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How to Qualify for a HDFC Coop as a Low-Income New Yorker

Monday, June 22, 2020

If your household income falls in the low to middle range, then owning real estate in NYC can seem like a pipe dream. The cost of renting or purchasing an apartment in the city seems to be on the rise perpetually.


Maybe you’re a senior on fixed monthly income, and you’d prefer to own a low cost apartment in the city. But everywhere you look, not only are the prices astronomical, so are the taxes and the ongoing fees.


Yes, there are some federally assisted options for low-income individuals, such as the Mitchell-Lama program, if you earn less than $60,000 per year, among other requirements.


Buildings and apartments geared for low-income households are tough to find, and even harder to get into, because of the waitlists and often convoluted application processes.


But there is one option that many low-income NYers aren’t aware of, and that is buying into an HDFC coop. It’s one of the very few budget options for those looking for a cheaper avenue to NYC real estate ownership.

Below market rate NYC real estate


HDFC coops limit buyers based on income, they sell significantly below their market rates, and they’re designed to increase options for lower-income residents of the city.


They have a unique set of regulations and incentive structures that make them an anomaly in the NYC real estate market. You can find HDFC units that are surprisingly affordable (for NYC standards), and what’s even more surprising is that you might see them stay on the market for a while.


If you can meet the eligibility requirements, and you’re willing to do a little extra research, you could end up owning an NYC apartment that may currently think is out of your reach.


In this guide, we’ll discuss in detail everything you need to know about an HDFC coop. We’ll discuss what they are, why they are cheaper, some of their limitations, as well as how you can qualify to purchase an HDFC coop unit in NYC.

What is a HDFC coop?

HDFC, or Housing Development Fund Corporation, is a housing program designed to help low-income New Yorkers become homeowners despite the skyrocketing prices of NYC real estate.


HDFC, also known as restricted-sale buildings, are geared towards people who have limited income, but ones that also have enough cash saved up for what often amounts to hefty down payments.


Established in the 1970s, HDFC coops have become a lot less affordable than they used to be, but they are still among the cheapest options for low and middle-income residents to own a home.


According to the New York City Department of Housing Preservation and Development (HPD), HDFC coops are a significant part of NYCs' affordable housing program.


The history of NYC HDFC coops


To gain a better understanding of how the HDFC coops work, let’s take a quick look at its origin.


Most of the HDFC coops originated after the city seized thousands of dilapidated apartments in the 1970s. Not knowing what else to do with them, the city began fixing them up and allowing tenants to buy them at a nominal price to turn them into low-income housing coops.


The vast majority of the units could be found around the Lower East Side and in Upper Manhattan, Brooklyn and the South Bronx.


Back in the 70s, residents were able to buy a unit for only $250 each. The idea being that the units would be preserved for low-income city residents, income-ceilings were imposed on resales. There were also high taxes imposed on flipping the units for sale.


Both the flip-tax and the income-ceilings were designed to prevent people from buying them at $250, fixing them up, and selling it for a hefty profit to wealthier buyers.


Prices have, of course, gone up significantly since their inception. Nowadays, you can expect to find HDFCs on the market for a few hundred thousand dollars. But they’re still comparatively far cheaper for their locations, and also they have much more affordable monthly fees.


NYC real estate deals too good to be true?


If you’re familiar with the New York real estate market at all, then you’ll know that a four-bedroom on the Upper West Side listed for $875,000, or a $385,000 two-bedroom in Manhattan Valley, is not a common occurrence.


But you’ll find these listings every now and then thanks to HDFC coops. And if you’re wondering why they wouldn’t get taken off the market right away, that’s because there are strict restrictions on who is allowed to buy them, as we will discuss below.


You may find listings of units that are almost 40-50 percent cheaper than the median sales prices in that area of New York.


In the following section, we’ll discuss what allows HDFCs to be significantly cheaper, as well as some of the limitations in the regulations that sometimes make these coop units not-so-affordable for low and middle income families any longer.

Why are HDFC coops cheaper?


HDFC coops have to work within specific guidelines to keep prices relatively affordable for lower-income residents.


