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Where We Get Direction A key to references used in this manual. Format used in the references: Formal guidance: Regulations: 24 CFR Part 92 Technical Guide for Determining Income and Allowances for HOME program (2005) 24 CFR Part 92.(section) HOME Tech Guide (page) "Compliance in HOME Rental Projects: A Guide for Property Owners" HOME &the Low-Income Housing Tax Credit Guidebook HOME Guide (paragraph/page) HOME/LIHTC Guide (paragraph/page) HUD 4350.3 (for Section 8 part 5 income rules) HUD 4350.3 (chap-par/chap-page) Online tool: A web-based income calculator: HUD.gov Keyword search HOME Income calculator HOME Guide Symbols Used in this Manual The HOME regulations were revised in July of 2013. Key changes will be noted with this symbol. Applicability: The HOME regulation states that the changes are for projects that receive a commitment of HOME funds on or after 8-23-13, unless a later date is indicted in the rule. This would make all of the new provisions only applicable to new projects. However, HUD has clarified that some provisions will apply to existing HOME projects. HUD intends to publish a document establishing which provisions apply when. Zeffert & Associates www.zeffert.com
HOME Fundamentals The Goal of this Training The purpose of this training is to provide information for all interested personnel to successfully provide multi-family housing under HUD s HOME program. HOME Funds Are. a HUD program under the HOME Investment Partnership Act as found in Title II of the Cranston-Gonzalez National Affordable Housing Act. It was first funded in 1992. Since then, it has funded approximately $8.7 billion in housing in over 330,000 units in the US. HOME funds can be used for multifamily, home buyer or rental assistance activities. In this course, we will focus on multifamily activities, where HOME funds are often used as gap or to complete funding. HOME designates specific units that are HOME units based on the amount of HOME funding proportionate to the total project cost. HOME Guide 7.1/7 HOME requirements must be met during the property s affordability period. This is 5-20 years, and will be specified in the HOME agreement for the property. HOME Guide 1.5/6 Each HOME property will have a HOME agreement that provides extensive vital project compliance information. HOME Distribution and Monitoring HOME Guide 1.1/5 HOME Funds are distributed by Participating Jurisdictions (PJ), who also monitor compliance. PJs have a tremendous amount of authority over HOME compliance matters. HOME requirements generally apply only to the HOME units. HOME units may be fixed or floating. Fixed or Floating? HOME Guide 1.8/7 A property with fixed HOME units will have specific HOME units. These specific units may change from HIGH to LOW-HOME status, but they never have to change to non-home units, and non- HOME units at these projects are never subject to HOME restrictions. A property with floating HOME units has to maintain a mandated mix of HOME units, but specific units may switch status. HOME units and non-home units may be exchanged as necessary. HUD intended that floating HOME properties have all comparable units. Projects with different bedroom sizes generally should be fixed HOME. Examples: Fixed HOME units: Unit #101 is assigned as a HOME unit. Unit #101 will keeps its designation as a HOME unit for all of the affordability period. Floating HOME units: At project commencement unit #201 is assigned as a HOME unit. If circumstances require it in the future, comparable unit #202 can be designated HOME and #201 can become non-home. Zeffert & Associates www.zeffert.com Page 1
24 CFR 92.504(c)(3)(ii)(A) The 2013 regulation revision explicitly requires PJs to specify the fixed or floating designation in the HOME agreement. Effective: for HOME commitments on or after August 23, 2013 On-Site Visits HOME Guide Exhibit 6-1, 6.2C7/123 During the on-site visit, the PJ will conduct the following: 1. Review files and other records that document the owner s compliance with HOME requirements and to verify the accuracy of the data submitted on the owner s rent and occupancy reports. 2. Conduct a physical inspection of a sample of units at the property to ensure the property is maintained in standard conditions. 24 CFR 92.251(b)(1) & 92.251(f)(1) Rehabilitation projects must meet UPCS standards. Ongoing inspections must meet local or state standards. In the absence of local or state codes, UPCS must be used. UPCS has Replaced HQS in the HOME regs. Effective: January 24, 2015 24 CFR 92. 