Key HOME Rental Housing Requirements
Potential investors will need to understand the HOME rental restrictions related to affordability, property standards, and other federal requirements. Certain HOME requirements are imposed for a period (known as the period of affordability) after the construction completion and lease-up of the project. OZ partners will want to understand that the PJ will become a long-term partner for HOME rental housing.
Program oversight and compliance requires accountability. Any HOME funds invested in housing that does not meet the affordability requirements for the period specified in the HOME rule and the written agreement must be repaid by the PJ. Many PJs pass on this requirement to owners to establish accountability for compliance. This introduces an element of project risk that investors will want to understand.
To ensure housing affordability over time, HOME-assisted housing is subject to income and rent restrictions for the affordability period.
HOME-assisted rental housing is primarily targeted to VLI households and must never be occupied by tenants that are not low-income. A low-income and VLI household has an annual gross income that does not exceed 80 or 50 percent of the area’s median income, respectively. View the HOME Income Limits.
- Owners must verify tenant income at initial occupancy, and redetermine income-eligibility annually during the affordability period.
- PJs provide owners guidance on specific income targeting requirements for their project.
Owners must not charge rents that exceed the HOME rent limits for the unit size. In projects with more than five HOME-assisted units, some units are designated as “High HOME rent units” and others are designated as “Low HOME rent units.” The owner must charge the appropriate High or Low HOME rent for these unit types.
- PJs provide specific guidance to owners on how many units in a project are High or Low HOME rent units. Owners must maintain this “unit mix” throughout the affordability period.
- Low HOME rent units must be occupied by VLI tenants. However, High HOME rent units may be rented to low-income or VLI tenants.
- If the tenant pays for any utilities, the owner must deduct a utility allowance (provided by the PJ) from the HOME rent limits to determine the maximum rent that can be charged.
- The PJ must approve rents annually.
HOME-assisted rental housing must remain affordable (with income and rent restrictions) throughout the affordability period. This period (from 5 to 20 years) is based on the activity (acquisition, rehabilitation, new construction, or refinancing) and amount of average HOME assistance per unit in the project. The following chart summarizes how the minimum affordability period is determined.
|Rental Housing Activity||Minimum Period of Affordability in Years|
|Rehabilitation or acquisition of existing housing per unit amount of HOME funds: Under $15,000||5|
|$15,000 to $40,000||10|
|Over $40,000 or rehabilitation involving refinancing||15|
|New construction or acquisition of newly constructed housing||20|
- During the affordability period, the PJ must monitor properties to ensure continued compliance with rent restrictions and income-eligibility requirements.
- The affordability period is generally enforced through a land covenant or deed/use restriction that is recorded with the deed. This restriction remains in force throughout the affordability period. If the HOME affordability requirements are not met throughout the affordability period, the PJ is responsible to repay the HOME investment in the project, based on the failure to complete the affordability requirements.
Potential partners will want to know the specific property standards that apply to their projects. Upon completion, HOME-assisted rental properties must meet specific property standards. The applicable property standards are based on the activity type undertaken—new construction or rehabilitation.
Newly constructed housing must comply with:
- State and local building codes, or a national building code in their absence
- Energy efficiency standards
- Broadband installation requirements
PJs must also review and determine that the location of newly constructed rental housing meets site and neighborhood standards that ensure the site is adequate for the proposed project and targeted tenants.
Rehabilitated property must meet PJ-adopted written rehabilitation standards, which incorporate minimum HOME property standards requirements. These include:
- State and local codes and standards for existing structures, or a national code in their absence
- Absence of certain HUD prescribed minimum deficiencies, based on a list of inspectable items and inspected areas from HUD’s Uniform Physical Condition Standards (UPCS) inspection protocol
- Health and safety standards
- Lead-based paint requirements in accordance with 24 CFR part 35, for properties built before 1978
- Broadband infrastructure installation, for substantially rehabilitated rental projects
All projects (newly constructed and rehabilitated) are subject to cross-cutting property standards requirements related to:
- Accessibility for persons with disabilities
- Disaster mitigation
PJs must adopt ongoing property standards. At a minimum, these ongoing standards must meet any state or local habitability requirements and ensure that properties and units are maintained in good repair (decent, safe, and sanitary housing).
- View the HOME regulation at 24 CFR 92.251 for more specific detail on the HOME property standards requirements.
PJs will want to point out to potential OZ investors what steps it takes to ensure these property standards are met. At a minimum, the PJ must approve plans and specifications prior to committing HOME funds and must conduct pre-construction (for rehabilitation), progress, and completion inspections. The PJ must inspect HOME-assisted units during the affordability period to ensure the standards are continually being met throughout the entire period of affordability.
