Module 5: Financing Issues
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Transcript of Module 5: Financing Issues
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Module 5: Financing Issues
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Module 5 Content
• Affordability
• Financing Mechanisms (Eligible Use A)
• Types of Assistance
• Financing Options
• Program Income
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Affordability
Initial Affordability
Long-Term Affordability
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Initial Affordability
• NSP Recipients Must:
– Define Affordable Rents
– Ensure Affordability Standards
– Enforce NSP Mechanisms
• HOME Affordability Standards are Minimum
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Initial Affordability (continued)
• Housing Costs vs. Household Income
• Housing Costs: 30-35% of Total Family Income
• Affordability Based On:
– Purchase Price or Rent
– Cost of Occupancy
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Financing Mechanisms
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Financing MechanismsEligible Use A
• Eligible Use A Allows NSP Funds to Establish Financing Mechanisms
– Direct Loans
– Indirect Loans
– Loss Reserves
– Soft Second Loans
– Shared Equity Loans
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Types of Assistance
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Types of Assistance• NSP Grantee May Provide Downpayment
Assistance to Home Buyer
• NSP Funds May be Used to Reduce Interest Rate
• Grantee May Use NSP Funds for Loans to Third Parties
• Loan Terms May Be Specially Structured
• Shared Equity Arrangements
• CDBG Can Help
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NSP Financing Options
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Financing OptionsInitial Affordability
• Sell for Cash Based on Actual Cost
• Reduce Sales Price
• Sell at Cost and Provide Second Mortgage
• Pay Mortgage Insurance
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Financing OptionsInitial Affordability (continued)
• Downpayment Assistance
• Loan Loss Reserve
• Closing Costs
• Capitalize Reserves When Condition of Primary Lender (rental)
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Long-Term Affordability
• Homebuyer Requirement
– Primary Residence for Period of Affordability
• Rental Requirements
– Occupancy by Income-Eligible Tenants
– Affordable Rents
• Grantee Defines
– Length of Affordability Period
– Affordable Rent Levels
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Financing Options—Homebuyer Long-Term Affordability
• Balloon Payment Due on Sales Loans
• Shared Equity Loans
• May Reduce Loan for Each Year of Affordability Compliance
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Financing Options—Long-Term Affordability Rentals
• No Recapture Option
– New Buyer Must Continue Affordability
• Occupancy
• Rent Restrictions
• Lien for Period of Affordability
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Program Income
• Applicability of CDBG Requirements
• CDBG Definitions and Requirements
• How Program Income Applies to NSP Home Buyer Projects
• Calculating Program Income on Rental Project
– Owned by Grantee or Subrecipient
– Owned by Private Developer
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CDBG Definitions and Requirements
• CDBG Rules Imposed by Recovery Act 570.500(a)
• Program Income is Revenue Received by a Grantee or Subrecipient from:
– Sale of Property
– Loan Repayments
– Rental Income
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Program Income Rules
• Spend Cash On Hand First
• NSP Income Only for NSP Uses
• Income Not Counted Toward Obligation
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Program Income—Homebuyer Transactions
• Sales Revenue Received by Grantee or Subrecipient
• Debt Service Payments Made to Grantee or Subrecipient
• Recaptured Funds
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Program Income—Rental Properties
• When Owned by Grantee or Subrecipient:
– Gross rental income minus costs incidental to its generation. Such costs include:
• Management expenses
• Property maintenance and repairs
• Contributions to replacement reserves
• Taxes and insurance
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Program Income—Rental Properties (continued)
• Program Income Does Not Include Revenue from Privately Owned Rental Projects
• Make Loans, not Grants, Wherever Possible
• Grantee Should Underwrite to Avoid Undue Enrichment
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Module 5 Summary
• Affordability
• Financing Mechanisms (Eligible Use A)
• Types of Assistance
• Financing Options
• Program Income