92.214(b)(1)(i) The new regulation reversed the previous policy and permits PJs to charge fees to cover the cost of monitoring. Fees must be based upon the average actual cost of monitoring HOMEassisted rental property. The PJ must document how it makes this determination. Effective: for HOME commitments on or after August 23, 2013 24 CFR 92.504(d) In the prior regulations, the frequency of HOME inspections were based on the size of the project and PJs developed their own sample size. This is no longer the case, as follows: Inspection Frequency An initial physical inspection must be conducted within 12 months of project completion and again every 3 years thereafter during the affordability period. If there are deficiencies identified, reinspection must be conducted within 12 months. 3 rd - party verification of repairs can be accepted for nonhazardous deficiencies. Property owners must submit an annual certification to the PJ that each building and all HOME-assisted units in the project are suitable for occupancy. Inspection Sample Size If at initial The inspection HOME Rule the PJ continues discovers to any require deficiencies, a reasonable the PJ can sample. charge an HUD owner Summary for any Guidance, reinspections however, that may laid be out required the following: order to determine that the deficiencies have been corrected and that the For property projects has with been one brought to four back units: into compliance. the inspectable items for each building with HOMEassisted units and 100 percent of the HOME units must be inspected. For projects with more than four HOME-assisted units: The inspectable items for each building with HOME-assisted units and for a statistically valid sample. HUD informal summary guidance indicates a sample of at least 20 percent of the HOME-assisted units in each building, but not fewer than four units in each project and one HOME-assisted unit in each building. Data Collection and PJ Reporting Effective: July 24, 2014 Zeffert & Associates www.zeffert.com Page 2
HOME Guide 2.3/29 & 1.18/11 In order to participate in the HOME system, PJs use a centralized HUD reporting system (Integrated Disbursement and Information System or IDIS). To collect the correct data to enter into the system, the PJ will have fairly extensive reporting requirements. Owners are required to, at a minimum; submit rent and occupancy data annually. PJ s may require that additional data be submitted regarding financial information, marketing activities, and maintenance logs. The written agreement between the owner and the PJ should outline the specifics of the reporting requirements. Record Keeping HOME Guide 3.7/83 Owners/Managers must maintain HOME records that document that the property has maintained compliance with HOME affordability requirements for the most recent five year period through the affordability period and five years after it has been concluded. This includes administrative, unit, tenant and property maintenance records. Non-compliance HOME Guide 1.20/12 When noncompliance occurs, there are a range of corrective actions that can be imposed by the PJ. The type of correction action will depend on the severity of the noncompliance. Examples of some corrective actions are: Correcting deficiencies, such as repaying tenants for overcharging rents, or making improvements to bring properties into compliance with applicable property standards; Making management changes or requiring submission and approval of management plans or changes to staffing; or Repaying HOME funds or paying financial penalties. HUD may require that the PJ repay the HOME investment when a project does not comply with HOME requirements for the entire affordability period. For this reason, the PJ will usually require repayment from the owner. When HOME Assistance is a grant or deferred payment loan: Owners may be required to pay back the entire amount of HOME assistance provided. When HOME funds are loaned: Owners may be required to pay the outstanding principal balance of the loan and require that a fine or other financial penalty be paid. Zeffert & Associates www.zeffert.com Page 3
