HOME INVESTMENT PARTNERSHIP PROGRAM HOMEBUYER PROGRAM MANUAL (Existing & New Construction) AMENDED DECEMBER, 2008 ADMINISTERED BY: HARLINGEN COMMUNITY DEVELOPMENT CORPORATION 518 E. HARRISON Harlingen, Texas 78550 956-421-2351 E-Mail: ahuerta@harlingencdc.org FUNDED BY: CITY OF HARLINGEN COMMUNITY DEVELOPMENT DEPARTMENT 502 E. TYLER ST. HARLINGEN, TEXAS 78550
TABLE OF CONTENTS Section I. Introduction 2 Section II. Program Overview 2-3 Section III. Eligible Areas 3 Section IV. Eligible Applicants 3-5 Section V. Eligible Properties 5 Section VI. Other Program Requirements 5 Section VII. Maximum per Unit Subsidy 5-6 Section VIII. Affordability & Recapture Provisions 6-7 & Rules Section IX. Application Process 8-9 Sections X. Property Appraisals 9 Section XI. Construction Procedures & Property 9 Inspections Section XII. Environmental Review 9-10 Section XIII. Loan Servicing 10 Section XIV. Fair Housing & Marketing 10 Income Limits 11 Appendix A. Low Income Census Tract Map Appendix B. HUD Income Limits Appendix C. Total Family Income Appendix D. Occupancy Certification Appendix E. Homebuyer Program Application Appendix F. Homebuyer File Checklist Appendix G. Program assistance preliminary worksheet Appendix H. Mortgage Qualification Worksheet Appendix I. Good Faith Estimate Worksheet Appendix J. FHA 203(b) Mortgage Limits Appendix K. Contractor Eligibility Requirements Appendix L. Environmental Appendix M. Fair Housing 1
HARLINGEN COMMUNITY DEVELOPMENT CORPORATION HOMEBUYER PROGRAM GUIDELINES (Amended 12/08) I. Introduction A. The Harlingen Community Development Corporation (HCDC) is the recipient of funds under the City of Harlingen s HOME Investment Partnership Program (HOME) that is administered through the U.S. Department of Housing and Urban Development (HUD). The Homebuyer Program (HP) will address three key issues in Harlingen, (a) a means of stabilizing property values and enhancing the overall quality of life in one or more neighborhoods; (b) eliminating housing overcrowding, given the limited availability of three & more bedroom rental units; and (c) will serve as a means of increasing the number of affordable single-family housing units in the community. II. Program Overview A. The HP is designed to assist families and individuals realize the American Dream of Homeownership by providing cooperative financing assistance between HCDC and Lending Institutions (banks). The Lending Institution s terms will be at a rate negotiated between the Lending Institution(s) and HCDC but at no time will it be above the current mortgage-lending rate at the time of the Lending Institution s approval of applicant with a term of thirty (30) years. The HP may provide the following types of assistance: Down payment Assistance Closing Cost Gap Financing (Principal Reduction) or an Alternative Interest Buy-Down B. Upon qualifying for private mortgage financing, the above referenced financial assistance will be determined based on the borrower s demonstrated re-payment capacity or the amount the Lending Institution approves as a loan plus the owner s required down payment minus the sales price & closing costs. The following is the underwriting ratio that will be utilized: a back ratio of 45% of monthly gross income plus the borrowers meeting the other program criteria. The HP assistance will be determined as delineated in Section VII of this manual. The amount of 2
assistance will be determined on a case-by-case basis. The assistance will be in the form of a deferred loan forgiven over the affordability period requirement as described on table in Section VIII (a). The assistance will be secured with a second lien (Deed of Trust) subject to the Recapture Provision as delineated in the HOME Investment Partnership Program Rules and Regulations. C. The Homebuyer Program assistance will be an amount determined based on the sales price plus closing costs minus total repayment capacity and participant down payment (3%) will equal the amount of Homebuyer Assistance. The Homebuyer assistance can be used to cover additional down payment, closing costs and gap financing. Should the home be sold or no longer occupied by the participant within the affordability period, the HOME Homebuyer assistance will be due and payable to the HCDC (See Sect. VIII. [B] Loan Recapture) and in accordance with the HOME Investment Program Regulations at 24 CFR Part 92.254 (a) (5). III. Eligible Area(s) A. HCDC has designated its project area as the incorporated city limits of Harlingen. Efforts will be undertaken to identify lots or developed land in the low-income census tracts of the city (see Appendix A). IV. Eligible Applicant s A. To be eligible for the Homebuyer Program, families or single individuals must be: a) Considered low or moderate income at the time of application. For the purpose of this program, low or moderate income means total gross earnings equal to or less than 80% of median family income for this area, adjusted for family size, as defined by the most recently published HUD Income Limits for Brownsville-Harlingen- San Benito MSA, (see Appendix B). b) Applicants must be residing or employed by a company located within