Affordable is not what comes to mind when people think of the New York City housing market. However there are deals to be had if you know where to look, like this Harlem 2-bedroom for under $400k. At first glance this listing may seem too good to be true, but on closer inspection, it’s a Housing Development Fund Corporation co-op or HDFC. HDFCs offer New Yorkers the chance to become homeowners at prices far below market rate, making them an affordable option for those who qualify.
What is an HDFC co-op?
HDFCs are a form of affordable housing first rolled out in the 1970s. As landlords abandoned buildings during the economic downturn, tenants were tasked with managing the buildings themselves. The city allowed tenants to buy units at rock bottom prices, turning them into low cost co-ops. Most of these buildings were located in Harlem, East Harlem, the Lower East Side, and parts of Brooklyn and the Bronx.
How HDFCs differ from traditional co-ops
Similar to traditional co-ops, tenants must follow the guidelines and regulations established by their individual HDFC board. The main difference between HDFCs and traditional co-ops comes down to how financials are handled. Many HDFCs receive tax exemptions that help keep the building’s costs down. As a result, monthly fees for these units are typically lower than traditional co-ops.
Keeping costs down also means that it’s uncommon for HDFCs to be packed with amenities. New owners will often want to do renovations as most are in older buildings and lack turn-key upgrades buyers may be expecting. HDFCs also have strict income caps for potential buyers, which can make it difficult to qualify to buy one.
How to qualify for an HDFC co-op
While HDFCs are meant for low and middle income buyers, it can be tricky to qualify. Buyers will need to fall within strict income guidelines. NYC Housing Preservation & Development (HPD) caps the maximum income for potential buyers at 165% of the area median income (AMI), but HDFC buildings can set lower income caps, often 120% AMI or below. You can view a full breakdown of AMI brackets here. This doesn’t mean that a buyer’s income has to remain stagnant in order to live there. Once moved in, you can earn more without facing repercussions.
The catch is not only do buyers have to meet the income cap, but also must have a significant amount of cash on hand to put down. Some buildings require 20% down, and in some cases all cash buyers. For this reason HDFCs are great for retirees who often have substantial savings available.
If you don’t have tens of thousands of dollars on hand for a hefty downpayment, there are programs that can help. Programs like HomeFirst Downpayment Assistance can provide potential buyers with up to $40,000 toward the downpayment of a home.
Hire an experienced agent
Because of the added requirements needed to qualify for an HDFC co-op, it’s imperative to work with an agent who is knowledgeable about the process. A bigger bonus is having an agent who is familiar with various HDFC co-op boards and can give insights on a building’s financial standing. If a building is in poor shape, banks may not give you a mortgage. That’s not a surprise you want to get after you’ve already honed in on a unit you love.
Drawbacks of buying an HDFC co-op
In addition to income requirements there’s other factors to consider before purchasing an income restricted property.
- Primary residence: HDFCs are geared towards New Yorkers that plan to live there for the long haul. Using the property as a pied-à-terre or second home is discouraged. Nearly all HDFCs have certificates of incorporation that require the unit to be owner occupied.
- Not an investment property: HDFCs come with restrictions on subletting and often a hefty flip tax. They are also difficult to sell as potential buyers will have to meet the strict income requirements to qualify. Sellers can’t simply list the unit at market rate either. They’ll need to comply with the range determined by their co-op board.
For those looking to turn a quick profit by renovating and flipping a unit, it’s best to look elsewhere for a building with more flexible terms. For buyers looking to plant roots, HDFCs provide a much needed low cost opportunity to become a homeowner.
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