Key Deadlines Project Completion 24 CFR 92.205(e)(2) Projects must be completed within four years of commitment of funds. If this is not the case, the funds will need to be repaid. PJs may request a 12 month extension from HUD for extenuating circumstances. Lease-Up 24 CFR 92.252 Within six months from the date of project completion, if a rental unit remains unoccupied, the PJ must provide to HUD information about current marketing efforts and, if appropriate, an enhanced plan for marketing the unit so that it is leased as quickly as possible. Within 18 months from the date of project completion, if efforts to market the unit are unsuccessful and the unit is not occupied by an eligible tenant, HUD will require repayment of all HOME funds invested in the unit. A unit that has not served a low- or very lowincome household has not met the purposes of the HOME program. Therefore, the costs associated with the unit are ineligible. Effective: August 23, 2013 Completing the Puzzle LIHTC and HOME HOME/LIHTC Guide In January of 2013, HUD published a new publication entitled HOME and the Low-Income Housing Tax Credit Guidebook. It provides HUD s guidance on how the programs work together, and should be considered binding guidance as it relates to HUD HOME policy. Where it attempts to state LIHTC policy, however, further research may be necessary. HUD user.gov LIHTC Database According to HUD HOME funds are involved in roughly 30% of the recent annual LIHTC deals in the country. Some PJs are LIHTC allocating agencies, but many are not. LIHTC/HOME projects do not default to either set of program rules. BOTH sets of rules must be applied. Also state-specific LIHTC allocation and PJ-specific HOME rules must be followed. Similar to LIHTC allocators, PJs may add additional requirements over the minimum federal rules. However noncompliance with PJ rules equates to federal HOME noncompliance, unlike noncompliance with state LIHTC rules. Zeffert & Associates www.zeffert.com Page 4
HOME Rent and Income Limits HOME Guide 3.3/51-56 Home projects may have HIGH and LOW HOME units. During the affordability period, owners/managers are required to determine that all residents that will be residing in a HOME unit have household income that does not exceed the applicable HOME limit prior to occupancy. Owners/Managers must also ensure that the rents charged for HOME units do not exceed the applicable HOME rent limit for the unit. Different limits apply to HIGH HOME and LOW HOME. LOW HOME Income limit = 50% area median income (very low). Rent limit = the LOW HOME limit Tenant Rent + Rental Assistance + Utility Allowance + = HOME Rent HIGH HOME Income limit = 80% area median income Rent limit = the HIGH HOME limit Properties with 5 or more units must have at least 20% of their units LOW HOME. HOME properties may have additional set-asides. Because of program-required PJ activity requirements, many PJs cap the HIGH HOME limits at 60% AMI. Your property s HOME agreement will specify your set-aside requirements. The PJ may provide the income and rent limits that accompany these set-asides. Subsidy Payments Completing the Puzzle LIHTC and HOME Most HOME projects use very-low and 60% limits, which are the only options for LIHTC units. HOME does NOT allow for the MTSP limits and does not hold income limits harmless. HOME units must use HUD s published HOME limits when these are more restrictive than the LIHTC HOME Guide 3.3C/54 The total of tenant rent, utility allowance and tenant-based subsidy are compared to the HOME rent limits. This is unlike the LIHTC program, which excludes the subsidy. Project-based subsidy IS NOT included in rents for very-low households who pay 30% of their adjusted income. Example: A property with Section 8 assistance has the following applicable 1-bedroom apartment rents: LOW HOME rent is $688 HIGH HOME rent is $733 Section 8 Contract Rent is $840 Vera moved into a HOME unit in a project where the units are fixed HOME. She pays $300, based on 30% of her income. Her Section 8 assistance pays the rest of the contract rent, $540. Because she is below the very-low income limits and pays rent based on 30% of adjusted income, the owner is allowed by the HOME rules to collect the full tenant rent and the Section 8 subsidy. At her fourth year s recertification, however, Vera s income increases to above the very-low limits. Her portion of the rent is $700. The owner is now only allowed to collect $33 in subsidy (to meet the HIGH HOME rent), not $140 up to the contract rent that they would otherwise collect. Arrangements must be made with HUD as the tenant rent and subsidy are now capped at the Zeffert & Associates www.zeffert.com Page 5
