By: Stephanie Diana Gast- Wilson
For many when we think of affordable housing projects we think of the rental units called “The Projects”, featured in movies like “8Mile” and “Four Brothers”. In reality affordable housing is a term that not only encompasses the rental project of affordable housing (Which I will cover that topic another time) and the affordable housing condos that are available for purchase. Yes, affordable condos for purchase as a method to keep the American Dream of home ownership a reality. However, for both the borrower and the underwriter affordable housing has pit falls to watch for.
This article is entirely in just a key points’ capacity of this subject for further details speak with your Underwriter, Underwriting manager, reach out to FNMA and/ or consults the FNMA seller guide. The current version of the seller guide dated 2/24/15 is what was referenced in the article. https://www.fanniemae.com/content/guide/sel022415.pdf
Now that we have gotten the legal CYOB (Cover Your Own Bum) disclaimer out of the way let us begin. First off affordable housing projects can also be known as projects with resale restrictions. So, it is good to know that key term as well. Also in the preliminary title report also known as a Prelim there is often notes within regarding deed restriction, resale restrictions, or affordable housing. It isn’t always found in the prelim although on page 886 of the FNMA Seller guide “The source and terms of the resale restrictions must be included in the public land records so that they are readily identifiable in a routine title search.” So if you don’t find info about it in there that needs to be corrected.
Also check the CC&R’s, Condo Declarations or Master Deed, (It depends on what side of the country you are on as per what your Condo Legal docs are called) for additional information. The Warranty Deed will also be needed for review. Be aware that many of these projects are a mix of affordable housing units and market rate houses. So, be sure to check if the subject unit is covered under any restrictions.
Per the FNMA Seller Guide dated 2/24/15 on page 884 there are seven types they allow. However, for this article we will focus on the five most commonly seen types.
- Income restrictions
- Age restrictions
- Principle residence requirements
- First time home buyer requirements,
- Resale price limits
Income restrictions are reference to the buyer’s income and many of these types of properties are meant for people who would not normally be able to afford to live in that community/ area. This restriction also helps to ensure that the borrower is amply able to afford the costs to live and maintain the unit. In many ways this helps the borrower make a better choice about if home buying is right for them at that time. Also it helps those who live in the bay area and are trying to afford to work here. (As I have stated on my soap box about many a time.)
Age Restrictions these sorts of deed restrictions/ resale restrictions obviously refers to age. This makes it so that seniors who are trying to down size can still afford to own a home in the community they want to live in. As matter of general observation these types of properties are beginning to be seen in the San Francisco bay area as a trend growing in popularity. This again helps the buyer and the community as a whole to remain diverse and keep their community members in their communities.
Principle Residence; requirements refers to the owners ability to rent their unit. See normally when one buys a condo or any home type for that matter they have the option to convert it into an investor unit and rent it out. In these projects the owner either can’t rent their unit out as an investor unit, or they may require that only a certain amount of units in the project can be rented out and must be approved by the HOA prior to renting. However, be sure if there are units not covered by the deed/ resale restrictions that their ability to rent out their units is not hindered.
First Time Home Buyers; many of these projects are targeted at first time home buyers again to promote the American Dream of home ownership.
Price Limits; now this is a touchy subject. See many affordable units can only be sold at a certain amount to be able to be affordable in resale or during sorry to say foreclosure to someone who meets any of the above named restrictions. So, when underwriting one needs to watch out for the duration of sales restrictions and details on the price restrictions noted on page 883-884 of the FNMA seller guide. Such as if the resale restriction does or doesn’t terminate upon sale or foreclosure. OR if it terminates in Deed in lieu of foreclosure is a big one. Now if it survives sales or foreclosure, or Deed in lieu, be sure to review FNMA seller guide.
This has been just a brief over view of affordable housing purchasable units and the additional considerations that the Underwriter may watch. However, we must never forget that these home loans represent not only someone’s ability to grow wealth but, someone’s home and potentially their over all future. Affordable homes in places people want to live in are the key to keeping the American dream of home ownership alive. There are some things to watch out for sure. But, we must always keep in mind that nothing worth doing was ever easy.