One of the reasons why HDFC coops are cheaper is that they benefit from lower real estate taxes.


HDFCs benefit from something known as the Division of Alternative Management tax cap. What that means is that they’re charged taxes based on a lower value assessment when compared to what their taxes would be if it were based on their market value.


The idea of HDFCs is that they are meant to be affordable units where low-income families live long-term. In a place like New York City, people often get caught up in thinking of real estate in terms of investments primarily, which contributes to skyrocketing prices.


Another aspect of HDFCs that help keep prices lower is that the people that have bought into an HDFC (shareholders) don’t earn a dividend. Any additional funds are redirected towards building costs, which helps keep maintenance costs low, and more savings for residents.


PHFL and HDFC coops


HDFCs benefit from their unique financial structure. They receive tax exemptions and benefits from the city, which helps keep their operating costs low. It also means lower upkeep costs for the shareholders and residents, which is one of the things that make HDFCs ideal for lower-income families.


But what sets HDFCs apart, primarily, is the financial structure. It works like this: Most HDFC buildings receive partial tax exemptions and subsidies to help keep operating costs—and maintenance charges for shareholders—at a minimum.


HDFCs are incorporated under the Private Housing Finance Law (PHFL). In return for the tax benefits, they have to stick to strict guidelines when it comes to renting apartments to tenants or selling property.


As we explained above, HDFC units can only be sold to residents under a certain income level to keep the apartments allocated to lower-income individuals.


But beyond that, HDFC board members also have to maintain ethical behavior when renting and selling. If they violate standards, the Department of Housing Preservation and Development (HPD) has the authority to remove the benefits that come with being an HDFC coop.


Here are a couple of examples of guidelines for HDFCs under the Private Housing Finance Law (PHFL).


PHFL states that the certificate of incorporation of any HDFC shall provide “that the company has been organized exclusively to develop a housing project for persons of low income.”


It also requires “that all income and earnings of the corporation shall be used exclusively for corporate purposes, and that no part of the net income or net earnings of the corporation shall inure to the benefit or profit of any private individual, firm, corporation or association.”


For a full list of requirements and guidelines, check out the Attorney General's Office Memo about Selling HDFCs.


How does a HDFC housing coop work?


One of the things separate HDFCs from other affordable housing programs in NYC is that, although they have to operate under the PHFL guidelines, the regulations can vary from building to building.


Depending on the board on an HDFC coop building, and their specific bylaws, the rules will vary, as well as the operations of the building. This explains why some coop buildings are better run than others, also the differences in the state of the building, which can be significant.


When the city first took over the buildings in their derelict conditions, they took on the responsibility of fixing up the units and making them livable. But once they transferred ownership to the tenants, the city let go of their maintenance and upkeep responsibilities.


It became the job of the resident-owners to keep up with building maintenance, but many of them probably didn’t have much experience in managing apartment units.


What are the HDFC income restrictions?


The income restrictions for buying HDFCs are tied to something known as the area median income (AMI). Let’s take a closer look at AMI and how it factors into your eligibility.


Area median income (AMI)


Each year, the U.S. Department of Housing and Urban Development (HUD) defines the median income for all cities across the United States.


The AMI is the household income, which is in the middle of the income spectrum for all households in the region. One of the functions of AMI is that, for each area, it is used to create affordable housing programs for lower-income families, HDFC coops being one of them in NYC.


Middle income in NYC is defined by households that earn a maximum of 165 percent of AMI. For example, if the median income of an NYC area is $100,000, then you’re considered to be a middle income household as long as your income doesn’t exceed $165,000.


For a more detailed chart with income levels and NYC area rents, visit the NYC HPD AMI page.


NYC area median income (AMI) and HDFC income limits


To buy into an HDFC, you have to meet the income caps either based on the AMI, or a formula based on the building’s maintenance and utility costs.


As we explained in the previous section, you're no longer deemed middle income if you exceed 165 percent of the AMI mark. So, to qualify for an HDFC, your income has to be under that threshold.


Some buildings have even stricter limits, and they only accept buyers with a maximum of 120 percent AMI.