The HOME PJ must ensure compliance with all HOME requirements. For project funding, it should explain its key monitoring and administrative requirements to potential partners, including:
Before committing and disbursing HOME funds, PJs must undertake a rigorous review of the project. Key elements of that assessment include whether the project:
- Complies with all HOME requirements
- Is marketable to the proposed target population, for the proposed price (rent or sale price) in the proposed location
- Is being carried out by a developer with the necessary financial capacity and experience
- Has necessary financing in place
- Complies with the PJ’s own underwriting and subsidy layering requirements and demonstrates that the project is financially feasible for the period of affordability
- Each grantee adopts locally adopted underwriting standards and assumptions. It uses these standards to project proforma costs and revenue for a project and establish a methodology to scrutinize the feasibility of a project and evaluate the reasonableness of construction costs, soft costs, and developer fees associated with the real estate development.
- In financial underwriting, grantees must also ensure that HOME and HTF investments pay only for HOME and HTF units and related common area/infrastructure costs. Cost allocation methods must be followed in mixed-income and mixed-use projects.
- A description of the HOME underwriting and subsidy layering guidance is provided in HUD Notice CPD-15-11: Requirements for the Development and Implementation of HOME Underwriting and Subsidy Layering Guidelines.
- Guidance on methodologies for cost allocation are found in HUD Notice CPD-16-15: Allocating Eligible Costs and Identifying HOME-Assisted Units in Multi-Unit HOME Rental and Homeownership Development Projects.
Once the PJ completes a pre-commitment review, and before it disburses HOME funds to a project, the PJ makes a commitment to the project by executing a written agreement with the project owner, developer, or sponsor.
HUD tracks HOME activity through the Integrated Disbursement and Information System (IDIS) to ensure that PJs report key information to HUD prior to drawing funds. PJs will want to review the recordkeeping and reporting requirements that it will impose on the OZ investors, so that they can ensure compliance as well. PJs and their partners must also keep documentation that demonstrates compliance with all HOME requirements. PJs may want to provide potential partners with copies of the reports they will require during the affordability period. At a minimum, this will include a rent and occupancy report and a report on the property’s financial viability.
PJs will also want to review their anticipated onsite property inspections and monitoring activities.
Other Federal Requirements Applicable to HOME
HOME projects are subject to a number of requirements that are not HOME Program requirements but apply across most federal programs; these are referred to as “other federal requirements.” OZ investors will need to be aware of these requirements, and what potential issues they may present:
Discrimination is prohibited in all aspects of the housing.
Units in properties with five or more HOME-assisted units must be marketed to those least likely to apply for the housing. The PJ will provide specific guidance on what steps the owner must take to meet this requirement. View the HOMEfires, Vol. 14, No. 1: "Guidance on PJ Affirmative Marketing Responsibilities" February 2018 for details.
No funds (HOME or non-HOME) may be spent on the project until the PJ completes an environmental review. This can be a time-consuming process, so for OZ projects under time constraints, PJs may need to consider how to “fast-track” this review. View the Environmental Review landing page for details.
For any project that may displace persons or businesses, acquisition must follow very specific requirements to protect the rights of those displaced. Again, this process takes considerable time and can be expensive. Costs related to relocation are an eligible HOME cost. View the Real Estate Acquisition and Relocation landing page for details.
Davis-Bacon Labor Standards and Related Acts are applicable to apply to contracts for construction of projects with 12 or more HOME-assisted units. Davis-Bacon requires contractors to pay certain wages to their employees and to submit payroll records weekly. Potential partners will want to know that these requirements carry an increased administrative burden to the contractor, and construction costs may be different (in some jurisdictions, higher) than non-Davis-Bacon projects. View the Davis-Bacon and Labor Standards landing page for details.
Any pre-1978 property is subject to lead-based paint requirements, which may include notices to workers and residents, use of certified contractors, and treatment of lead-based paint. Specific requirements depend on the activity and amount of federal assistance; requirements depend on the activity and amount of federal assistance. PJs and potential partners will want to assess their lead-based paint requirements and how these impact cost and time before making a commitment. View the Lead-based Paint landing page for details.
Persons affiliated with the PJ (or its partners) or the owner, developer, or sponsor of housing are prohibited from securing HOME contracts or HOME-assisted units to rent.
These requirements (known as VAWA requirements) include certain notification and lease provisions to protect the rights of men and women who have survived domestic violence, dating violence, sexual assault, and/or stalking.