the city limits of Harlingen. Special considerations will be provided to migrant family/individual or others. HCDC Loan Review Committee will evaluate each application on a case by case basis. c) Approved applicants must occupy the property as their principal residence insured by a restrictive covenant set out in the mortgage instrument (Deed of Trust). No subleases of the property will be allowed, even on a temporary basis. The ownership interest must be subject only to the first lien mortgage and any restrictive covenants that exist in the chain of title. B. Income Verification a) Although the financial institution s process for mortgage loan approval will include an evaluation of the applicants income, HCDC will use the definition for income according to criteria in 24 CFR Part 813 (Section 8 Housing Programs) to determine total family 3
income (see Appendix C). Income verification is valid for a sixmonth period following receipt of information. If the applicant does not occupy the home within six months, income must be re-verified. NOTE: a self-employed individual who has not been self-employed for a full two-year period is not likely to be considered for the program. (This is due to the lack of time involved in determining earning consistency. Tax returns will be used for employment verification for self-employed individuals). Additionally, after qualifying and receiving the HP assistance, if the applicant s income increases during the affordability period the second lien will not be affected. C. Debt to Income Ratios a) HCDC will gather and verify the information on the applicant s employment stability, income, assets, liabilities, and net worth. HCDC staff will then proceed to analyze the data and make a determination regarding the applicant s ability to make a monthly mortgage payment. In making this determination, staff will only consider an underwriting back ratio of 45% for total debt obligations (monthly housing expense, installment payments on revolving accounts that extend beyond ten (10) months, and child support payments are considered in the total debt obligation). Lending Institutions may opt for a higher back ratio as long as it does not exceed 45% and is still within the loan to value ratio (LTV) approved by the Lending Institution (s). D. Creditworthiness a) HCDC and Lending Institution will provide all credit reports, which will be used to analyze the applicant s creditworthiness. Staff will pay particular attention to those items on the credit report that are indicators of the applicant s creditworthiness. These items include payment history on any previous mortgages, undisclosed debt, revolving and installment credit accounts, judgments, garnishments, liens and bankruptcies. b) Applicant s with foreclosures or current bankruptcies (Chapter 7 or 13) are not good credit risks and will not be considered under the program. Participants with Chapter 13 bankruptcies plans paid and released will be considered on a case-by-case basis. If the credit report reveals adverse (poor) creditworthiness or the applicant did not disclose a significant debt, a written explanation of the adversity or omission shall be required to be submitted to HCDC. E. Rental Payments Record a) HCDC will obtain and verify rental payments from the landlord if the applicant is renting a house or an apartment. The verification is not only to check on the manner of payment (history), but also to see if 4
V. Eligible Properties the amount of rent paid varies a great deal from the amount of the proposed loan payment. A. Eligible properties include HCDC newly constructed single-family or rehabilitated dwelling units located within the incorporated city limits of Harlingen with a fair market or appraised value that does not exceed 95% of the median purchase price for the area, as described in 92.254 (a) (iii). NOTE: Family Mortgage Limits under Section 203(b) of the National Housing Act dated 12/08 ($210,695*95%=$200,160.00) VI. Other Program Requirements HCDC will process applications on a first come first serve basis for the Homebuyer Program as taken from the existing waiting list. In addition, applications will be accepted from families participating in the Harlingen Housing Authority Family Self-sufficiency Program. All qualified applicants must attend a Homeownership Training provided by HCDC or the Lending Institution. A. All qualified and approved applicants must provide, at a minimum, 3% of the sales price as a down payment. Any additional assistance offered through the Homebuyer Program will be determined on a case-by-case basis. B. Applicants must not have outstanding unpaid obligations (ad-valorum taxes/municipal liens) due to the City of Harlingen, Texas. VII. Maximum Per Unit Subsidy Determination A. The Homebuyer Program assistance will be determined as follows: a) Sales Price (SP) + Closing Costs (CC) minus [Repayment Capacity (RC) or Amount of Loan Approved by Lending Institution (LAL)] Plus Owners Investment (OI) equals HOME HP assistance {which includes down payment and gap financing}. HB Assistance will be the minimum amount necessary to make the purchase feasible. The maximum amount of assistance will be determined using the above formula. (Note: Other available homebuyer assistance programs can affect the amount HB Assistance approved, Example: Federal Home Loan Bank Affordable Housing Program or Texas Department of Housing Community Affairs Bond Program HB assistance.) Example 1: SP + CC [ RC + OI + OAH ] = HB assistance $65,000.00 + 3,500 - [45,570 + 1,950+ 5,980] = $15,000 OR Example 2: SP + CC [ LAL + OI ] = HB Assistance 5
