affordability, even in the event of a subsequent sale.
This option is often preferred by PJs in high cost or
rapidly appreciating housing markets. Using this
option, the PJ may either require the owner to sell to
another eligible low-income homebuyer or establish a
“presumption of affordability.” When the resale
option is used, the period of affordability is based on
the total amount of HOME funds used to assist the
acquisition, development, and purchase of the housing
(i.e., the HOME investment).
Resale Option with Development Subsidies. The
resale option must be used when HOME assistance is
provided only as a development subsidy and there is
no direct HOME assistance to the homebuyer. Note
that when the resale option is used, the affordability
period is based on the total amount of HOME
assistance invested in the housing.
For example, the PJ provides $50,000 in HOME
assistance as a construction loan to a developer. The
appraised value after construction is $45,000 because of
neighborhood and market conditions. The house is sold
for the fair market value of $45,000. Since there is no
direct assistance to the homebuyer in this instance, the
resale option must be used. The affordability period is
fifteen years based on the total amount of the HOME
investment, or $50,000.
Sometimes HOME assistance is structured so that both
a development subsidy and assistance to the
homebuyer are provided. This can occur when the PJ
subsidizes the construction and developer sells the
property to a low-income buyer at less than the fair
market value. Other times this occurs when a PJ not
only subsidizes the development, but also provides
assistance to the homebuyer, such as downpayment or
closing cost help. If a property is sold for less than the
fair market value or if a homebuyer receives a subsidy,
it is known as “direct homebuyer assistance.” When
the homebuyer is provided direct assistance, the PJ has
the option of imposing either resale or recapture
requirements. If the resale option is used, the
minimum affordability period must be based on the
total amount of HOME funds invested in the
acquisition and development of the property plus any
additional HOME funds directly assisting the
homebuyer. If the recapture option is used, the
minimum affordability period is based on the amount
of HOME assistance that enabled the homebuyer to
purchase the property, as described above under the
Recapture Option.
Sale to an Income-eligible Homebuyer. The resale
option requires the following criteria to be met:
• The new purchaser must be low-income and occupy
the property as the family’s principal residence.
• The sales price must be affordable to a reasonable
range of low-income homebuyers, as defined by the
PJ. Many PJs choose to establish the maximum sales
price by calculating the maximum principal, interest,
taxes, and insurance (PITI) that could be paid by a
reasonable range of low-income households without
exceeding 30 percent of gross income (a widely used
standard of housing affordability).
• The original homebuyer, now the home seller, must
receive a fair return on his or her investment, as
defined by the PJ. The PJ should identify its
method for determining a fair return in the written
resale documents that apply to the property. The
homeowner’s investment includes any
downpayment, loan principal payments, and capital
improvements financed by the homeowner.
• Once an affordable price that offers a fair return to
the seller is established, a PJ may choose to require
the repayment of all or a portion of the HOME
grant or loan upon resale, should net proceeds from
the sale allow this. This is most likely to occur in
housing markets where prices are appreciating.
Presumption of Affordability. This option relies on
the presumption that a specific neighborhood in its
entirety is affordable and that it will continue to remain
affordable for the foreseeable future, and therefore, any
sale within that neighborhood will be affordable. In
other words, market forces will ensure the continued
affordability of HOME-assisted properties, and the PJ
can presume the property will be sold at an affordable
price to another low-income household. In order to
rely on a presumption of affordability, the PJ must
demonstrate that the neighborhood is, and is likely to
remain, affordable by undertaking a market analysis and
documenting the affordability of the neighborhood in
accordance with specialized procedures established by
HUD and outlined in the HOME Final Rule at 24 CFR
92.254 (a)(5)(i)(B). This analysis is subject to HUD
approval, and must be periodically updated by the PJ.
Providing HOME Assistance to the Second Buyer.
Under the resale option, if a new homebuyer receives
HOME assistance to purchase a property that has
previously been assisted with HOME funds, the PJ
may terminate the original period of affordability. A
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HOME and CDBG