Loans · Fannie Mae Selling GuideBuying a co-op with a loan: Fannie Mae's share loan rules and the flip tax

In a co-op, the buyer doesn't get a deed – they buy shares in a co-op housing corporation and a proprietary lease or occupancy agreement for their unit. A co-op share loan is secured by those shares and an assignment of the lease (Fannie Mae Selling Guide B4-2.3-04). Fannie Mae buys these loans only from specially approved lenders, and only for a principal residence or second home – investment properties are prohibited. The loan-to-value uses the lower of the sales price or the appraised value of the shares and occupancy rights; in markets where buyers assume a share of the building's blanket mortgage, both are measured without that share. The project must qualify as a cooperative housing corporation under Internal Revenue Code §216, be designed mainly for residential use with two or more units, sit in a market with comparable co-op sales, and the co-op corporation – not the buyer – must hold good and marketable title, free of liens beyond what's allowed. It can be fee simple or on a ground lease; manufactured housing projects aren't eligible, and newly converted projects without a gut rehabilitation go through Fannie Mae's PERS review. Lenders gather project information with the Request for Cooperative Project Information (Form 1074). A flip tax is acceptable if the lender is exempt when it acquires the unit through foreclosure or a deed-in-lieu, or if it's charged only on appreciation; otherwise it must be no more than 5% of the lesser of the appraised value or price and set as a flat fee, per share, a percentage of value or price, or per room.