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Want to combine two apartments? Here's how to pay for it

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As you may have noticed, lots of New York City apartments max out and two or three bedrooms, but what about those of us who want a larger apartment? With mortgage rates still historically low, buying two smaller apartments and combining them may be a good option for those willing to do some renovation.

And since renovations and real estate both come dearly in the city, a mortgage is often the glue that enables two apartments to be joined together.

“While financing an apartment combination is fairly common these days,” says Robbie Gendels, a senior loan officer at National Cooperative Bank in Manhattan, “you could be in for some surprises if you’ve never done it before.”

If you intend to combine apartments right away, here’s how it works

After you to go to contract on the apartment(s), apply for a mortgage.

Gendels says she can offer a 30-year-fixed loan, if the borrower is approved, at 3.75 percent. Another option, she says, in an adjustable-rate mortgage, which is 3.5 percent for five years and 3.75 percent for three years.

Next an appraiser will decide what the apartments will be worth after you remove an interior wall to join the two units and take out one of the kitchens to make it a legal single-family apartment. Keep in mind that the appraised value at this rudimentary phase will likely be a good deal less than what the apartment will be worth when your renovations are complete. 

Also keep in mind that the loan-to-value ratio will be lower than a traditional mortgage, so budget accordingly.

“At National Cooperative Bank, we have a 65 percent loan-to-value ratio of the future estimated value on an adjustable-rate mortgage. So if the apartments appraise at $1 million, you can borrow a maximum of $650,000,” Gendels says.

Finally, you’ll need to leave some money in escrow until the apartments are legally combined. 'Legally combined' is not the same as "fully renovated."

“We hold back 1.5 times the cost to combine units," Gendel's says. "This is based on the borrower’s contractor’s estimate of the cost to remove one kitchen and the connecting wall. Once that’s done, an appraiser goes back out to check, and the escrow is released.”

If you don’t intend to combine apartments right away

If you plan to hold off renovating for awhile, you’ll need to finance the apartment that’s not your primary residence as an investment unit.

"For a loan on an investment purchase, we like to see a 30 percent owner-occupied building, a maximum loan-to-value ratio of 75 percent, a minimum credit score of 720 (FYI, for a primary residence it would be 700), as well as 12 months of principal, interest, taxes, and insurance in reserve," Gendels says. “Once the owner decides to combine the units, we can look to refinance the property into a single loan."


Robbie Gendels (646-201-4713) is a vice president and mortgage loan officer at National Cooperative Bank in Manhattan. 

More from National Cooperative Bank:

Top 12 Questions New Yorkers Ask Their Mortgage Bankers 

4 Good Reasons to Refinance Your Super's Apartment

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