$65,000.00 + 3,500 [52,000 + 1,950] = $14,550 The HP assistance will be in the form of a second (2 nd ) lien (deferred) as delineated in Section VIII. VIII. Affordability Period & Loan Recapture Provisions/Rules A. Affordability Period is the length of time in which the approved applicant must occupy the HOME assisted unit in relation to the amount of HOME funds invested in the unit. a) HCDC will ensure that if a HOME-assisted property is sold during the affordability period, HOME funds will be recaptured. The affordability period will commence on the anniversary date of loan closing date and will be determined as follows: HOME Investment Length of the Percentage Per Unit Affordability Period Forgiven/Year* $1,000-40,000 10 years 10% $40,001 + 15 years 15% B. Recapture Provisions/Rules a) This is an important mechanism to recapture all or a portion of the direct HOME subsidy if a HOME assisted property is sold within the affordability period. The approved (Homeowner) may sell the property to any willing buyer regardless of income and for whatever price the market will bear. The sale of the property during the affordability period triggers repayment of some or the entire direct HOME subsidy that was provided that enabled the approved applicant (Homeowner) to purchase the home when the home was originally purchased. In order to calculate recapture amounts, the terms referred to shall be defined as follows: The direct home subsidy includes down payment, closing cost, interest subsidies, or other HOME assistance provided directly to the homebuyer. In addition, direct subsidy includes any assistance that reduced the purchase price from fair market value to an affordable price. The net proceeds are an amount equal to the sales price minus closing costs and any non-home loan repayments. The homebuyer investment consists of the portion of initial down payment paid by the approved applicant (homebuyer) combined 6
with the value of any capital improvements made with the approved applicant s (homebuyer s) funds. b) Amount of Repayment: The HOME Program will require partial or full repayment of the direct HOME subsidy when resale or leasing of the property occurs during the affordability period. The amount to be repaid will be reduced using the following: Sharing of net proceeds: When the net proceeds are insufficient to repay the direct HOME subsidy and the homebuyer s investment, the net proceeds will be shared. The recapture of HOME funds will be based on the ration of the HOME subsidy to the sum of the approved applicants (Homeowner) investment, plus the HOME subsidy: HOME Subsidy x Net Proceeds = HOME recapture HOME Subsidy + Applicants Investment Example: Mrs. Hinojosa invested $3,000 in her home, including a $2,000 down payment and $1,000 in closing costs. When she sells the home at the end of two years, the net proceeds are $5,000. The amount of direct HOME subsidy to be recaptured equals: $4,000 x $5,000 = $2,857 $4,000 + $3,000 Mrs. Hinojosa receives the balance of the proceeds, or $2,143 ($5,000 - $2,857) c) In the event there are excess proceeds, (amount necessary to repay both the approved applicants investment and the HOME subsidy), said excess proceeds shall be shared. HCDC applicants should bear in mind that if they retain ownership of the property for the full affordability period and personally reside in the unit, no recapture restrictions will apply and the HOME loan is fully forgiven. If however, the approved applicant (homeowner/homebuyer) sells or leases the home at some point during the affordability period, the recapture provisions will apply. C. Occupancy Verification - During the affordability period compliance with the principal-residence requirement will be verified annually. Confirmation of residency will be accomplished through a certification process (Appendix D). In addition, HCDC staff will conduct site-specific monitoring of HOME assisted properties on an annual basis to verify residency. The sites to be monitored will be selected on a random basis. 7