HIGH HOME limit. Vera no longer qualifies for the exception for very-low income households and project-based subsidy. Rents charged to tenants that receive tenant-based subsidy must be the same as the rents charged to other tenants for comparable units. This means that if the owner charges less than the maximum HOME rent for HOME units not occupied by voucher holders, it can only charge that rent to voucher holder. Utility Allowances HOME Guide 3.3D/55 If tenants pay any required utilities themselves (excluding telephone and other optional utilities), an estimate of their utilities must be used when determining if the gross rent is below the HOME rent limits. The PJ must supply or authorize the UA for a property. 24 CFR 92.252(d) The new HOME regulations require that PJs determine an individual utility allowance for each HOME rental project, either (1) by using the HUD Utility Schedule Model, or (2) by otherwise determining the allowance based upon the specific utilities used at the project. PHA estimates or other estimates that are not project specific are no longer acceptable. Originally Effective: August 23, 2013, but HUD FAQ (Dec 2013) Clarified: Implementation will be delayed until January 15, 2015 and this will be applicable only to projects committed funds after that date. Note: For the HUD Utility Schedule Model spreadsheet, see www.huduser.org Keyword search Utility schedule model Completing the Puzzle LIHTC and HOME UAs: LIHTC Utility Allowance rules allow for the use of PHA estimates. The new HOME rule excludes this as an option. If the PHA UA is used for tax credit purposes, then a different UA will need to be used for LIHTC and HOME purposes. Fees: Application fees are acceptable to both programs. Other charges, such as parking fees, that are permissible under the HOME regs may not be allowable for items that are in LIHTC eligible basis. Zeffert & Associates www.zeffert.com Page 6
Application Process Managing HOME Compliance Qualifying Households Home Guide 3.3D4/55 The HOME Program requires that owners/managers must receive approval in writing from the PJ before charging any mandatory fee (other than utilities) or surcharge to tenants of HOMEassisted units. This includes application fees. 24 CFR 92.214(b) The new HOME regulations require that fees approved by the PJ not create an undue burden on low-income households, and that the charges be reasonable and customary for the area. Examples of allowable fees include reasonable application fees to prospective tenants, parking fees in neighborhoods where such fees are customary, and the cost of non-mandatory services such as meal or bus service. Effective: August 23, 2013 HOME Guide Exhibit 4-1/102 The HOME program does not require that background checks be conducted, but HUD HOME guidance does allow for criminal and credit background checks. HOME Guide 4.2B5/99 Since the success of affirmative marketing efforts must be evaluated by the PJ each year, there is generally a practical need to collect household race and ethnicity data as part of the application process. 24 CFR 91.202 (l)(2)(vi) and 91.320(k)(2)(v) In a change related to the new HOME regulations, HUD explicitly permits participating jurisdictions to limit HOME projects to specific populations, including to persons in a specific occupation (e.g., artists, police officers, or teachers). PJs must include these uses in their Consolidated Plan Annual Action Plans. Effective: August 23, 2013 The Income Rules HOME Guide 3.2D/45 HUD allows PJs and states to choose from three definitions for determining income: 1. IRS Form 1040 definition 2. Section 8 definition ( 24 CFR 5.609 or Part 5 annual income ) this is the most commonly required method 24 CFR 92.203(b)(2) The 2013 HOME revision has removed a 3 rd income definition option, the census long-form. PJs must discontinue the use of this definition. Effective: August 23, 2013 Because the Section 8 option is almost universally selected by PJs, we will primarily focus on that definition in this course. Zeffert & Associates www.zeffert.com Page 7
