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Section 8 Homeownership

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Section 8 Homeownership

Kathy Winter

Iowa State Office

U.S. Dept. of HUD

515-284-4315

Kathy_r._Winter@hud.gov


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Section 8 Homeownership

  • Section 8 HO is an option to the PHA

    • Implements through PHA Annual and administrative plans.

  • Use Voucher subsidy for monthly homeownership expenses

  • First-time Homebuyer Program

  • Resident pays 30% of AMI for housing costs

  • Open Market Purchase


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Legislative History

  • Sec. 555 of QHWRA of 1998

    • Congress amends Sec. 8(y)

  • Proposed Rule April 1999

  • Final Rule Published Sept. 12, 2000

    • Effective October 12, 2000

  • Special Housing Type under Subpart M of 24 CFR 982


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Requirements

  • FINAL RULE - SEPTEMBER 12, 2000

  • PHA choice

  • Amendment to annual and administrative plan

  • Final Rules

    • October 18, 2002: Downpayment Assistance & Streamlining

    • October 28, 2002: Eligibilty Units Owned or Controlled by a PHA


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Requirements

  • Eligibility of Units Owned or Controlled by a PHA; Final Rule – October 28, 2002

  • Downpayment Assistance Grants and Streamlining Amendments; Final Rule – October 18, 2002


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PHA CapacityOne of Three Options

  • ONE: Establish Min. Down-payment

    • Three (3) percent of sale price

    • At least one percent of sale price comes from family’s personal resources.


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PHA Capacity

  • Two: PHA requires financing for purchase meets one of following:

    • Provided, insured or guaranteed by State or Federal Gov.

    • Complies with secondary market underwriting requirements.

    • Complies with generally accepted private sector underwriting standards


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PHA Capacity

  • Three: PHA demonstrates in Annual Plan it has capacity or will acquire capacity to successfully operate Homeownership Program.


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Family Eligibility

  • Section 8 Eligible Family

    • Current program participant

    • Eligible for admission to Sec 8 HCV program


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Family Eligibility

  • First time Homebuyer

    • Single Parent or displace homemakers

    • No HO interest in 3 years

    • Exception for Family that includes member with disability and homeownership is needed as a reasonable accommodation.


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Family Eligibility

  • Minimum Income 982.627(c)

    • Disabled Family: Monthly SSI for individual living alone x 12.

    • Other Families 2000 X National Minimum wage/hr ($10,300/yr)

      • Welfare assistance may not be included.

    • Disabled and Elderly Families – Welfare assistance may be included


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PHA – Higher Minimum Income

  • A PHA may set a higher minimum income for all family types.

  • However Family may still qualify with HUD Min. income.

    • Family that meets HUD minimum income and not PHA Minimum shall meet the requirement if:

      • Pre-qualified or pre-approved for financing;

      • Financing meets PHA established requirements; and

      • Financing sufficient to purchase unit that meets HQS.


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Family Eligibility

  • Employment 982.627(d)

    Disabled and elderly exempt

  • One adult member employed continually fulltime for year prior to HO assistance.

  • One adult currently employed fulltime – not less than 30 hours

  • PHA may not create more restrictive employment criteria


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Family Eligibility

  • Mortgage Defaults

    • Not eligible if any family member has previously received Sec 8 HO assistance and defaulted on mortgage

  • PHA may establish additional requirements for family eligibility

    • FSS participants


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Homeownership Voucher Option

  • Family finds eligible property

  • Subsidy to assist with monthly homeownership expenses

  • PHA may make monthly payment to family or lender


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Pre-Homeownership Counseling982.630

  • Family must attend and satisfactorily complete program required by PHA

  • Family does not pay for counseling

  • PHA staff and/or other entity may conduct

    • Consider HUD approved counseling agencies


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Pre Homeownership Counseling982.630

  • PHA may adapt suggestions to meet local circumstances and needs of family.

  • PHA may offer additional counseling after assistance begins.

  • If not HUD approved counselor the PHA should ensure the program is consistent with HUD’s Housing Counseling program.


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Pre-Homeownership Counseling

  • Suggested Topics:

    • Home maintenance

    • Budgeting

    • Credit counseling

    • Negotiating the purchase price of a home


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Pre Homeownership Counseling 982.630

  • Topics, cont.

