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HOMEBUYER LOAN PROGRAM GUIDELINES AUBURN-LEWISTON CONSORTIUM Adopted 1/15/2008 1 A. INTRODUCTION The Cities of Auburn and Lewiston have formed a consortium to qualify for HOME Investment Partnerships Program funds whereby the grant is shared by both cities. The Homebuyer Loan Program guidelines describe assistance that is available to enable low- and moderate-income households to become home owners in either city. B. PROGRAM OBJECTIVE The objectives of the Homebuyer Loan Program are to make home ownership affordable for low- and moderate-income households, to provide funds that will open access to other homebuyer programs, and to increase owner occupancy in targeted areas. The Homebuyer Loan Program is designed to provide an opportunity for low- and moderate-income families to purchase market rate homes. The Homebuyer Loan Program is subject to all of the HOME Investment Partnerships Program regulations. Lease to Purchase (Auburn only): In partnerships with Auburn Housing Development Corporation, the City of Auburn will facilitate the purchase of a home on behalf of a home buyer. The property will be chosen by the participant and leased for a specified period of time. During the lease period the participant will receive budget and credit counseling and comply with an action plan. The participant will purchase the property at the end of the lease period. C. OUTREACH Community Development Department staff (CDD) is responsible for providing outreach to encourage a full range of potential clients. This shall be accomplished through marketing to homebuyer education classes, newspaper articles, and advertising the availability of the Homebuyer Loan Program. Advertisements shall include a non-discrimination statement. Outreach shall be done in accordance with the Consortium’s Affirmative Marketing Plan. D. PARTICIPANT ELIGIBILITY 1. The applicant(s) household income must be below 80% of median income. An eligibility determination based on income shall be valid for a six-month period. 2. The applicant(s) shall have a minimum household income of: a. $25,000, or b. $20,000 if the prime mortgage is financed by USDA Rural Development as a subsidized interest rate loan. 3. The applicant(s) is able to obtain standard financing at a fixed rate. 4. The applicant(s) may not own residential property, or be a party in an installment land contract at the time of application. ---PAGE BREAK--- HOMEBUYER LOAN PROGRAM GUIDELINES AUBURN-LEWISTON CONSORTIUM Adopted 1/15/2008 2 5. The applicant(s) liquid assets shall not exceed $15,000. Liquid assets are savings accounts, savings accounts, stocks, bonds, money market accounts, certificate of deposits, and cash gifts. It shall not include retirement accounts or life insurance cash values. 6. The applicant(s) shall demonstrate an ability to save and shall have a minimum of $500 prior to the loan closing date. This may be accomplished by participating in an Individual Development Account for a minimum of four months, or the participant may provide four months of savings account statements with a minimum of $500 in savings. E. PROPERTY ELIGIBILITY 1. The property must be located in Auburn or Lewiston. 2. The property may be a single-family dwelling, a rental property with two- to four- dwellings, a condominium unit, a cooperative unit, or a mixed-use property. 3. The property must be one of the following approved forms of ownership: fee simple title, 99-year lease, condominium, or cooperative housing. 4. The maximum property value will not exceed 95% of the median purchase price for that type of housing for the area as published by HUD, Section 203(b). If a property involves rehabilitation, the after-rehabilitation value shall be established prior to approval and shall not exceed 95% of the median purchase price. 5. The property must meet housing quality standards, Title X Lead Standards, and be free of code violations. The financing package shall include adequate funds to complete all necessary improvements to meet these standards. 6. The maximum property cost of an eligible building shall be 95% of the median purchase price for single family homes and 100% of the median purchase price for and 4-unit buildings in Auburn and Lewiston. Median purchase price is determined by Maine State Housing Authority, and is adjusted annually. The following are the maximum allowable property costs that will be in effect until the rates are updated. 95% OF MEDIAN SALES PRICE SINGLE FAMILY HOMES # of Units Maximum Property Purchase Cost Single Unit $140,837 100% OF MEDIAN SALES PRICE MULTI-UNIT BUILDINGS # of Units Maximum Property Purchase Cost 2-Units $152,451 3-Units $173,552 4-Units $201,019 7. The property shall be inspected by CDD prior to the applicant(s) signing a purchase and sale agreement to assure that the property is appropriate for the applicant(s) and has potential to meet all property standards. ---PAGE BREAK--- HOMEBUYER LOAN PROGRAM GUIDELINES AUBURN-LEWISTON CONSORTIUM Adopted 1/15/2008 3 F. LOAN TERMS A HOME loan will be available to make housing affordable based on household income. HOME loans may be offered at between 0% to 3% interest. Determination of the interest rate is at the sole discretion of the Auburn or Lewiston Loan Qualification Committee. Loan terms shall also be determined by the Loan Qualification Committee. In no case shall the loan term exceed 40 years. The amount of homebuyer subsidy will be determined by the location of the property as follows: 1. Homebuyer Loans – Target Areas a. The property must be located within the boundaries of the Home Target Areas as identified by the Cities of Auburn or Lewiston. b. The HOME loan amount shall be no less than $1,000 and shall not exceed $30,000. 