Supplemental Information: HUD Handbook Referencing NOTE: Although HUD has provided some HOME guidance on income calculations, the most thorough discussion of the Section 8 method for calculating income is found in the HUD handbook 4350.3. We reference this document extensively for this course. The HUD 4350.3 REV-1 CHG 3 (Chapter 5) gives us Section 8 s rules. In the HUD 4350.3 Paragraph references are presented in bold (e.g., 1-2 A). Page number references appear in standard typeface without bold. - 4350.3 Index For Example: 4350.3 5-2 A / 5-2 = paragraph 5-2 A, which is on page 5-2. (The first number in both paragraph and page references is the chapter number) Zeffert & Associates www.zeffert.com Page 8
Recertification HOME Guide 3.5 & 6/65-82 HOME households must be recertified annually. HUD allows for this to be once a calendar year, and imposes no further restrictions. Full 3rd-party source documentation verification of income is only required every 6th year of the affordability period. In other words in the 1st, 6th, 12th and 18th year everyone s income must be 3rd-party verified at recertification. For other years, selfcertification is sufficient. Notice that these are not specific to the length of individual household tenancy, but rather to project-specific years. The PJ will determine how recertification is to be conducted. Some require full 3 rd -party verification each year. Some require full 3 rd -party verification every 6 th year (the HOME minimum). Note: most PJs that require full 3 rd -party verification do so to coordinate with the LIHTC program. Now that 100% LIHTC projects are exempt from income recertification, some owners may be able to take advantage of the lesser requirement and satisfy both programs. When Income Increases at Recertification HOME Guide 3.5 & 6/65-82, Attachment 3-4/91 Increases of Income at Recertification When a LOW-HOME household s income increases above 50% AMI, but remains less than the HUD low (80%) limit: For ALL HOME Properties Next comparable HIGH-HOME unit must be rented to Very Low Income Household (50%) and re-designated as a LOW-HOME Unit. When replaced, the rent MAY be increased to the HIGH-HOME rent. Non-HOME units are never affected. If the unit is an LIHTC unit, rent must be raised to 30% of adjusted income but may not exceed the max rent dictated by the tax credit program. When a LOW or HIGH-HOME household increases to exceed the HUD low (80%) limit: Fixed HOME Floating HOME As soon as the lease allows, rent must be raised to 30% of adjusted income, with NO cap at Market rent. If a LOW-HOME unit, the next HIGH-HOME unit must be rented to a LOW-HOME household. If the unit is an LIHTC unit, rent must be raised to 30% of adjusted income but may not exceed the max rent dictated by the tax credit program. As soon as the lease allows, rent must be raised to the lower of 30% of adjusted income or Market rent. The next available unit in the property must be rented to a HOME-eligible household to restore the original balance of LOW/HIGH-HOME set-asides required by the PJ. Once replaced, the over-income unit may be treated as non-home. If the unit is LIHTC, the gross rent charged to the tenant cannot exceed the HTC max rent dictated by the tax credit program. Monthly Rent for households who are over 80% limits: (140% for HTC/HOME Units) Gross Income Deductions = Adjusted Income X 30% 12 Zeffert & Associates www.zeffert.com Page 9
Workshop: Increases in Income and Recertification Zeffert & Associates www.zeffert.com Page 10
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Monthly Rent for households who are over 80% limits: Gross Income Deductions = Adjusted Annual Income 12 X 30% Adjusted Income 4350.3 5-9 & 10 / 5-38 to 5-50 Allowable Deductions Allowable Deductions from Annual Income Deductions Elderly Nonelderly 1. Dependent Deduction Yes Yes 2. Child Care Expense Yes Yes 3. Disability Assistance Yes Yes 4. Elderly Household Yes No 5. Medical Expenses Yes No Types of allowances: 1. Dependent Deduction 4350.3 5-10 A / 5-38 This is a $480 (per dependent) annual allowance. A dependent is someone who is: Under 18 years of age; A person with disabilities; or A full-time student of any age. A dependent can never be: Head, spouse, or co-head. Foster child, a child who is unborn or has not yet joined the family, or a live-in aide. Documentation must be gathered to prove that an adult is a full-time student if they are to be considered dependents. Types of allowances: 2. Child Care Expense 4350.3 5-10 B / 5-40 & 41 Anticipated unreimbursed expenses for the care of children under age 13 may be deducted if: The expenses enable a family member to work or go to school (part or full-time). No adult family member is available to provide