Freddie Mac Guidelines: Combined Cooperative Units

What Combined Cooperative Units Mean

Fannie Mae allows you to combine two or more adjoining cooperative units into a single larger unit and finance the transaction with one loan. This differs from buying separate units that remain legally distinct.

Say you live in a Manhattan co-op and want to expand your one-bedroom into a two-bedroom by purchasing the adjoining unit. Instead of having two separate loans and two separate unit designations, you can combine them into one larger unit with one loan.

The key word here is "combined." You're not just buying multiple units — you're physically and legally merging them into a single cooperative unit. This requires construction work, cooperative board approval, and new legal documentation from the building.

Requirements Before Your Loan Can Close

The cooperative corporation must approve your combination plan before you can close on your loan. This approval goes beyond the typical board approval for a purchase. The board must specifically approve the physical combination of the units.

Construction to combine the units must be complete before your loan sells to Fannie Mae. You cannot close on the loan with plans to combine the units later. The work must be finished, inspected, and approved.

The cooperative corporation must assign a single unit designation to your combined unit. If you're combining units 4A and 4B, the building might designate the new combined unit as 4A or create a new designation entirely. This becomes your official mailing address and unit identifier.

The building must also determine how many cooperative shares your new combined unit receives. Typically, this equals the total shares from the individual units you're combining. If unit 4A had 100 shares and unit 4B had 80 shares, your combined unit would receive 180 shares.

Your maintenance fees will adjust based on your new share allocation. More shares usually mean higher monthly maintenance fees, since these fees are typically calculated per share.

How Financing Works for Combined Units

You have two financing options depending on your situation. If you don't currently own any units in the building, you can use a purchase loan to buy multiple adjoining units simultaneously.

If you already own one unit and want to expand by purchasing adjacent units, you can use a refinance loan. This refinance pays off your existing cooperative share loan and provides funds to buy the additional units.

The refinance proceeds can only be used for specific purposes. You can pay for the additional units, pay off your current loan, cover construction costs to combine the units, and pay closing costs up to 2.5% of the loan amount.

You can also receive a small cash disbursement — up to 1% of the loan amount or $2,000, whichever is less. This cash cannot exceed 5% of the total loan amount.

Appraisal Requirements

Your appraiser must value the units as one combined unit, not as separate units. This means the appraiser looks at comparable sales of similar-sized combined units or large single units in your building or similar buildings.

The appraiser cannot simply add the values of the individual units together. A combined 2,000-square-foot unit might be worth more or less than two separate 1,000-square-foot units, depending on the layout, views, and market demand.

Documents You'll Need

You'll need standard cooperative purchase documents plus additional paperwork specific to the combination. The cooperative corporation must provide written approval for the unit combination and documentation showing the new unit designation and share allocation.

Construction completion certificates or sign-offs prove the physical combination work is finished. Your attorney should verify that all building approvals and permits are in place.

The loan documents must reflect the single combined unit designation. You cannot close with documents that reference the separate unit numbers — everything must show the new combined unit identifier.

Project Requirements and Restrictions

The cooperative building must have at least two units remaining after your combination is complete. Fannie Mae won't finance combinations that would reduce a building to a single unit.

This rule prevents someone from buying out an entire small cooperative building. If a building has four units and you want to combine three of them, that would violate this requirement since only one unit would remain.

Common Complications

Cooperative boards sometimes approve the purchase but not the physical combination. Make sure your board approval letter specifically addresses the unit combination, not just the sale.

Construction delays can derail your timeline. Since the physical work must be complete before the loan sells to Fannie Mae, any construction problems become financing problems.

Some buildings have restrictions on unit combinations in their proprietary lease or bylaws. Your attorney should review these documents early in the process.

Share allocation disputes can arise if the building's method for calculating shares differs from your expectations. Get the new share count in writing before you commit to the purchase.

Maintenance fee calculations might not be straightforward. Some buildings have base fees plus per-share fees, which could result in savings or additional costs depending on the building's fee structure.

Why These Rules Exist

Fannie Mae requires completion before loan sale because combined units represent a different risk profile than separate units. The lender needs to know exactly what asset secures the loan.

The minimum two-unit requirement maintains the cooperative nature of the building. A single-unit building wouldn't function as a cooperative corporation.

The specific approval and documentation requirements ensure the combination is legally valid and properly recorded. This protects both the lender and future buyers if you sell the combined unit.

References

For the official guidelines, see 5705.9: Combined Cooperative Units in the Fannie Mae Selling Guide.