2. Homebuyer Loans – All Other Areas a. The property must be located within the boundaries of the Cities of Auburn or Lewiston. b. The HOME loan amount shall be no less than $1,000 and shall not exceed $20,000. 3. Determination of HOME Assistance – The maximum HOME loan shall be based on the purchase price plus closing costs minus the maximum amount allowed by the prime lender provided that the total debt service for mortgage, taxes, estimated rehabilitation, insurance, and mortgage insurance falls between 28-32% of the applicant(s) income. 4. Recapture a. Based on the combined HOME loans to applicant(s), the property to be purchased shall be occupied by the applicant(s) as a principal residence for the minimum periods as follows: 1) 5 years if total of HOME funds is less than $15,000; 2) 10 years if total of HOME funds is between $15,000 and 40,000; or 3) 15 years if HOME funds is over $40,000. b. The recapture period shall commence when the building acquisition and HOME rehabilitation are complete and a project completion certification has been issued by CDD. If the property is sold, transferred, or the purchaser ceases to occupy the property prior to the end of the recapture period, the principal balance of the HOME loan shall be immediately repaid. ---PAGE BREAK--- HOMEBUYER LOAN PROGRAM GUIDELINES AUBURN-LEWISTON CONSORTIUM Adopted 1/15/2008 4 G. UNDERWRITING 1. The following conditions shall apply to all loans: a. debt for principal, interest, taxes and insurance shall not exceed 32% of the applicant(s) income; b. all debt shall not exceed 42% of applicant(s) income; 2. Auburn Only—Lease Option: a. applicant(s) has submitted acceptable references from one of two previous landlords; b. applicant(s) has submitted acceptable reference from employer; c. non-housing debt will not exceed 17% of current income at the time of application and all debt shall not exceed 49% of applicant(s) income. d. there is potential for the applicant(s) to correct credit deficiencies and meet debt to income maximums within an 18-month period; e. applicant(s) income is sufficient to cover the permanent financing requirements; f. further criteria will be evaluated prior to making a determination of final eligibility: 1) stability of job or source of income; 2) current debt; 3) length of self-employment; 4) resources for financial emergencies; 5) commitment of partner; 6) insufficient income to cover long-term debt service; and 7) prior efforts to cure credit history. H. APPROVAL 1. Approval of Auburn Loans: HOME Loans will be reviewed by the Community Development Loan Committee (Committee) who will be responsible for making decisions to approve or deny loan requests and to establish loan conditions. 2. Approval of Lewiston Loans: HOME Loans will be reviewed by the Loan Qualification Committee (Committee) who will be responsible for making decisions to approve or deny loan requests and to establish loan conditions. 3. Appeal Procedure: The reason(s) for rejection shall be given to the applicant. HOME Loans that have been denied may be appealed to the Committee for a period of thirty days after the date of rejection. The applicant(s) will be allowed to present his/her case to the Committee. The Committee may reconsider their prior vote to denying the application after the appeal review has been complete. A decision will be made by the Committee once the appeal has been heard. ---PAGE BREAK--- HOMEBUYER LOAN PROGRAM GUIDELINES AUBURN-LEWISTON CONSORTIUM Adopted 1/15/2008 5 I. PROGRAM ADMINISTRATION 1. Non-Discrimination Administration of this program shall be in accordance with Title VI of the Civil Rights Act of 1964. No person shall, on the ground of race, color, national origin, be excluded from participation in, be denied the benefits of, or subjected to discrimination under this program. 2. Application Priority Applications shall be processed on a first-come, first-served basis. CDD shall use the receipt date of a complete application to establish the order of priority. The applicant will be notified if there is funding available to proceed with the project and if there in inadequate funding, then the application may be placed on a HOME waiting list. 3. Definitions a. Household Income 1) When determining whether a household is income eligible, CDD will calculate annual income using the Census long-form method. 2) For the purpose of determining eligibility, CDD will calculate annual household income by projecting the prevailing rate of income of each person at the time assistance is requested. Estimated annual income shall include income from all household members. 