Developing and Financing Affordable Housing - Home Ownership

1. Developing and Financing Affordable Housing - Home Ownership Native American Urban Conference 2001 March 28, 2001 THE ENTERPRISE FOUNDATION

2. Agenda • Before you start…. • Define and evaluate the market • Define Product/Volume • Define your program • Put together the development Team • Pre-development • Construction Phase • The follow-up

3. Before you start - Why do home ownership? • Increase home ownership rate; • Improve housing conditions; • Provide home ownership opportunities to households typically unable to purchase • Improve ambiance • Create new, healthy neighborhoods within larger communities • Increase capital available to the neighborhood • Provide opportunity for residents to increase personal wealth

4. Before you start - Are you prepared • Board and staff • Fiscal systems • Fiscal policies and procedures • Record Keeping • Government and Community Relations

5. What Makes Affordable Housing Development Different? • Lack of equity for up-front costs of development (though NAHASDA and HOME funds - if CHDO - can be used). • Target market may not be familiar with product. • Subsidies are required to reach target market or to create viable product. • Longer development time line to package financing sources. • Higher individual transaction costs. • Requires underwriting from government and private sector and, often, more public review

6. I. Define and Evaluate the market Two aspects to market People Housing Sources of Data Census data - www.census.gov ---> American factfinder Home Mortgage Disclosure Act Data - www.rtk.net and www.ffiec.gov Planning Department studies Community Surveys Indian Housing Plan (if it includes needs of non Reservation residents) Interview with Consumer Credit Agency, bankers, social service agencies, real estate brokers, and (if relevant) local employers

7. Define and Evaluate the Market:People • What is the geographic area for your market? • Who (demographics) are the possible home owners (typically renters with sufficient income and decent credit, who are interested in purchasing in your target area)? • Household size and composition • Income • Commute time to work • Current knowledge of mortgages and home ownership • typical credit history • Amount they currently pay for housing

8. Define and Evaluate the Market - People • Based on expected market, what type of home do they desire: • size of home • design issues for home • amenities in home • amenities in community • amount of yard/play space • parking • Cost of home

9. Define and Evaluate the Market Housing Stock/Housing Market • What is the vacancy rate? • What are typical home prices and rents? What is the typical time for sales? Who are typical home buyers? • Who are the owners of vacant land/buildings? • Are there issues related to acquisition (eg. cloudy titles?) • If you are looking to do acquisition/rehab/resale Who are the current renters in single family homes, what do they pay in rent, what do they earn? • Rehab needed to meet code/Federal funds requirements

10. Define your program • 5 - 10 page business plan is preferable • Define design/specification/rehab standards • Define anticipated volume • Define required staffing/consultants • Define acquisition strategy • Define anticipated home buyers

11. Define your program: Estimate Costs - Nonprofit Acquisition Costs • Site acquisition • Site evaluation • Legal • Title and recording • Back taxes/liens • Appraisal • Closing costs

12. Define Program: Estimate Costs - Homebuyer Downpayment/Closing Costs • Downpayment • Closing costs • Bank legal/search fees • Title search and recording • Credit report fee • Doc Stamps • Appraisal • Prepaid interest • Prepaid insurance (and taxes, if relevant)

13. Define Program: Estimate Costs • Devise design/material standards based on: • agency and program mission - set you own standards! • market • building codes/zoning (if applicable) • environmental conditions and requirements • balance desire for higher standards with affordability

14. Soil Tests Environmental Architect/Spec. writer Civil/Engineer Survey Appraisal Pre-development loan interest Legal Market Study Consultant Insurance Construction supervision Construction loan interest Home Buyer training/prep. Marketing Permits and Fees Water, sewer, electric, cable hook-up Construction contract Contingency Foundations (if new site plan) roads Landscaping and Site work Developer’s Fee Define Program: Estimate Costs - Development Costs

15. Define Program: Estimate Costs - Internal costs • Fiscal systems • Audit • Staffing (that is typically/often internal) • Acquisition specialist • Development specialist • Construction specialist (particularly if moderate rehabilitation) • Financing specialist • Homeownership counselor/marketing • Management • Training/Technical assistance

16. Sources of information for costs • Other developers • City • Contractors • Architects • Utility Company • HUD field office • Appraisers, surveyors, attorneys, accountants, environmental firms, insurance company/broker, credit and homeownership counseling agencies

17. Define Needed subsidies Total Costs minus Amount of Mortgage affordable to home owner equals Subsidy Needed

18. Define Needed Subsidy • Type of subsidy defined by four values: • Total Development Costs • Appraised value • Sales Price • Affordable First mortgage

19. Define Needed Subsidy • When Total Development Costs exceeds appraised value, a portion of the subsidies is typically a grant; • When Appraised value exceeds affordable first mortgage, a portion of subsidy is often a (soft) loan; • Sales price typically reflects several issues: • Affect of price on local market; • Appraised value; • Lender perceptions.

