CDBG Entitlement FAQ

Why is downpayment assistance limited to 50 percent of the required down payment? Can the amount of CDBG funds provided as downpayment assistance be used for any of the other homeownership activities identified at Section 105(a)(25) of the HCDA, which include subsidizing of the mortgage principal amount?

Date Published: March 2019

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Section 105(a)(25) of the Housing and Community Development Act (HCDA) limits downpayment assistance to a maximum of 50 percent of any downpayment required from low- or moderate-income homebuyers. This is a statutory requirement, so it cannot be waived. The amount of the required downpayment may vary among jurisdictions. However, the amount of downpayment assistance paid with CDBG funds must be necessary and reasonable in accordance with 2 CFR 200.403 and 200.404.

However, since subsidizing interest rates and mortgage principal amounts are also eligible forms of homeownership assistance, CDBG funds may be provided to do so and there is no statutory limit on such assistance. The grantee must perform basic underwriting to determine the appropriate level: enough to make the cost affordable, but not so much that it creates undue enrichment. There must be a clear distinction between the amount of CDBG funds being provided for downpayment assistance and the amount provided for subsidizing the mortgage principal or interest rates. For example, Homeowner A is provided a total of $15,000 in CDBG funds as a loan for downpayment assistance and subsidizing the mortgage principal amount. The downpayment is $6,000. The check stub (and the grantee's records) must clearly identify the amount being provided for up to half of the required downpayment ($3,000) and the amount subsidizing the mortgage principal ($12,000). The grantee's files must document the required downpayment, so the correct amount of assistance is provided.

Tags: CDBG Entitlement Program Homebuyer Assistance