3) Income may include wages, salaries, overtime, bonuses, fees, tips, commissions, interest and dividend income, net rental income, child support/alimony, Social Security benefits, SSI, retirement, pension or annuity, TANF, unemployment benefits, worker’s compensation, and disability or benefits from any source. b. Household includes all persons who occupy a housing unit. The occupants may be a single family, one person living alone, two or more families living together or any other group of related or unrelated persons who share living arrangements. c. 80% of Area Median Income is the maximum income a household can earn, adjusted by household size, in order top qualify as low- to moderate income and be eligible for the Homebuyer Loan Program. Guidelines for Lewiston- Auburn SMSA are provided by the Department of Housing and Urban Development, and are revised annually. ---PAGE BREAK--- HOMEBUYER LOAN PROGRAM GUIDELINES AUBURN-LEWISTON CONSORTIUM Adopted 1/15/2008 6 d. Community Development Department staff (CDD) is the contact person designated as the City’s representative to process loan applications in Auburn or Lewiston. e. Lease to Purchase is an option for applicants whose credit or debt is not of sufficient quality to allow for financing through standard mortgage markets whereby the City purchases a home on behalf of the applicant and leases the property, then sells it to the applicant within a fixed period of time. This option is allowed only in Auburn. 1) Lease Agreement is the document that establishes the responsibilities of the lessee and Auburn Housing Development Corporation during the lease period. This shall include but not be limited to provisions regarding the lease amount, security deposit, responsibility for payment of utility and property taxes, maintenance, insurance, property damage, and responsibility of being a landlord, 2) Lease Commitment is critical dates to be followed, meeting budgeting and savings goals, option to purchase, and to participate in required training programs. g. Purchase and Sales Agreement is the document executed by the applicant to purchase the chosen property. h. HOME Target Area is the designated neighborhoods with boundaries defined by the City Council (Appendix 4. Application Procedures This section shall set forth the procedures for administering the Homebuyer Loan Program. a. Applications 1) Priority – Applications will be processed on a first come, first served basis. CDD shall establish a priority processing list based on the receipt date of a complete application. 2) Initial Application – An application may be obtained from the Community Development Department. A complete application shall include verification of income. An incomplete application will be returned to the applicant. b. Income Verification –The applicant(s) shall provide documentation of all income sources and a federal tax return. CDD shall make a determination of preliminary eligibility based on household size and income. ---PAGE BREAK--- HOMEBUYER LOAN PROGRAM GUIDELINES AUBURN-LEWISTON CONSORTIUM Adopted 1/15/2008 7 1) A certified financial statement or additional documentation from an accountant or other acceptable source may be required of an individual whose income is from corporation, partnership, or other business enterprise. 2) If an approved applicant(s) has not signed a purchase & sale agreement within six months from the initial income verification, the applicant(s) must submit new income documentation to re-establish eligibility. c. Letter of Eligibility – A letter shall be issued by CDD describing the eligibility status, deadlines, and other conditions or requirements. The letter shall identify a minimum term of 30 days prior to closing and a maximum of 180 days. d. Training 1) Landlord Training – If the property is a multi-unit building, the Applicant(s) shall attend a landlord education program. 2) Home Buyer Training – The applicant(s) shall provide a certification of attendance at a HOMEworks approved homebuyer education program. 3) Post-Home Purchase Counseling – The applicant(s) will agree to meet annually for the first 3 years, or more frequently if necessary, to review the financial status of the applicant(s). e. Identifying the Property – The applicant(s) will select a property for sale which is consistent with an affordability determination f. Purchase and Sales Agreement – The applicant will execute Purchase and Sales Agreement that includes a clause stipulating the sale is contingent upon financial approval from the City and primary lender. g. Multi-Unit Property – If the property has rental units, the owner or realtor will be asked to secure tenant data and copies of the existing leases. h. Initial Inspection – CDD shall make an initial inspection of all housing units within a building to determine if there are code violations or conditions that must be corrected. CDD will identify the required improvements in writing. i. Meeting Appropriate Codes – Properties to be purchased through the Homebuyer Loan Program must meet housing quality standards, lead standards, and local code requirements before occupancy. A structure which requires more than $5,000 of improvements per unit may require an assessment of lead conditions by a licensed risk assessor. ---PAGE BREAK--- HOMEBUYER LOAN PROGRAM GUIDELINES AUBURN-LEWISTON CONSORTIUM Adopted 1/15/2008 8 j. Projects Requiring Improvements – If the required improvements are to be funded by any of the City’s rehabilitation programs, the applicant shall follow the procedures of those programs. k. Defining Costs and Funding Resources – After construction costs are defined, city staff will determine the final total development costs including rehabilitation loans. CDD will proceed with the funding package only after it has been determined that the purchase will result in a payment that does not exceed the amount identified as affordable to the applicant(s). l. Financing Package – The applicant(s) will seek approval of the prime lender and HOME loan. CDD will submit to the request to the loan committee for approval. m. Interim Financing (Lease Only) – The City/AHDC shall complete an application for interim financing to purchase the property. n. Notices 1) Acceptance – Applicant(s) will be notified of acceptance through a written Commitment Letter. 