To give you an idea of what those numbers might actually look like, here are a couple of examples of eligible incomes in Harlem, according to a 2018 post on StreetEasy, an NYC real estate website.


They found HDFC listings in Central Harlem that stated that the total household income could not exceed the following:


●       $97,000 for a single resident

●       $110,000 for two residents

●       $124,000 for three residents

●       $138,000 for four residents


Eligibility based on maintenance fees


There are other buildings that have their own formula for calculating income based on the expenses of the building. These buildings require that buyers can’t earn more than six or seven times (depending on the size of your family) the approximate monthly maintenance and utility fees, plus 6 percent of the original purchase price of the unit, which was $250.


Then they multiply that number by 12 to determine your maximum annual income to be deemed eligible to buy a unit in that specific coop.


Hefty down payments


One aspect of qualifying for an HDFC that is increasingly pushing them out of the reach of low or middle income residents, is that they often require rather large down payments.


The HDFC board for each building has a lot of autonomy over financing decisions, and they often look for buyers that can bring in large cash deposits to cover overdue repairs or debt. Many times they’ll ask for 50 percent down payments, or even require that you buy the unit entirely with cash.


So, what often ends up happening is that HDFC units get sold to buyers who are asset-rich even though they might have lower reportable incomes. This somewhat negates the spirit of the coops, which was to keep them available for the middle-class residents of the city.


Limitations of HDFC coops


There are benefits to owning HDFC coops. The prices are significantly lower when compared to what their market rates would be. Also, you get to enjoy lower maintenance fees and taxes, which is ideal for those in the middle-income range.


But there are limitations within the regulatory system governing HDFCs, and it is contributing to conditions that make it very difficult for those in need of affordable housing to qualify.


No limit on assets for buyers


Although comparatively cheaper, the HDFC coop prices have been increasing substantially in recent years. At the time of writing, StreetEasy lists coops ranging from $90,000 for a studio to $950,000 for a 2 bed/2 bath apartment.


If you’re a family of 4, and you want to purchase a $950,000 2-bedroom apartment, you might be asked to come up with a down payment of $250,000 or more. But your income has to be capped at 165 AMI.


There aren’t too many middle-income households in NYC who also happen to have a quarter of a million dollars lying around.


To further complicate matters, it is usually challenging to find banks that would approve financing for HDFC coops since they’re valued significantly below market price.


But the city does not require the boards to consider assets when qualifying for eligibility based on income.


For these reasons, and more, what often ends up happening is that these units are sold to buyers who come from wealthy backgrounds, but might currently have a lower income.


For example, young professionals recently out of college with wealthy parents, affluent retirees, or people with trust funds. These people might qualify under the income requirements, and they can also afford the hefty cash down payments. But they’re not the low-income residents who the HDFC coops were initially designed to help.


Many HDFCs are unregulated (but not for much longer)


Beyond the lack of regulation when it comes to assets of buyers, many HDFCs remain unregulated by the city.


That means that it is up to the board members at these HDFCs to instill price caps, taxes on flipping properties for profit, and even income limits for buyers. Unfortunately, many of these HDFC boards don’t put any regulations in place, which limits the number of units that remain affordable.


It’s due to this lack of regulations that you’ll find some of these coops selling for over a million dollars.


But there is good news if you’re in the market for affordable housing in NYC. The tax exemptions that keep costs low for HDFC owners are set to expire in 2029. And the city is currently in the process of replacing the current tax exemption with new ones starting in 2029, but they will only do so for buildings that adhere to strict regulatory guidelines.


If an HDFC building does not have the proper regulations in place, then they will lose their tax exemptions.

What are the benefits of owning a HDFC coop?


Despite the lack of regulations and increasing prices, HDFC units do remain some of the most affordable properties for people in the lower income brackets in NYC.


Assuming you find one that is well regulated, and you qualify for their income requirements, as well as down payments, there can be significant advantages to owning a coop, depending on your goals.


We’ve touched on some of the benefits throughout the article, but let’s take a closer look at some of the factors that could be beneficial for you when it comes to owning a coop.