    • Financing: Obtaining and pros and cons of different approaches

    • Finding a home

    • Locating a home in a area without a high concentration of low-income families

    • Fair housing and state & Federal truth in lending laws


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Finding a Home

  • PHA may establish time limits

    • Locating a unit and purchasing

  • PHA may not steer family


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Eligible Unit 982.628

  • One unit property or single unit in coop or condominium

  • New Construction

  • Seller cannot be debarred, suspended or subject to a limited denial of participation by HUD


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Eligible Unit

  • Unit in PHA Jurisdiction

  • Must pass HQS

  • Inspected by 3rd party Independent inspector


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Home Inspections 982.631

  • PHA conducts HQS inspection used for Voucher program

    • Determines condition is decent, safe and sanitary.

    • No annual HQS inspection required


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Home Inspections

  • Independent Professional (3rd Party)

    • Selected and hired by family

    • Assess adequacy and life span of major systems, appliances and other structural components

    • Satisfaction of inspection by buyer typical contingency clause in contracts of sale.

    • PHA may disapprove unit on basis of report


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Home Inspections

  • PHA may require additional inspections after purchase of unit.


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Voucher Subsidy Available

  • Payment standard in Sec. 8 program determines maximum subsidy

    • No separate HO payment standard schedule

    • Same subsidy standards


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Payment Standard

  • Payment Standard greater of:

    • Payment standard at commencement of HO assistance.

    • Payment standard at most recent reexamination since commencement of HO assistance

      Never goes below initial calculation


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Homeownership Assistance Payment

  • Family pays at least total tenant payment (TTP), may pay more

  • Monthly HAP is calculated as the lesser of

    • Payment standard minus family TTP

    • Families monthly homeownership expenses minus family TTP


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Contract of Sale

  • Family must provide copy of contract of sale to PHA

  • Contract of Sale must include:

    • Prepurchase inspection (buyer satisfaction, buyer not obligated to pay repairs)

    • Seller certification – seller not debarred, suspended or subject to limited denial of participation.

    • Terms and Conditions of sale


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Financing 982.632

  • PHA may establish their own financing requirements, including:

    • Lender qualifications and terms of financing

    • PHAs encouraged to review financing prior to approval of assistance to avoid Predatory Lending type situations


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PHA Financing Requirements

  • May prohibit certain forms of financing

  • Restrictions on other debt secured by home

  • Terms of financing

    • Minimum downpayment


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PHA Financing Requirements

  • Affordability of Purchase

    • PHA may disapprove financing or refinancing if it determines debt is unaffordable or terms don’t meet PHA req.

  • HUD is working on a Guide Book

    All PHA financing or affordability requirements must be described in PHA administrative plan.


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Financing a Purchase 982.632

  • Financing a Unit

    • PHA may establish their own financing requirements, including: lender qualifications and terms of financing.

    • PHAs are encouraged to review financing to avoid Predatory Lending before assistance is approved.


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PHA Requirements for Admission 982.626(b)

  • PHA may limit HO Assistance to families or purposes defined by PHA

  • Examples

    • FSS participants

    • Families in XYZ Non-profit Homeownership program

      (Must include these requirements with the PHA Administrative Plan.)


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PHA Requirements 982.629

  • PHA may establish a maximum time for a family to locate a home and purchase a home

  • PHA may require periodic reports on family’s progress in finding a home

  • PHA decides if the family gets a rental voucher if a home is not found or put on the waiting list.

    • Must include these requirements with the PHA Administrative Plan


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PHA Requirements

  • PHA determines if the HAP will go to the lender or the family. 982.635(d)

  • PHA determines the number of Section 8 Vouchers it will commit to the program.


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Homeownership Expenses 982.635(c)

  • The PHA determines amount to be included in the HO expenses/costs

    • Principal and Interest on mortgage

    • Mortgage Insurance Premium (MIP)

    • Property Taxes

    • Homeowner’s insurance

    • PHA allowance for maintenance expenses

    • PHA allowance for major repair and replacement

    • PHA utility allowance


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PHA Allowances

  • Allowances set for program as a whole, not based on actual cost or condition of homes

  • PHA may contact counseling agencies and realtors for advice


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Homeownership Assistance Payment 982.635

  • PHA will make a payment equal to the lower of:

    • The payment standard (regular Sec. 8 program) minus the total tenant payment; or

    • The family’s monthly homeownership expenses minus total tenant payment.


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Family Share

  • Family Responsible for all HO expenses not covered by HAP

  • If homeownership expenses exceed the payment standard, family pays the difference in addition to TTP.

  • 40% rule does not apply to HO families

    • Law only limits amount paid by family for rent.


