Can an investor (an owner who doesn’t live on the property) obtain a loan under the HOME Program?
The HOME Program offers rehabilitation and acquisition loans to investors who are willing to provide decent, affordable housing to income-qualified households at rents set by the Department of Housing and Urban Development (HUD). It can be a single-family property, multi-family property or rental condo, but there are environmental reviews, federal requirements (Davis-Bacon Act, labor standards) and limits as to how much government money can be invested.
What are the qualifications to obtain an Investor Rehabilitation loan?
The participant must own the property with an approved form of ownership. Any lead paint must be abated, and the property must be brought up to code.
What are the rent and income limits?
The rent limits are the same as the Section 8 rents set by the Department of Housing and Urban Development (HUD). These HUD issued rents include utilities and are based on the number of bedrooms in each unit. There is a formula to calculate rent if the utilities are to be paid by the tenant. When investor rehabilitation is involved, if a property has 1-4 units, all tenants can be charged the High HOME rent. If there are more than 4 units, 20% of the units are to be Low HOME rent. There are income guidelines for initial occupancy, based on household size, for the homeowner and any tenants living in HOME-assisted units. The rent and income guidelines are updated by HUD annually.
How long is the term of the loan?
The term of the loan runs concurrent with the affordability period up to 30 years, and is dependent upon the amount of HOME funds borrowed and the ability of the borrower to pay it back.
What are the interest rates?
The interest rate is 1% for all HOME loans.
What are the on-going responsibilities during the affordability period and/or the loan term?
The homeowner’s insurance is verified annually during the term of the loan. There are periodic inspections to make sure the property is kept up to code for the duration of the affordability period. If applicable, the landlord must provide our agency with tenant certification of their rents and their incomes (including proof of income) every year on the anniversary of the completion of the project for the duration of the affordability period.
Are there any pre-payment penalties?
The affordability period remains with the property until the expiration date; it cannot be discharged with the mortgage at time of sale or transfer of the property.
What types of repairs are eligible under the HOME Program?
Eligible repairs include bringing the property up to code, essential improvements, handicap renovations, and energy efficiency improvements. Lead paint abatement is necessary. Anything of a non-luxury nature is eligible.
Do you give out grants?
We do not grant funds as such, but some of our loans qualify to be deferred to a point of forgiveness given that the restrictions have been adhered to during the affordability period, as well as other requirements of the program. Loan will revert to a grant.
Does a commercial building qualify?
No, not if it is strictly for commercial use.
Does a mixed-use building qualify (part residential/part-commercial)?
Yes, but any commercial portion would be pro-rated.
Example: A 3-tenement with a store-front on 1st floor—both 2nd and 3rd floor apartments can be rehabilitated with HOME funds, but not the store on the 1st floor. If the roof was being replaced or vinyl siding was being installed, owner would pay one-third of the cost at time of loan closing.
Can I use my own contractor?
Yes, but the contractor must be licensed for the type of work to be performed, insured, and registered with the state. We also require a bidding process—we like to have at least 2 bids, but prefer 3. Normally the lowest responsible bidder is chosen, but if the owner selects a higher bidding contractor, the owner must pay the difference between the bids at time of loan closing. All bids come directly to our office sealed, to be opened at a pre-determined date and time.
Is there an application fee?
Yes, an application fee is required in good faith, but it is refundable upon closing of the loan.
Who inspects the work to make sure it’s being done properly and everything is brought up to code?
We have a rehabilitation specialist in our office. He/She performs the preliminary inspection, and writes up the in-house specifications and cost estimates. The contractors’ bids are based on the in-house specifications. The rehabilitation specialist also performs all inspections during the course of the project and makes certain that all work is up to code and falls within the specifications. He/She is available to answer questions of both the contractor and the property owner.