IX. Application Process A. Initial Applicant Interview a) During the initial interview, basic program requirements shall are explained to the Homebuyer Program Applicant (see Appendix E). Copies shall be provided to the applicant of all documents referenced during the interview. The applicant should also have a basic understanding of the application process and approximate time frames involved. B. Program requirements include an explanation of: a) Assistance provided to approved applicants through the Homebuyer Program b) Underwriting criteria (employment, income, debt to income ratios, credit history, rental payment record, loan to value ratio) c) Basic conditions of the deferred payment loan d) Income verification requirements e) Flood plain restrictions f) Lead-Based Paint Disclosure Notice g) Construction Procedures & Property inspections h) Home design & site selection i) Basic recapture/resale provisions C. An applicant s file will contain items listed on the Homebuyer File Checklist (see Appendix F). D. All applications for participation in the Homebuyer Program must be Approved/Disapproved by the participating lending institution and HCDC Administrative Loan Review Committee. HCDC Administrative Loan Review committee consists of: Executive Director, Accountant, and Administrative Assistant. E. HCDC staff will arrange appointments for the initial interview for families / individuals registered on the HP waiting list. Applications for HOME assistance are processed in the order in which they are registered on the waiting list, based on a first come, first serve basis. F. Applicants requesting HP assistance must qualify according to the requirements of the Program. At the initial interview, HCDC staff will provide the applicant(s) with the basic HP eligibility requirements and if the applicant is determined to qualify, staff will proceed in filling out a complete program application. As part of the full application, applicants(s) will be required to sign the proper Authorization for Information Disclosure, and Employment and Deposit Verification Forms. In addition to the application, other pertinent information shall be provided to HCDC by the applicant(s) which includes but is not limited to: a) Three (3) check stubs (most recent) 8
b) 2005 W2 Forms & Income Tax Returns (for the last two years) c) Rent Receipts (most recent) d) Receipts of outstanding debts (most recent) G. If a determination is made that the applicant meets the HP requirements, HCDC will forward the completed program file to the participating lending institution. This will also include a preliminary worksheet of the Program assistance to be offered (Appendix G). H. The Lending Institution, at the time of referral or within a reasonable time, should provide HCDC a copy of their mortgage qualification worksheet (Appendix H), containing such information as borrower s (applicants) name and income, property address, sales price, loan approval amount, their debt-to-income ratios, total monthly housing costs to include principal and interest, and estimated amounts for taxes and insurance. The lending institution should also provide a copy of their good faith estimate worksheet (see Appendix I) containing such information as itemized closing costs, breakdown of prepaid items, and a total of settlement charges. X. Property Appraisal A. As a requirement for HOME assisted units, an appraisal of the property by a qualified third-party is necessary. A signed copy of the appraisal should be included with the Homebuyer Program application. This appraisal must be received by HCDC before any HOME funds can be disbursed. B. The appraised property value must not exceed 95% of the median value for the area. HUD regulations governing the HOME Program use the FHA 203(b) mortgage limits [dated 12/08] as the proxy for the 95% of the median value for one to four family homes. The value for the City of Harlingen is $200,160.00 (Appendix J). XI. Construction Procedures/Property Inspection A. Once an application is approved and the applicant has attended the mandatory Homeowners Training, HCDC staff will proceed with the Construction phase of the Program. HCDC will utilize the current adopted Construction Policies & Procedures, however all homes constructed under this program must, at a minimum, meet the City of Harlingen s adopted International Building Code, ordinances and the Model Energy Code. HCDC Construction policies also include Contractor Eligibility Requirements (Appendix K). XII. Environmental Review A. HCDC will assist in the coordination of an environmental review (full assessment or the statutory checklist) of the property as required by HOME regulations. Property sites will be identified with respect to the 100 year Flood Plain and the Runway Clear Zone of a civilian airport or the 9
Clear Zone of military airfield (Appendix L) and other federal requirements pertaining to federal funds. NOTE: This Homebuyer Program activity is categorically Excluded (58.35) and not subject to National Environmental Policy Act (NEPA) or Statutory/Regulatory Requirements but applicable to the requirements under 58.6. XIII. Loan Servicing A. Lending Institution will undertake this responsibility. Approved HB Program applicants shall be responsible to comply with Lending Institution s payment and late payment obligations. XIV. Fair Housing & Marketing A. HCDC will comply with the Fair Housing and marketing rules and regulations of the HOME program (Appendix M). 10
Appendix B HUD HOME INVESTMENT PARTNERSHIP PROGRAM INCOME LIMITS BROWNSVILLE-HARLINGEN-SAN BENITO, MSA FY 2009 Median Family Income $32,900 Adjusted Income Limits 1 person 2 person 3 person 4 person 5 person 6 person 7 person 8 person $25,550 $29,200 $32,850 $36,500 $39,400 $42,350 $45,250 $48,200 (3/19/2009) HUD HOME Program Income Limits State: Texas 11