care. The amount that allows the adult to work must not exceed income received from work. Expenses that allow schooling have no limit. The money cannot be paid to a family member living in the unit and the expenses must reflect reasonable charges. There is no limit on reasonable costs that allow an adult to look for work or attend school. Only $480 will be allowed annually to enable an adult FT Student (who is not a head, spouse or co-head) to attend school, because $480 is the amount counted as income. These expenses Must be for a child living in the unit. Types of allowances: 4. Disability Assistance 4350.3 5-10 D / 5-45 & 46 Reasonable expenses for auxiliary apparatus or the care of an individual with disabilities in excess of three percent of annual income may be deducted from annual income if the expenses: Enable the individual with disabilities or another household member to work; Are not reimbursable from insurance or any other source; and Do not exceed the amount of income earned by the person who is able to work as a result of the expenses. Along with other forms of documentation, to qualify for this deduction applicants must identify the individual with a disability on the application. Zeffert & Associates www.zeffert.com Page 13
Types of allowances: Managing HOME Compliance 3. Elderly Household Deduction 4350.3 5-10 C / 5-42 to 44 A single $400 deduction is made from annual income for any elderly household. To be considered an elderly household, the head of household, spouse or sole member of a household who is party to the lease must be 62 years of age or older, or an individual with a disability. Types of allowances: 5. Medical Expenses 4350.3 5-10 E / 5-45 and 46 To get this allowance, the head, spouse, or co-head must be at least 62 or disabled. It includes un-reimbursed medical expenses of ALL family members. It includes all anticipated expenses during the 12 months following certification/recertification that are not reimbursed by an outside source (such as insurance). The owner may use the ongoing expenses the family paid in the 12 months preceding the certification/recertification to estimate anticipated medical expenses. Example: Adjusted Income-Based Rent The following is basic information on the family after a recertification has put their gross income over the low-income (80%) limit: Head (retired/disabled) income $16,000 Spouse (employed) employment income + $34,000 Total Annual Income $50,000 Total disability assistance expenses $500 Total medical expenses $2,000 Determine if the medical and disability assistance expenses combined exceed 3% of the family s total annual income. Total disability medical and disability assistance expenses $2,500 Minus 3% of total annual income -$1,500 Allowable medical & disability expenses deduction: $1,000 Elderly household allowance: $400 Allowed Deductions: $1,400 Annual Income $50,000 Allowed Deductions - $ 1,400 Adjusted Income $48,600 12 X 30% Rent Based on Adjusted Income $1,215 Market rent for comparable units: $1,350 Household rent is $1,215 Zeffert & Associates www.zeffert.com Page 14
A Few Words of Encouragement We Do this Job Well It is a challenge to learn this program well, but the more effort something takes, the more gain is realized. The HOME fund program is active in all states, and qualified personnel are in demand. Not all jobs provide a certain amount of personal security and are also beneficial to Society. We strongly feel that HOME-related jobs are. Zeffert & Associates www.zeffert.com Page 15
Ask About Online Training! Logon Now! L I V E! Interesting specific topics! SAFE, ACCESSIBLE, AND AFFORDABLE HOUSING IS A CRITICAL COMPONENT IN GROWING HEALTHY COMMUNITIES Trust Us To Handle Your Compliance Needs With Quality & Reliable Service PROVIDERS OF THE FOLLOWING SERVICES Asset Management Training File Reviews Utility Allowance Calculations Utility Consumption Baselines Accessibility Reviews & Inspections Capital Needs Assessments Energy Audits Accessibility Package Packaged Programs ZEFFERT & ASSOCIATES IS A CONSULTING FIRM specializing in the delivery of asset management and various related services nation-wide in support of the housing industry. Since 1994, Zeffert leverages efficiencies created by existing expertise, information management, and logistical systems to provide high-value services at optimal cost. www.zeffert.com 2321 Weldon Parkway St. Louis, MO 63146 P: 866-760-6000 E: info@zeffert.com