Obtaining financing for your co-op purchase can be a challenge for buyers as lenders are careful to consider the current financial status of the cooperative corporation. Add the fact that the co-op is an HDFC co-op and it can be a real long shot to expect that a lender will consider financing. This article from Habitat Magazine explains why.
HDFCs are unique and quirky properties, and each can have its own set of rules and restrictions. In years past, banks didn’t know what to make of HDFCs; now, unfortunately, most lump them all together.
Why the reluctance? First, many HDFCs (that stands for Housing Development Finance Corporation) are not 100 percent sold. Often, a percentage of rent-stabilized apartments are owned by the corporation. Banks don’t like this. Also, many (not all) HDFCs are saddled with arrears issues — financial, tax, etc. Where a regular co-op would be acceptable to a lender, a hybrid like the HDFC is overcomplicated.
The HDFC itself may prohibit financing. Prospective purchasers should carefully read the corporate bylaws. Frequently, HDFC shares are not permitted to be used as collateral. In some HDFC proprietary leases, lines of credit or home equity loans are prohibited unless the funds are for improvement of the unit itself; financing a car, second home, or college education are out.
If no bank is willing to grant a loan, the best bet for home buyers is to purchase an HDFC unit with cash. Some HDFCs may be open to self-financing; buyers, in essence, obtain a mortgage from the co-op. More HDFC corporations may want to explore this; it offers significant advantages to both sides.
Buying in an HDFC can be frustrating, to put it mildly, but with patience and persistence, an HDFC remains a great, affordable real estate option in New York City.