# Presentation: 549164

## BUILDING HOME

**Homebuyer Activities**

## Homebuyer Activities

- This chapter covers:
- Eligible activities and forms of assistance
- Eligible applicants and properties
- Long-term affordability
- Program design/implementation issues

## Eligible Activities

- HOME can be used for:
- Acquisition
- Acquisition/rehabilitation
- New construction
- Lease-purchase if conveyed within:
- 36 months of signing OR
- 42 months of project completion

## Eligible Activities

- Conversion of HOME rental units to homeowner units
- If additional HOME funds  set affordability period by amount of direct assistance
- If no additional funds  minimum affordability of original rental units

## Forms of Assistance

- PJs generally use:
- Grants
- Deferred payment loans
- Below-market rate loans
- Loan guarantees

## Forms of Assistance

- HOME can be used for:
- Financial assistance
- Development/construction assistance
- Both
- Financial assistance includes:
- Downpayment/closing costs
- Gap financing
- Guarantees

## Eligible Costs

- Hard costs:
- Acquisition
- Site preparation or demolition
- Construction
- Soft costs:
- Fees and appraisals
- Homebuyer counseling
- Relocation Costs

## Nonprofit & CHDO Roles

- Nonprofits can:
- Manage a homebuyer program as a subrecipient
- Play a limited administrative role
- Provide counseling
- CHDOs serve as developer or sponsor of a project

## Eligible Properties

- Eligible property types:
- Single-family home
- Two-to-four unit property
- Condominium unit
- Coop or mutual housing unit (if recognized as ownership by state)
- Manufactured home

## Maximum Property Value

- If acquisition only,
**Sales price **cannot exceed 95% of the median area purchase price
- If acquisition and rehab,
**After-rehab value **cannot exceed 95% of the median area purchase price
- 95% limit may be established by PJ or use HUD limits

## Property Standards - Acquisition

- If acquisition only,
- state/local housing standards and codes
- If no state/local standards, then Section 8 HQS
- House must be inspected
- Must meet standards at time of occupancy

## Property Standards - Acquisition and Rehab

- If acquisition and rehab
- Written rehab standards, _and_
- State/local code/standards
- If no state/local code, meet a national code

## Acquisition and rehab (cont.):
Inspect prior to occupancy
No health and safety defects
before occupancy, and 
no later than 6 months after transfer
Meet applicable codes 
at project completion, and 
within 2 years of transfer

- Inspect prior to occupancy
- No health and safety defects
- before occupancy, _and_
- no later than 6 months after transfer
- Meet applicable codes
- at project completion, _and_
- within 2 years of transfer

**Property Standards - ****Acquisition and Rehab**

## Property Standards - New Construction

- If new construction
- State/local code and standards
- If no state/local code, meet a national code
- Also meet Model Energy Code

## The Applicant

- Low-income
- Property will be principal residence
- Income eligibility determined
- At purchase for existing housing
- At contract signature for new construction
- At signing of lease-purchase agreement

## Income Eligibility

- To verify income:
- Use one of the three income definitions
- Review source documents
- Project income for next 12 months
- Income verification good for six months

## Forms of Ownership

- Types of ownership allowed:
- Fee-simple ownership
- 99-year leasehold
- Condo ownership
- Coop or mutual housing ownership/membership, if recognized  by state law
- Other forms must be HUD-approved

## Long-Term Affordability

**	****HOME $****	****	****Affordability Pd.**
- 	< $15,000			 5 yrs.
- 	$15,000 - 40,000		10 yrs.
- 	Over $40,000		15 yrs.
- No requirements that:
- PITI be affordable at purchase OR
- PITI remain affordable over time

## Recapture/Resale

- Compliance during the period of affordability:
- Recapture
- Resale

## Recapture Provisions

- Recapture most like a conventional loan
- Buyer pays-back direct subsidy
- Direct subsidy is
- assistance that reduced purchase price from fair market value, _and_
- direct assistance to the homebuyer (e.g., downpayment or closing cost assistance)
- May sell to any willing buyer

## Recapture Provisions

- Recapture all or part of subsidy
- May forgive portion
- May share net proceeds
- Development subsidies NOT subject to recapture
- If development subsidy only, must use resale provisions
- When no $ subject to recapture must use resale provision
- If development subsidy only

## Resale Provisions

- With resale, when home is sold:
- House must be affordable to new buyer
- New buyer must be low income
- New buyer must occupy house as principal residence
- Original buyer must receive a “fair return”
- Remaining resale restrictions apply to new buyer

## Resale Provisions

- Presumption of affordability allowed
- Concept
- Homes are of modest value and will stay so
- Homes are affordable to low-income buyers using conventional financing
- Define neighborhood
- Document with market analysis that is updated periodically

## Enforcement

**Enforcement**

- Enforce recapture/resale requirements with:
- Deed restriction
- Covenant
- Lien
- Others

## Other Federal Requirements

- Other federal requirements may apply:
- Fair Housing and equal opportunity
- Affirmative marketing
- Davis-Bacon labor standards
- Flood insurance
- Relocation
- Lead-based paint

## Program Design and Implementation

- Working with Private Lenders
- Selecting Resale or Recapture

## Working with Lenders

- Key Program Design Issues:
- Identify the market
- Keep program simple/easy to administer
- Centralize key functions
- Establish realistic goals
- Decide type of relationship needed with lender

## Relationships with Lenders

- Key areas of negotiation:
- Loan origination and processing
- Type of loans and terms
- Volume and fees

## Recapture or Resale? 

- Recapture:
- Allows maximum flexibility to PJ and owner
- Resale at any price
- Allows program income; PJ decides how much
- Easier to administer
- Lenders prefer
- Cannot be used when:
- No direct assistance
- No assistance to be recaptured

## Recapture or Resale?

- Resale:
- Maintains affordable housing stock
- Best for appreciating neighborhoods
- Complicated for buyers
- More complex to administer
- Presumption of affordability:
- Simplifies resale
- Must complete and update market analysis