What do you mean when you say there are “income restrictions” on the buyers of HADC houses?
Because the construction or renovation of HADC’s houses is subsidized with federal dollars, the U.S. Department of Housing and Urban Development restricts home sales to first-time buyers with household income in the low- to moderate-range. Most HADC houses are restricted to buyers earning up to 80 percent of the Area Median Income that HUD sets for this region and adjusts annually. To calculate family income, add up the annual income of everybody who will reside in the house and use the Income Eligibility Table to determine the maximum income allowed, based on the number people in the household. Be sure to count everyone in the household, including children and adults without income. A three-person household could be three employed adults or a single parent with two children. Both scenarios count as three-person households.
Does HADC provide mortgages for the homes it sells?
No, HADC is a developer and a builder, not a lender. Buyers of HADC homes must obtain a conventional mortgage from a bank or other mortgage lender. While it is the buyer’s responsibility to initiate the mortgage application, HADC can suggest banks and mortgage products that make a good fit for HADC’s program. HADC will help guide the prospective buyer through the mortgage qualification process.
How long do deed restrictions limiting the resale of HADC homes remain in force?
The federal subsidy HADC uses in the construction or renovation of homes also adds resale restrictions to the properties. The federal government wants to ensure that the public investment in the house benefits low- to moderate-income homeowners over the long term, not just at the time of the initial sale. Depending on the amount of federal dollars HADC uses in a project, the resale restrictions last for either 10 or 15 years. The home can be resold at any point during that time, but only to another income-eligible buyer. After 10 or 15 years, the deed restriction disappears and the homes can be sold to anyone of any income. The deed restriction also prohibits the rental of the house by the buyer during the eligibility period.
Can buyers purchase a house using cash?
It depends upon the source of the cash and when it was received. Home buyers purchasing a house that was acquired and renovated using federal funds must meet HUD’s income eligibility guidelines for the tax year in which they are making the home purchase. If the buyer receives a financial windfall, like a lump-sum lottery winning or a cash gift, those funds would count as taxable income and likely put the prospective buyer above the federal income eligibility limits in the year it was received – but only in the year it was received. So if the recipient pays the federal tax on the windfall and places the remainder in a savings account, the money could be used in a subsequent tax year to buy a HADC house if the buyer’s income is below the HUD maximum. The IRS, under most circumstances, does not view inheritance as taxable income of the recipient, so the proceeds from the settlement of an estate could likely be used in the same year the funds were received.
Do buyers need a down payment to purchase a house?
Yes. Most mortgage providers, along with programs that provide down payment and closing cost assistance, require a minimum down payment of $1,700, which must be held in a conventional bank savings account for at least 90 days prior to the closing. Some banks require the savings record to be established before the mortgage is approved. It is always a good idea to start saving early. Banks may consider an income tax refund as personal savings that can be applied to the home purchase.
Can buyers with low credit scores purchase a house?
No. Buyers of HADC homes must obtain conventional mortgages, which require the applicant to demonstrate good credit as a condition for approval. Most banks and HADC will work with potential home buyers to repair low credit scores so that they may become mortgage-eligible in the shortest amount of time.
What are the next steps?
Contact HADC’s Housing Counselor, Maria V. Rodriguez. If interested buyers have not begun the mortgage application process, she will advise them on how to get started.