HRAP Lender Guidelines - Affordable Housing Corporation of Lake

 Homebuyer Rehab Assistance Program
Lender Guidelines
Effective March 2015
SECTION 1. Program Administrator
Lenders will work with the Affordable Housing Corporation of Lake County (AHC) to access and
administer all aspects of the Homebuyer Rehabilitation Assistance Program (HRAP). AHC is a
nonprofit agency that empowers residents and communities to buy homes, improve homes and save
homes from foreclosure. We utilize construction services, lending programs and education and
counseling to fulfill our mission. AHC steps in where the private market cannot in order to create
revitalized, accessible and sustainable homeownership opportunities for low- and moderate income
households.
SECTION 2. Purpose & Benefits of Homebuyer Rehabilitation Assistance Program (HRAP)
The purpose of HRAP is to simultaneously stabilize communities and create homeownership
opportunities by empowering low-income households to purchase, improve and owner-occupy a
vacant property. Our 3-pronged approach includes financial assistance, construction services and
consumer empowerment, including:
• A $3,000 or $5,000 forgivable grant to offset down payment and closing costs
• A forgivable grant of up to $20,000 to provide repairs and improvements
• Construction management services to insure quality work at a fair price
• Education classes to help buyers navigate the complex home-buying process
• Counseling to empower buyers toward stable financials and responsible homeownership
SECTION 3. Program Resources
Lenders work primarily with AHC’s Loan Programs Manager, Laura Olvera, who is available at
847/263-7478 or lolvera@ahclc.org. All mortgages, notes, recapture agreements, guidelines and
forms are available online at www.ahclc.org.
SECTION 4. Purchase Assistance
Buyers receive two forms of assistance. Buyers must accept both forms of assistance in order to
participate in the program.
a) Acquisition Assistance ($3,000-$5,000): Buyers will receive $3,000 to offset down payment and
closing costs; buyers below 50% of median family income will receive $5,000. This is a 5-year
forgivable grant, secured by a Recapture Agreement and a Note. Assistance is provided in the
form of interest-free deferred loans, with no monthly payment, and forgiven at a rate of onesixtieth per month. Unforgiven assistance will be immediately due and payable in full should any
of these conditions occur within the first five years: sale; voluntary or involuntary transfer of title;
cash-out refinance; or failure to owner occupy the property as his/her primary residence.
b) Rehabilitation Assistance ($5,000 - $20,000): Buyers will receive a maximum of $20,000 to
make repairs, updates and improvements. This is a 5-year forgivable loan secured by a
mortgage and a note. Minimum loan amount is $5,000. Assistance is provided in the form of
interest-free deferred loans, with no monthly payment, and is forgiven at a rate of one-sixtieth
per month. Unforgiven assistance will be immediately due and payable in full should any of
these conditions occur within the first five years: sale; voluntary or involuntary transfer of title;
cash-out refinance; or failure to owner occupy the property as his/her primary residence.
SECTION 5. Homebuyer Eligibility
Buyers must meet all eligibility criteria to participate in HRAP
a) Income: Gross household income may not exceed 80% of median family income, adjusted for
family size. Guidelines are determined by Illinois Housing Development Authority using Chicago
MSA Guidelines, and are adjusted annually. Guidelines effective as of 1-1-2014 are:
Household
Size
1
2
3
4
5
6
7
8
50% MFI
$26,600
$30,400
$34,200
$38,000
$41,050
$44,100
$47,150
$50,200
80% MFI
$42,600
Updated as of 3/20/15
$48,650
$54,750
$60,800
$65,700
$70,550
$75,400
$80,300
b) Owner-Occupancy & Principal Residence: Buyer(s) must certify intent to owner-occupy property
as their principal residence for 5 years until after closing, and will be contacted annually
thereafter to verify continued owner occupancy. Funds will be subject to immediate repayment if
it is determined that the household is not owner-occupying during the 5-year period.
c) Education/Counseling: Buyer(s) must attend a homebuyer education class and one-on-one
counseling with AHC. A certificate of completion, certifying that education/counseling was
completed not more than 12 months prior to closing must be on file. Buyers may be required to
complete additional one-on-one counseling at AHC’s discretion.
