Final Application Best Practices

1. Final Application Best Practices Section 523 Self-Help Housing Technical Assistance Prepared by NCALL Research October 2007, last updated 3/09

2. Throughout this slide presentation, NCALL’s recommended “best practices” will be notated with a *BP. Free Template from www.brainybetty.com

3. A. Introduction

4. What Now? You should have: • An approved Pre-application (need and capacity exists) • First group of participants ready to close their loans • House and site plans (approved by RD) • Cost estimates • Land • Prepared staff *BPBy the time the Final Application is approved you should be one month away from beginning construction on the homes.

5. Allow 6 months to complete Final Application What’s Covered? • Items needed for Final Application • Helpful tips on accomplishing these items • Some things to do while grant is getting approved

6. RD’s Expectations from grantees: • Operate within RD’s regulations • Carry out the responsibilities of the Grant Agreement including: • Recruiting low and very-low income applicants and applicants from substandard housing • Building the number of homes proposed • Building the houses in a timely manner • Keeping program costs within the required limit • Ensuring that participants work on each others’ homes • Setting up an acceptable accounting system

7. A working relationship with Rural Development is critical • NCALL is available throughout the process • *BP Use NCALL as a resource ANYTIME assistance is needed!

8. B. Final Application Format

9. Required Format • The format of the application is very important • Rural Development requires that the information be in a specific order • A three-ring binder with table of contents and tabbed sections must be included • Tabs must correspond with item numbers on RD checklist

10. *BPAn organization can drastically reduce its chances of error by having someone that did not put the Final Application together recheck the Final Application for completion and accuracy before copying and mailing it to Rural Development.

11. Application Processing Through Grant Closing Checklist (RD AN 4387) • RD’s checklist • Refer to the Final Application Manual for actual checklist

12. NCALL’s Final Application Review Checklist • Checklist NCALL uses to review applications • It is has more detail and will help with assembling the application and meeting all of the requirements • See Guide for actual checklist

13. 1. Standard Form 424, version 2 • Standard Form 424, v. 2, “Application for Federal Assistance” and Intergovernmental Review Response 1994.410 (e) • First thing that reviewers see, sample in Manual • Provides RD will all of the pertinent information about the project – how many homes, time period, area, funding • Must be complete

14. *BPThere are many outdated or incorrect forms out there. Use the correct form! • To ensure that you are using the most recent, accurate form, you can: • Contact the State or Area RD office • Go to www.hudclips.org or NCALL’s website, www.ncall.org

15. Intergovernmental Review • Intergovernmental review established to foster partnership through coordination of Federal funding • Include response from SPOC, may be on A-95 • Not every state has a SPOC, refer to Guide for list

16. 1b. Survey on Ensuring Equal Opportunity for Applicants • This form helps to ensure that the government is fairly distributing grant funds • Complete this required form and include it in your application

17. 2. Waiting List of Participants Waiting list should include: • Information on potential applicants are interested in participating in the self-help program • Names, addresses, number of persons in household and total annual income is required • Date of initial contact not required but helpful for marketing & recruitment (See sample form in Guide) • *BP Aim to have at least twice as many potential participants as would be needed to complete the grant

18. 3. Proof of Qualified Participants • Proof is required that participants in the first group have qualified for assistance or been determined “eligible” by RD • Proof will be letters from RD

19. What Has to Happen for DE letters to be issued: • Full application must be processed and reviewed • Household income is verified • Credit history is checked • All other eligibility requirements met • Loan Originator determines payment subsidy and maximum loan amount • Letter of eligibility is issued

20. *BPInclude a cover page to this section • Narrative should include number of families in the first group, list of family names, total cost estimates, total 502 loan amount and other loan/grant information that will be used for the participant

21. If RD 502 loan does not cover complete building costs, include narrative indicating how gap will be covered • If additional loans, advise RD’s local office • Additional debt = increased debt to income ratios • Proof will be needed that these funds have been secured

22. 4. Lot Options for First Group • Land for the first group must be in control • Purchase agreements • Copy of deed if owned • Option agreements • Include a narrative identifying number in first group, how land is controlled, by whom, when it will be purchased and where it is located

23. Controlling land in a timely manner is critical • One of the worse things that can happen is applicants are ready to build, full-time staff are hired and subs are scheduled – but there is no land!

24. Often grantees need interim financing to obtain land • Control land by purchasing or entering into an option agreement • See sample of Option to Purchase Real Estate in Guide Caution!! 523 Grant funds CANNOT be used to option or purchase land.

25. 5. Evidence of Lot Availability • Evidence of lot availability for remaining groups is required • Lists of available lots, maps and prices are required • Include a narrative summarizing what land is available, whether site development is required, timeframe for completion • More information on land is available in the “Land” section at the end of the manual

26. 6. House Plans, Specs, Detailed Cost Estimates • Certified house plans are required for EVERY model that will be built during the grant period • Specifications are required for every model and for every family in the first group • Detailed cost estimates are required

27. House Plans • Certified house plans are required for EVERY model that will be built during the grant period • A complete set consists of plans and blueprints which have been certified by an architect or engineer licensed in your state CERTIFIED!

