reverse mortgages,” said Zack Tolmie, a home-lending officer at Citibank.

But you have other options, regardless of your age. You could do a cash-out refinance, even if you don’t have a current loan on the apartment, or take out a HELOC. “You could be 120 years old or 20 years old and still take out a 30-year mortgage,” Mr. Tolmie said. The bank just wants to verify your ability to pay back the loan, so it will want to see evidence that you have the income to do so.

Before you move forward, speak with a financial adviser about your options. You want to make sure that the monthly payments are manageable, that you fully understand the terms, and that the loan fits in with your long-term financial goals.

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