20. TOTAL HH INCOME (including 75% of NRI, if 2-4 family home) Times Percent of Income to PITI typically 28% to 33% Minus Taxes and Insurance Equals Amount Available for Mortgage TOTAL HH INCOME (including 75% of NRI, if 2-4 family home) Times Percent of Income to Debt and PITI typically 33% to 38% Minus Taxes and Insurance and debt Equals Amount Available for Mortgage Define Needed Subsidies

21. Define Needed Subsidy • Amount available for mortgage • Present value at 30 year interest rate • Equals Mortgage

22. Identify and Package the Financing“The Usual Suspects” • HOME (Be involved in Consolidated Planning!) • Community Development Block Grant • Affordable Housing Program of the FHLBank • NAHASDA (if available from tribe) • Individual Development Accounts • Mortgage Revenue Bonds (reduced rate first mortgages) • Housing Trust Fund • Housing Counseling Program

23. Identify and Package the Financing “The Unusual Suspects” • Self-Help Housing Program • Fair Housing Initiatives Program • Enterprise Zone • Youthbuild • Section 8 for Home ownership

24. Putting It Together - The Pro-FormaThe Project Phases

25. Putting It Together - The Pro-FormaThe Project Phases

26. Developing your pro-forma • Puts it all together - Development costs/ mortgage affordability/subsidy required • Method for tracking project changes and for understanding how they affect project • Permits flow from pre-development/ acquisition to construction to permanent • Method for communicating with funders

28. Pro-forma - continued

29. Recruit, Select, and Contract with your Development Team • Architect • Attorney • Funders • Foundations/Corporations • Government • Banks • Other Lenders

30. Recruit, Select, and Contract with your Development Team • Environmental Firm • Accountant • Appraiser • Market Study Firm (if required) • Insurance Company • Home Ownership Counselor (if not from agency)

31. Pre-development • Prepare Marketing Plan and home buyer selection criteria - train likely referral sources • Prepare Construction Management Plan • Role of Architect/staff • Communication and decision process • Define Pre-development, acquisition, construction and permanent financing sources • Continue to refine/update pro-forma

32. Pre-development • Complete Site related work • complete drawings and specifications and refine construction estimates • receive zoning and building code approvals • Financing • receive commitments on funding subsidies • apply for and move to closing for required financing • obtain appraisals for lenders/funders (note - bank lender must order appraisal) • Keep funders apprised of project movement and changes

33. Pre-development • Site control (including environmental Phase I, appraisal (if required) • Go to bid for general contractor • select a general contractor and commence negotiations • Prepare project timeline • define wish list for unspent contingency

34. Pre-development • Continue Community Relations • continue implementing community relations plan • ensure mechanism for community input and involvement • market program to immediate and larger public • Organizational • Ensure on-going Board committee involvement • ensure necessary financial systems are in place for draw requests and monitoring • ensure proper communication between contractor, architect, project manager, and funders • Make sure you can pay your contractor on time

35. Begin Home Buyer Identification and Training/Counseling • Marketing • Pre-screening • Bank/Government review and approval • Home Buyer training • Home Buyer Counseling • Consumer Credit Agency assistance • Prepare Home Owner Welcoming Packages

36. Construction/Rehab • Attend bi-weekly site meetings and review minutes - be mindful of warning signs - think ahead • Promptly pay attention to draws and change orders • Approve Substantial Completion • Develop Punch List Items (with home owner, preferably) • Initiate Construction/Rehab Close Out • Receive Certificate of Occupancy

37. Construction/Rehab • Arrange Home Buyer Closing • Collect Manuals/Warranties for home owner • Execute service Contracts (if relevant) • Hold meetings with all service providers together (preferably at least a month before opening) • Define communication between staff and service agencies • Home Purchase • Provide home owner and agency with as-built/rehabbed drawings

38. The follow-up • Notify Insurance Company That Property is sold • Pay Retainage • 5% at Certificate of Occupancy; 5% six months later is preferable • Grand Opening/Ribbon Cutting • Begin Home Owner Association/Advisory Council • Make sure post-purchase counseling/foreclosure prevention process is implemented