28. Blueprints need to include the following views with mechanicals noted: • Foundation plan • Floor plan • Cross section • Front and rear elevations • Right and left side elevations • Average cost per set is $500-$700 • Include a statement of the square footage of livable space for each plan

29. Codes and Standards • Local and state building codes set the minimum standards • Local authorities can require additional standards • All house plans must be approved by RD • Research building codes for each location since requirements may vary • Each plan must conform to state and local codes and comply with RD’s standards • The dwelling must also be affordable to the applicant

30. There are several ways to obtain house plans: • Local Building Supplier • House Plan Book • Rural Development • NCALL • Other Self-Help Providers • Software – Cheap Architect

31. Cost of Obtaining House Plans • Take into consideration cost before committing to the house plans • Remember, it costs on average $500 - $700 per set of plans You owe me $4,200! YOU

32. Standardize plans • Limit selections to three basic plans • Plans can have varying living areas and varying number of rooms • Cost estimate and use of materials will remain the same • Construction Supervisor and participants will become familiar with plans • Try to standardize the cabinet and kitchen arrangement • House plans should be prepared in advance of the formation of the first group of participants • Only one set needs to be certified original, the rest can be copies

33. *BPChoose plans based on what is in demand by surveying the target area and participants’ affordability!!

34. After participants choose a particular house design, copies of the blue prints go to: • RD in the 502 application • Local building official when applying for a building permit • Construction supervisor • Participant file in the grantee’s office

35. Developing Specifications • After selecting house plans, develop a specification sheet • Use Form RD 1924-2, “Description of Materials” • One spec sheet should be used for each participant in the first group

36. The “Description of Materials” Form 1924-2 can be located at www.rurdev.usda.gov/ regs/forms/1924-02.pdf. • Contact NCALL or the local RD office if you need assistance • Material identification should be detailed • Attach additional sheets if necessary and manufacturer’s specification sheets for equipment and/or special materials

37. The design must meet RD’s requirements which include: • RD’s Thermal Performance Standards (1924-A, Exhibit D) • RD’s guidelines for affordability • No income producing facilities • No swimming pool

38. Inspect every spec sheet for accuracy and completeness • If questions arise, the specs and plans submitted to RD will be used by the RD building inspector • Use the Guide for Inspection of Construction of Dwellings and Buildings • Construction supervisor responsible for completing the specs submitted in each loan application • The State and the RD State Architect must approve the plans and specifications

39. Cost Estimates • One of an agency’s primary responsibilities is to accurately estimate the cost of each participant’s home before it is built • These cost estimates must be accurate, they eventually become the participant’s 502 mortgage • Avoid making estimates that are unrealistically low

40. Cost estimates can range from 2% to 3% over, but never under • Under estimating the cost of construction may force the participant to seek a second “subsequent” mortgage • If the costs are overestimated, the mortgage will be larger than needed and the participant might not get all of their deserved “sweat equity”

41. *BP If there is a significant time between the time of actual construction and the time of cost estimates were obtained, update the figures to reflect the current market prices.

42. There are four types of costs: • Construction materials • Subcontracted labor • Land • Other variable costs • Take-offs help to determine the quantity and quality of construction materials required by a house plan

43. Construction Materials • To do a take-off, the Construction Supervisor must: • Review the drawings of a single house plan • Record the materials that are called for in the drawings • Once the take-off is completed, you should have a full listing of all materials (quantity and quality) required

44. To get the best price, get bids on the materials. Before doing this: • The project must be described in detail, including material to be used and quantity • Outline the time frame in which materials are needed • Set a bidding date deadline

45. After obtaining the material bids, visit the supplier • Meet the salesperson • Discuss delivery format, return policy, service area and inquire about credit accounts for the participants • Look for discounts for bulk purchases or get a guarantee on prices in advance

46. Subcontractors • The subcontracted activities are: • Excavations • Licensed electrical work • Plumbing • Use Exhibit B-2 of 1944-I as a guide • The participants’ construction tasks must equal at least 65% of construction activities

47. When requesting bids, make sure that you: • Describe the project, materials and work to be done • Outline the requirements and anticipated time frames • Make the plans and specs available • Set a bidding deadline date

48. After obtaining bids: • Interview the potential subcontractors • Ask for and check client references • View their past jobs • Determine their integrity and timeliness • Get a copy of their license and insurance coverage – check the expiration date of both • Include the participants in this process, they will be signing the contracts • Advise the participants, explain benefits and drawbacks concerning the subcontractors

49. Prepare a construction contract (samples in the book) and attach the subcontractor bids • Participants and subcontractors sign the construction contract • Rural Development’s contract is preferred • *BPIf construction contracts other than RD’s are to be used, get RD approval

50. Land and other variable costs • In addition to direct costs, the indirect costs need to be determined • Indirect construction costs include: • Land • Fees (permits, surveys, closing costs, etc) • Appliances and equipment • Site improvements (grading, fences, driveways) • Landscaping • Contingency funds (3-5%)