HOMEfires - Vol. 5 No. 4, October, 2003

Q: Are the periods of affordability for homebuyer projects calculated in the same manner for projects under the resale and recapture provisions?

 
A. No. While the same periods of affordability are used for projects under the resale and recapture provisions, they are calculated differently under each provision.

It has come to HUD's attention that many HOME program participants continue to struggle with calculating periods of affordability in HOME projects. The HOME final rule establishes periods of affordability for all rental and homebuyer projects assisted with HOME funds. These periods preserve the long-term affordability of the projects in accordance with the HOME statute. The periods of affordability for HOME-assisted homebuyer projects are described at 24 CFR 92.254(a)(4). HOME-assisted homebuyer housing must meet the affordability requirements for not less than the applicable period specified below, beginning after project completion.

The periods of affordability applicable to HOME homebuyer projects are:

Resale Provisions: Calculating Affordability Periods

Under the resale option the period of affordability is based on the total amount of HOME funds (i.e. HOME funds and program income) invested in the housing, including any development subsidy.

In example 1, the total amount of HOME funds invested in the unit is $30,000. This figure is based on a $25,000 HOME investment for acquisition and construction and a $5,000 HOME investment for down payment and closing cost assistance.

In example 2, the total amount of HOME funds invested in the unit is $110,000. This figure is based on a $100,000 HOME investment for acquisition and construction and a $10,000 HOME investment for down payment and closing cost assistance. If the $10,000 down payment assistance was provided by the developer from proceeds on the $100,000 loan instead of being drawn from the Federal HOME account, the total investment would be $100,000.

Unlike homebuyer projects under recapture provisions, the sales price and fair market value of a unit are not relevant to projects using resale provisions.

Recapture Provisions: Calculating Affordability Periods

Under the recapture option, the period of affordability is based upon the direct subsidy to the homebuyer. The direct subsidy to the homebuyer is the amount of HOME assistance that enabled the homebuyer to buy the dwelling unit. The direct subsidy includes down payment, closing cost, interest subsidies, or other HOME assistance provided directly to the homebuyer. In addition, direct subsidy includes any assistance that reduced the purchase price from fair market value to an affordable price. If HOME funds are used for the cost of developing a property and the unit is sold below fair market value, the difference between the fair market value and the purchase price is considered to be directly attributable to the HOME subsidy. Development subsidy (i.e. the difference between the total cost of producing the unit and the fair market value of the property) is not included in calculating direct subsidy. Moreover, since development subsidies are not subject to recapture, projects consisting of development subsidies only, with no direct subsidy to the homebuyer, must use the resale provision.

In example 3, the direct HOME subsidy to the homebuyer is $8,000. This figure is based on an $8,000 HOME investment for down payment and closing cost assistance.

In example 4, the direct HOME subsidy to the homebuyer is $20,000. This figure is based on the difference between the fair market value of $90,000 and the purchase price of $75,000 plus the $5,000 for down payment and closing cost assistance.