November 27, 2018
If you’re reading about a REBNY financial statement, you’re either extremely good at doing your homework or ready to submit a bid. Most buyers know they need a pre-approval but the REBNY financial statement is often unexpected.
Before you fill one out, it’s good to understand what it is, which parts are important and why it’s usually required.
Table of Contents:
What Is A REBNY Financial Statement?
Why Are You Required To Submit A REBNY Financial Statement?
Which Parts Of A REBNY Financial Statement Are Important?
Are There Optional Parts Of A REBNY Financial Statement?
Do You Need To Provide Backup For A REBNY Financial Statement?
Despite its very official sounding name, a REBNY financial statement is pretty straightforward. If you’ve worked in finance or accounting, you'll recognize it as a balance sheet, income statement and a few additional questions. Yoreevo has a template you can access here. Feel free to copy it and play around with it.
The top half of the REBNY financial statement is a balance sheet. Here you'll list everything you own and everything you owe. The blank statement can be overwhelming but don't worry, you won't touch most it.
Cash, investments, real estate and retirement savings are the most commonly listed assets. Mortgages on other properties and student debt usually round out the liabilities section, if there's anything at all.
Further down is “Sources of Income” where you list your salary, bonus and any other income you expect. “Contingent Liabilities” and “General Information” ask some specific questions that are self explanatory.
Perhaps most important section is “Projected Monthly Expenses." This is where you fill in what your monthly payments will be if you end up purchasing the apartment.
New York City real estate is unique because it has so many co-ops. About 75% of NYC apartments are co-ops so they're hard to avoid.
Co-ops almost always have financial requirements that are more conservative than your lender's. While having a pre-approval is great (and required), this is where a REBNY financial statement becomes important. It allows the seller to determine if you’re likely to be approved by that specific co-op board.
But what about if you’re buying a condo or a house? A condo can't outright reject your purchase and a house doesn't have a board. Do you still need a REBNY financial statement?
Technically you never need to submit a REBNY financial statement. There is no law requiring it. However for the reasons mentioned above, you'll never buy a co-op without one. For condos or houses, even though it is less relevant, most listing agents will still ask for one.
Since co-op boards focus on your debt to income (or "DTI") and post closing liquidity, that's where sellers focus as well. But what are these metrics?
Remember the "Projected Monthly Expenses" section? This is the most important because the total is used in both metrics. Your total "debt" payment is everything you're required to pay each month.
Obviously your mortgage is included but so are other monthly payments associated with the apartment like your maintenance, common charges and property taxes. If you own other properties, you’ll be asked to include those monthly payments as well. Same thing for other forms of debt like a car loan or student debt.
Your DTI is simply that total projected monthly payment divided by your monthly income. Post closing liquidity is how many months of those payments you will have “liquid” or available after you close. Liquid assets are cash or anything that can be converted to cash relatively easily.
Cash is obviously the gold standard of liquid assets. Stocks are pretty good too since you can sell them easily. Real estate? Retirement savings? Those take time to cash out and there is a cost so boards generally don’t give them much credit.
When you're submitting a bid, the REBNY financial statement provided above is usually required. There is a more detailed version but it is generally not used at this stage.
Each seller and therefore each transaction is different though. If your bid won't be considered without additional disclosure, you can either play ball or look elsewhere.
When you're submitting bids, a REBNY financial statement doesn't require backup. It is simply to give the seller and listing agent a ballpark sense of your finances.
If the seller is unsure you'll be approved by the board, they may come back and ask for additional detail and/or documentation.
For example, say the board requires a debt to income ratio under 25% and you are at 26%. If a substantial portion of your income is from an annual bonus, the listing agent may ask for your bonus the last three years to make sure it hasn’t fluctuated too much.
Whatever the request, your agent will be able to tell you if it is reasonable and relevant to the proposed transaction.