CDBG Entitlement FAQ
Q

We have targeted low/mod families to purchase our completely renovated homes; however, we have not been successful in locating eligible families to qualify for a mortgage. What would you recommend we do in order to complete the national objective and close these activities? Should we consider lease purchase, rent, or market all social economic classes for purchase if able to qualify for a mortgage?

Date Published: May 2015

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A

The CDBG regulation at 24 CFR 570.208(a)(3) requires that each of the homes must be occupied by households that earn less than 80 percent of area median income adjusted for household size, unless the housing is located within a designated Neighborhood Revitalization Strategy Area, where pursuant to 24 CFR 570.208(d)(5)(ii), the homes may be considered to be a single structure for purposes of determining whether or not at least 51 percent of the homes are occupied by low- and moderate-income households.

If you are not able to meet a National Objective, you would be required to repay the CDBG investment in the property as it would not have qualified as a CDBG-funded project. Some suggestions to increase the number of households who may qualify for primary financing include:

  • Using homeownership counseling programs to expand the pool of qualified buyers and to filter out households who are not yet ready to buy;
  • Reducing the sales price to decrease the primary lender's risk and to increase the range of buyers who are able to afford a lower monthly payment;
  • Investing additional CDBG funds to provide down payment assistance and/or closing cost assistance; or
  • Contributing additional CDBG funds to buy down the sales price of the homes (if feasible). This assistance can be provided as an amortizing or forgivable loan.

To increase the number of interested buyers, also consider some of the disposition strategies that have been successful in the Neighborhood Stabilization Program such as partnering with community members and institutions to assist in marketing the homes more broadly and potentially reaching buyers who would not ordinarily learn of these opportunities to buy. Some of these strategies include:

  • Procuring the services of real estate development support professionals to provide sales support, and to brainstorm market opportunities in the area;
  • Identifying opportunities to attend public events and to engage partners to participate in housing fairs in target areas;
  • Meeting with local employers to determine if there is interest in employer-assisted housing programs; or
  • Working with local homeownership counseling programs.

Since your objective is to complete these open activities as soon as possible, conversion to rental is also an option provided that the homes are similarly occupied by low- and moderate-income households and the rents are affordable. Note that a grantee must first adopt and make public its standards for determining "affordable rents" for this purpose. If the city does not wish to be in an ownership and property management role, it may consider transferring ownership and/or management to a qualified non-profit housing organization.

Lease-purchase is also a viable option, but it may take several years before the households are able to accumulate funds for a down-payment and qualify for primary financing. If you decide to convert these homeownership activities to rental or lease-purchase, we encourage you to review your Citizen Participation Plan and to consult with your assigned CPD Representative in the local Field Office before doing so. This will ensure that you comply with the Citizen Participation requirements of 24 CFR Part 91 in the event that you change the nature or beneficiaries of these CDBG activities.


Tags: CDBG Entitlement Program Homebuyer Assistance

FAQ ID:

2251