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Continued Assistance

  • Family Obligations

    • Comply with terms of mortgage.

    • Use and occupancy

      • Family’s only residence

      • Report changes in composition

      • No subletting or leasing


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Continued Assistance

  • Comply with other family obligations under the voucher program

  • Notice of move-out

  • Notice of default

  • Supply information concerning:

    • Refinancing

    • Sale or transfer of any interest in home

    • Homeownership expenses


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Continued Assistance

  • Prohibition on ownership interest on second residence

  • Comply with additional PHA requirements

    • Eg. Postpurchase counseling


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Termination of Assistance 982.638

  • Termination of Assistance

    • PHA may terminate assistance in the case of mortgage default (foreclosure)

      • PHA’s decision on whether family may receive rental assistance.

    • PHA may terminate if family does not comply with family obligations


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Family at Zero HAP 982.635(e)

  • Homeownership assistance terminates after 180 days with zero assistance.

  • HOWEVER, PHA has discretion to grant relief where termination would result in extreme hardship.


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Time limitations 982.634

  • Time limits do not apply to elderly or disabled families

  • Maximum term:

    • 10yrs of HAP for a mortgage less than 20 yr

    • 15yrs of HAP for mortgage 20 yr and more

    • Applies from initial purchase


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Portable 982.636

  • Portable

    • Receiving PHA must have HO program

    • Family and Unit must meet eligibility requirements


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Move to New Unit

  • Continuation of HO Assistance

    • Initial Eligibility requirements apply, except:

      • First time homeowner

      • Pre-assistance counseling


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Example – Sec. 8 Purchase

  • Family of four purchasing a 3 bedroom home.

  • Payment Standard for a 3 BR is $800/month

  • Housing expenses include:

    • Principal, Interest, Taxes, Insurance (PITI)

    • Mortgage Insurance Payment (MIP)

    • Allowances Total $185

      • $35 for maintenance allowance 3/BR

      • $50 replacement allowance 3/BR

      • $100 utility allowance 3/BR


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Example Sec. 8 Purchase

  • Family Adjusted Annual Income is $20,000

  • 30% of Adjusted Monthly Income $500

  • Monthly Total Tenant Payment $500

  • TTP = Total Family Share


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Example – Sec. 8 Purchase

Purchase Price $70,000

FSS Escrow (DP) $5,000

First Mortgage – FHA (30yrs @7%) $65,000 _________________________________________

First Mortgage Payment PITI & MIP on $65k$615

Utility, maintenance and replacement allowances$185

Monthly Homeownership Expenses $800


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Example – Sec. 8 Purchase

  • Gross Homeownership Costs$800

    • PITI & MIP $615

    • Allowances $185

      Total Family Share

      ($185 allowances+ $315 lender) $500

      Homeownership Assistance Payment $300


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Example –Sec. 8 Purchase

Purchase Price - $90,000

FSS Escrow (DP) $ 5,000

First Mortgage – FHA (30yrs @7%) $85,000

___________________________________________

First Mortgage Payment PITI & MIP on $85k$815

Utility, Maintenance & Replacement Allowance$185

Monthly Homeownership Expenses $1,000


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Example Sec. 8 Purchase

Gross Homeownership Costs$1,000

  • PITI & MIP 815

  • Allowances 185

    Total Family Share $700

    ($185 allowances +$515 lender)

    Housing Assistance Payment$300


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Example Sec. 8 Purchase

  • Is $700 per month Family Share too high for family with $20,000 adjusted annual income?


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Web Site

  • HUD Section 8 Homeownership: http://www.hud.gov/offices/pih/programs/hcv/homeownership/


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Community Program….

  • Lenders and Insured Loans

    • Conventional

    • Subsidized Loans

    • State Housing Finance Authority

    • USDA

    • Fannie Mae

    • FHA


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Community Program…..

  • Funding for additional subsidy

    • Federal Home Loan Bank

    • HOME – local government or State of Iowa

    • CDBG – local government or State of Iowa

    • 5(h) proceeds (sale of Public Housing)

    • Local Housing Trust Funds


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Your Community’s Market

  • What is available in your community for sale?

    • Are they in good condition?

    • What price are they selling for?

    • Are the affordable houses concentrated in low-income areas?

    • Considering your payment standard - will it work without additional subsidy?

    • Would you increase your payment standard?


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Your Community’s Market

  • Rental Housing Market

    • What is utilization rate of Section 8 Vouchers?

    • What is the need in your community for affordable housing?

    • How long is the waiting list?


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