SECTION 6. First Mortgage Financing and Underwriting
Buyer must qualify for a first mortgage with an approved lender and meet the below criteria.
a)
IHDA First Mortgage: HRAP assistance may be paired with Illinois Housing Development
Authority’s Smart Move and Welcome Home products, and will be eligible for resale to US Bank.
The loan will be underwritten in conjunction with all Smart Move and Welcome Home mortgage
guidelines.
b) Other First Mortgage Products: Lenders may choose to pair HRAP assistance with other loans
or their own portfolio products. Such loans require satisfactory credit, a housing-to-income ratio
of 35%, and a debt-to-income ratio of 41%.
c) Down Payment: Buyer must contribute 1% of the purchase price toward down payment, with a
minimum contribution of $1,000 through earnest money or cash at closing. If the latter, funds
would need to appear on the bottom line of the HUD-1.
2 d) No Cash Back: Under no circumstances will the buyer be allowed cash back at closing. Any
additional funds must be applied toward principal reduction.
e) Allowable Lender Fees: Loan origination fees and points are allowed. Brokering fees and
prepayment penalties are not allowed. All other fees must be reasonable within acceptable
industry standards. Multiple junk fees will be questioned and potentially disallowed, as will third
party fees that seem excessive. At AHC's discretion, lenders may be required to reduce their
fees.
SECTION 7. Property Eligibility
Buyers must purchase properties that meet all of the below criteria.
a) Vacant and In Need of Improvement: Property must be vacant at time of contract initiation and
require improvement. Such improvements may be cosmetic in nature and/or related to health,
safety and code-compliance.
b) Location: Must be located in Lake County, Illinois.
c) Type of Housing: Any one-unit single-family property, condo, townhome, or manufactured home
on a permanent foundation is eligible. Properties must be purchased with a fee-simple title.
d) Home Inspection and Property Standards: AHC will conduct a comprehensive inspection of the
entire unit, and may conduct or order special inspections for lead, asbestos, mold and radon. At
the time of closing, the property must meet Housing Quality Standards and all applicable codes.
Although not required, buyer may also choose to hire a home inspector licensed in the State of
Illinois or Wisconsin.
e) Required Termite Inspection. The purchase contract must address that closing in contingent on
a termite inspection conducted by a certified termite inspector, to be paid for at the Buyer’s
expense.
f)
Adequate Funding to Repair: The maximum allowable rehabilitation costs of $20,000 must be
adequate to make needed repairs.
g) Notice to Seller Rider: Purchase contract must have a rider (to be provided by AHC) executed
by both Buyer and Seller stating: (i) Seller is voluntarily selling the property and buyer does not
have power of eminent domain; (ii) Contract will be void if $20,000 is inadequate for the property
to meet Housing Quality Standards.
h) Flood Insurance: Any property identified by FEMA as having special flood hazards must obtain
flood insurance under the National Flood Insurance program and evidence of this insurance
must be submitted to AHC.
SECTION 8. Rehabilitation Priorities
HRAP provides up to $20,000 is assistance to use toward rehabilitation. These funds must be
utilized as follows.
3 a) Eligible Improvements: Improvements may be cosmetic in nature and/or related to health, safety
and code-compliance.
b) Rehabilitation Priorities. Improvements that will receive first priority include: (i) Building code
violations; (ii) Improvements needed to establish Housing Quality Standards; (iii) Major systems
such as windows, HVAC, water heater, plumbing, electrical, roof and siding; (iv) Energy
conservation; (v) Painting, new fixtures and Energy Star Appliances.
c) Other Improvements: Remaining improvements will be prioritized in conjunction with the Buyer’s
wishes. Garages are eligible for improvements only if they are attached.
d) Construction Management Services. AHC oversees all construction management services at no
cost to the buyer including inspection, work write up, bidding, oversight of rehab work and
ongoing inspections. AHC maintains a list of approved contractors that meet certain standards.
The lowest responsible bidder must be accepted. The contract for work is between the Buyer
and General Contractor, with AHC serving as a facilitator and liaison. Buyer signs off on all
inspections and work payouts. These procedures are described in detail in AHC’s Rehabilitation
Manual, a copy of which is available upon request.