Value for the price - Compared to their location and size, HDFC coop units usually cost significantly lower than what would’ve been their market value. So, if you can qualify, you might end up getting a great deal of real estate for what you pay.


Low mortgage payments - If you find a unit that is way under market value, then your mortgage will also likely carry for much less than what you might pay if you were renting a similar place.


Lower monthly maintenance costs - With all the regulatory exemptions and tax breaks, the monthly maintenance cost for living in an HDFC unit is quite low, usually between $300-$600 per month, which is great if you’re operating on a low income, especially in NYC.


Ability to invest in home improvements - If you have cash on hand (since there isn’t an asset cap on eligibility), you can use some of those funds to fix up your coop unit. So, you’re saving money on your mortgage, and you’re improving the value of your home.


Long-term housing security - If your idea for purchasing a home is long-term stay, a coop can be an ideal option if you qualify. Assuming you pick a building that is well-regulated, you could potentially save a fortune on fees and maintenance costs over the coming years, or even decades.

Is buying a HDFC apartment a good investment?


Whether buying an HDFC unit is right for you depends significantly on your goals. Some of the same things that could work in your favor could also work against you if you have the wrong idea about what an HDFC coop is supposed to accomplish.


For example, if you’re a retiree living on a low or fixed income, and you’re looking for a place you can call home and spend your aging years, then an HDFC coop might be ideal. But if you’re looking to invest in real estate with profit motives, then a coop is most likely not the best choice.


Let’s take a look at a few reasons why.


High flip-tax - The same regulations that make HDFC units affordable also work against you if you’re trying to flip them for a profit. Anywhere from 30-50 percent of your profit might go to the coop after the sale.


Poor management - Due to lack of proper regulations, many coop buildings suffer from poor management, which can create a variety of issues for residents, as well as making them bad investments.


Inadequate upkeep - One of the advantages of HDFC coops is that the maintenance costs are low if your priority is to keep costs down. But as an investor, low maintenance fees could mean bad upkeep in the building, as well as various issues with your unit.

How to buy a HDFC coop unit?


Here are some of the steps involved if you’re interested in purchasing an HDFC coop unit.


1. Decide if HDFC is right for you


In this article, we’ve discussed some of the pros and cons of HDFCs, as well as some of the requirements to qualify. While the specific regulations will vary depending on the building, you should have a general idea of the overall guidelines.


You should decide whether it is likely that you have a chance to qualify. Evaluate how your income relates to NYC AMI, and what your goals are for purchasing an HDFC unit (housing vs. investment).


2. Find HDFC buildings


Once you decide that an HDFC could be potentially right for you, then the next step is to find listings.


Look on major NYC real estate sites like StreetEasy and Zillow for HDFC coop listings. Set up alerts, so you get notified when there are new HDFClistings on the market.


3. Do the research


This could possibly be the most daunting part of the process. You have to do your research for the listings that you’re interested in.


You have to find out about their specific income and down payment requirements. You’ll also need to inquire if that building has been approved for financing, and whether they comply with PHFL and how that affects their regulations.


One resource that can help in this process is the Urban Homesteading Assistance Board (UHAB). They offer a variety of information when it comes to purchasing HDFC coop units.


They also have a “market and match” program that helps publicize vacancies and offers tools and resources for your HDFC to fill vacant units.

4. Work with an HDFC agent


Find a real estate agent that specializes in HDFC coops. You can find them through the listings, or resources such as UHAB.


A qualified agent can handle the process as far as running all the numbers, getting the paperwork ready, as well as handling all the negotiations with the building and the seller.

How long does it take to buy an HDFC coop?


It will most likely take you longer to buy an HDFC coop than another real estate, or even other coops.


There is more paperwork involved than usual, and often, a government agency has to greenlight the sales process, which can take a couple of months.


Once approved, you (or your agent) can start the negotiations and move the sale forward. You should plan for at least a few months if you’re interested in buying an HDFC coop.


Additional resources on NYC HDFC


Zillow HDFC coop listings in NY


Facts sheet for NYC HDFC shareholders


NYC Department of Housing Preservation and Development page on HDFC


Urban Housing Assistance Board (UHAB) HDFC listings