A large brick, multi-story apartment or condo building.

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There are plenty of good reasons to rent a home rather than own one. For one thing, when you rent, there's no large down payment to come up with. Plus, your monthly housing expenses are fairly predictable in that you pay your landlord and call it a day. When you own a home, you might encounter various expenses that pop out of the blue, like sudden repairs. 

But what if you're renting a home in a building that decides to go co-op? Should you attempt to buy into that co-op, or are you better off moving?

What is a co-op?

Some people use the terms "co-op" and "condo" interchangeably, but they're actually very different. When you buy a condo, you own that specific home or unit within a building. In other words, you get an actual deed to that property, just as you would with a stand-alone house. 

In a co-op, on the other hand, you don't own your actual unit. Instead, you own shares of a non-profit corporation that owns all the property in the building, or cooperative. 

What are the pros and cons of owning a co-op?

There are several good reasons to buy a co-op. First, you get the financial stability of owning a place of your own. Secondly, co-ops tend to be more affordable than similarly sized condos. Due to co-op board rules, which we'll discuss in a minute, they're more likely to be owner-occupied than condos. That's a good thing, because property owners often treat their homes -- and the common areas of the buildings they're in -- with more respect than temporary tenants or renters.

On the other hand, when you own a co-op, you could face costly monthly maintenance fees to cover building and common area expenses. Those could really eat into your budget. You'll also be subject to a potentially strict set of rules, as governed by your co-op board. For example, one such rule may be that you're not allowed to rent out your co-op. That may not be a problem if you don't intend to rent it out, but it also gives you less flexibility. 

The same holds true with selling your co-op. Co-op owners can sell, but there are often requirements that need to be met. You may need to jump through some hoops to unload your co-op when you're ready to.

Finally, financing a co-op can be tricky. When you buy a stand-alone home or condo, you can apply for a regular mortgage. With a co-op, you're not actually given a deed to your property. This is because you own shares of a corporation that owns all the units in your building, as we discussed above. As such, you don't get a traditional mortgage with a co-op, but rather, a share loan, or a special loan that lets you purchase co-op shares for your unit. Not every mortgage lender offers this type of loan, so it can be trickier to come by. Generally speaking though, the approval process for a co-op loan is similar to that of a regular mortgage in that you'll need a strong credit score, a steady source of income, and a reasonably low level of existing debt to qualify.

Should you buy a co-op?

There are a few general questions you should ask yourself when deciding whether to buy a home, especially if you're a first-time buyer.

  • Am I financially stable?
  • Do I have enough money to cover my down payment?
  • Is my credit score high enough to qualify for a mortgage?
  • Can I manage my mortgage payment given my income and existing debt?
  • Do I want the responsibility of owning a home?
  • Do I plan to stay put for a while, or do I want the flexibility to pick up and move?

These questions will help you determine whether homeownership in general is right for you. From there, you'll need to think about the specific logistics of owning a co-op. Are you OK with being subject to a potentially rigid set of rules, or does that bother you? Owning a co-op can be a positive experience, but it's not for everyone. 

If you are inclined to purchase a co-op in your building, find out what that will entail. Dig around to see what types of rules will be imposed so you know what you're getting into. If you don't want to buy into that co-op, you should be given a reasonable amount of time (generally, at least 30 days' notice) to vacate your unit and find a new home. The sooner you make that decision, the less stressed you'll be if you decide not to buy a co-op and instead go out and rent (or buy) someplace else.