2) Rejection – If the request is rejected, CDD will notify the applicant(s) in writing and give the reason(s) for rejection. o. Tenant Notification – Letters shall be sent to the tenants if there will be permanent displacement. p. Insurance – The participant is required to maintain fire, liability and other hazard insurance on the property for the full term of the note and for an amount at least equal to the total value of all mortgages held on the property, or an amount at least sufficient to cover coinsurance requirements in the State of Maine. The City will be named as a mortgagee on the policy and the participant shall provide evidence of insurance. q. Assumability 1) Lease Projects Only –The applicant(s) and AHDC shall be co- applicants for the Rehabilitation Loan. The applicant(s) will assume the loan at the closing for permanent financing. 2) All Other Projects – The HOME Loan is not assumable. r. Subordination – Subordination of the HOME loan is generally not allowed. Exceptions will be made for documented emergencies on a case by case ---PAGE BREAK--- HOMEBUYER LOAN PROGRAM GUIDELINES AUBURN-LEWISTON CONSORTIUM Adopted 1/15/2008 9 basis by CDD. CDD may request documentation in order to evaluate the request. Refinancing may be allowed for the following reasons: 1) limited to the existing first mortgage balance plus reasonable closing costs if refinancing places owner in a better economic situation and does not diminish the City’s financial position in the property; 2) exorbitant medical expenses; 3) loss of husband/wife; 4) documented system failure (two estimates from reputable contractors); or 5) legal expenses incurred that would affect the health or stability of the household. s. Management during Lease Period --Auburn 1) Payments – The lessee will make payments to the City of Auburn. The CDD will establish an escrow account for taxes and insurance, savings for down payment, and maintenance, and will make the payment to the first mortgage holder. If payment is not received, the City may decide to make the first mortgage payment for the lessee and determine what new restrictions or default proceedings the City shall follow as a result thereof. 2) Financial Management – An Action Plan, an agreement between the CDD and the applicant, shall establish the conditions the lessee must meet to regularly pay debt, reduce debt, increase savings or any other conditions that must be met during the lease period. The lessee and CDD shall meet on a regular basis as determined by the Action Plan to evaluate progress. 3) Lease Period Default – A default shall be a failure to comply with the provisions of the Lease Agreement or Action Plan whereby the Lease Agreement may be terminated. The lessee shall be required to vacate the property in accordance with Maine eviction laws. t. Monitoring – A recipient of HOME funds is required to own and occupy the property purchased with HOME funds as a principal residence for a specified period of time. CDD will monitor ownership during the recapture period. A default shall occur if the owner ceases to occupy or transfers the interest in the subject property, or fails to respond to requests for occupancy documentation and the HOME loan shall come immediately due. ---PAGE BREAK--- HOMEBUYER LOAN PROGRAM GUIDELINES AUBURN-LEWISTON CONSORTIUM Adopted 1/15/2008 10 J. FEDERAL AND STATE REGULATIONS, AS MAY BE AMENDED 1. Equal Employment Opportunity – The applicant must abide by the Provisions of Executive Order 11246 concerning equal employment opportunity. 2. Flood Hazard Insurance – If the property to be improved is located in a Designated flood hazard area, the applicant is required to provide evidence of flood hazard insurance coverage and abide by the regulations of the Flood Disaster Protection Act of 1973. 3. Civil Rights – The applicant will be required to comply with Title VIII of the Civil Rights Act of 1968 and the Fair Housing Amendments Act of 1988, barring discrimination upon the basis of race, color, religion, creed, sex, handicap, familial status, or national origin in the sale lease rental, use or occupancy of the subject property. 4. Conflict of Interest – No elected or appointed official or employee of the City of Auburn or Lewiston and no members of any municipal board or committee which exercises any decision making functions with respect to the CDD, shall participate in negotiating or shall exercise any influences in awarding or administering any contract in which he has a direct or indirect pecuniary interest as that terms is defined by 30 M.R.S.A. Section 2250 5. Lead Based Paint – If the project involves a property that was constructed prior to 1978, all Title X Lead Based Paint standards shall apply. 6. Environmental Review Procedures – The city shall conduct an environmental review including, but not limited to determination of whether the property is historically significant and whether the property is located in a flood zone, and shall communicate any findings and special considerations to the applicant. 7. Uniform Relocation Act – The Homebuyer Loan Program shall comply with the Uniform Relocation Act with respect to tenants who may be permanently or temporarily displaced.