SECTION 9. Application Submission Procedures
Lenders with a qualified customer may apply for HRAP funding as follows.
a) Call AHC to Inform of Upcoming Contract Signing and HRAP Application: AHC will provide a
Notice to Seller and Rider to Purchase Contract that the homebuyer must submit to seller along
with the Real Estate Purchase Contract. Due to HRAP’s tight timelines and the need for this
Notice/Rider, it is imperative that AHC is aware that a buyer is considering making an offer on a
vacant property and will be applying for HRAP assistance.
b)
Application Submission, Part 1 with Fee (within 24 Hours of Purchase Contract Signing):
Lender must submit all items in Part 1 of the Loan Transmittal Checklist so that AHC may verify
income eligibility, acceptable first mortgage financing, and, where appropriate, housing- and
debt-to-income ratios. Submission must be accompanied by a $150 fee to be paid by lender.
c)
AHC Property Inspection (within 4 Days of Purchase Contract Signing): Upon verification of the
items in (b) above, AHC will conduct a property inspect inspection to insure the unit is acceptable
per HRAP standards.
d)
Notice of Readiness to Proceed: Upon verifying that the buyer and property both meet or do not
meet initial eligibility criteria, AHC shall notify the Buyer and their Realtor, Lender and Attorney
that the process shall continue or conclude.
e)
Application Submission, Part 2 (within 7 days of Notice of Readiness to Proceed): Lender must
submit ALL items in Part 2 of the Loan Transmittal Checklist. Neither the loan qualification or
property rehab processes will move forward until all such documents are received. Outdated
financial documentation, unsigned documents or even one piece of missing information
constitutes an incomplete application submission; this will likely cause delays and may prevent
your loan from closing on the desired date. Within 3 business days of submission, AHC will
notify the lender representative and borrower via email if an application package is incomplete
and list the documentation still needed.
4 f)
Incomplete or Ineligible Applications: AHC will review the application package within 3 business
days of receipt. If the application is incomplete, the lender and borrower will receive
correspondence via email stating the items needed. If the application is ineligible, AHC will
notify the lender and borrower via phone or email and terminate the file.
g) Notice of Borrower Approval: If the borrower is eligible for assistance, a Borrower Notice of
Approval will be issued that confirms eligibility and states the estimated amount of assistance to
be awarded. Funds will be reserved for 60 days; extensions may be granted at the discretion of
AHC.
h) Inspection & Bidding Process: While lender is internally processing the first mortgage, AHC will
be working with the Buyer to discuss needed improvements, how they should be prioritized, and
preparing for construction management services to begin.
i)
Required Documentation 7 Days Prior to Closing: All remaining documentation as outlined on
Part 3 of AHC’s Lender Transmittal Checklist must be submitted 7 business days prior to closing
for both the acquisition and rehabilitation assistance. Incomplete, outdated or unsigned
documentation will constitute an incomplete submission and create delays.
j)
Acquisition Assistance Grant Closing: AHC will facilitate the closing of the acquisition assistance
loan, including coordinating with the lender to insure the documents and funding are at the
closing table. Lenders that choose to have AHC courier or FedEx/UPS the closing package
must to so at their own expense.
k) Rehabilitation Assistance Loan Closing: Within 3 days of the acquisition assistance loan closing,
the Rehabilitation Assistance will close using the same procedures described above.
l)
Pre-Application Questions: Lenders that are unsure if a borrower or property will qualify for
assistance are strongly encouraged to discuss their file with AHC prior to submission. While
AHC is unable to offer a formal written assessment, we will discuss our understanding of what
you can expect based on the information we have available to us at the time.
SECTION 10. Miscellaneous
a) Equal Opportunity: No person with a valid social security number in the United States shall on
the grounds of race, ethnicity, color, national origin, religion, sexual orientation, gender identity or
sex be excluded from participation in, be denied the benefits of, or be subjected to discrimination
under this program.
b) Program Guidelines Subject to Change: Program guidelines are subject to change without
notice if so necessitated by new requirements set forth by the AHC Board of Directors or the
program investors.
c) AHC's Allowable Discretion: At any point in the transaction, AHC may choose not to provide
financing if it is determined that any party of the transaction has behaved in a manner or
presented information that is in any way deceptive or undermining of either the letter or spirit of
our program guidelines. Any such persons or companies may be banned from working with
AHC in the future.
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