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Department of Development Services
HOMEOWNERSHIP APPRAISAL GAP FINANCING A FINANCING ASSISTANCE PROGRAM FOR NON-PROFIT AND FOR-PROFIT DEVELOPERS REHABILITATING AND RETURNING TO THE MARKET ONE-FOUR FAMILY HOMES IN HARTFORD I. INTRODUCTION/PURPOSE In an effort to increase homeownership and provide assistance to for-profit and non-profit developers the City of Hartford has created a Homeownership Appraisal Gap Financing Program. Currently there is within the city of Hartford a great need to increase the number of owner occupied households and to return to the market vacant, deteriorated but sound houses that are suitable for homeownership. This is evidenced by the fact that 77% of the City’s 51,464 households reside in rental properties while only 23% are owner occupied and there are currently an estimated 275 vacant 1-4 family houses in need of rehabilitation. According to the City’s 1995 Consolidated Plan, 64% of all low and moderate income renters (renters who earn between 0-80% of Hartford Area Median Family Income) pay more than 30% of their incomes for rental housing. With some financial assistance many of these families could become homeowners without increasing their monthly housing costs significantly. Furthermore, various other homeownership programs involving rehabilitation have demonstrated that it is feasible to return vacant houses to the market as affordable homeownership opportunities. In order to significantly increase the number of vacant, deteriorated houses returned to the market and to address the appraisal gap problem that exists due to the severe real estate market correction that has occurred in the 1990’s, the City is making available appraisal gap financing in conjunction with the rehabilitation of 1-4 family houses which will be sold to homebuyers as primary residences. II. PROGRAM PURPOSE The primary purpose of the Homeownership Appraisal Gap Financing Program is to return to the market vacant, deteriorated 1-4 family houses and increase homeownership in Hartford. The Program will also help to achieve the following:
III. ELIGIBLE PROPERTY TYPES a. One-four family houses which are at least partially vacant and in need of rehabilitation. b. Other residential structures which lend themselves to re-configuration to a one-four family owner-occupied residence. c. Condominiums which are vacant and in need of rehabilitation. d. In some pre-approved cases, newly constructed one and two family houses. IV. REQUIRED PERIODS OF OCCUPANCY AND RECAPTURE PROVISIONS The mortgage will be a 0%, non-amortizing loan, forgivable after seven (7) years provided the borrower maintains the property as their primary residence for a period of not less than seven (7) years. Should the borrower move, sell, transfer or refinance within the first 5 years the total amount of the loan will be due and payable. Should the borrower move, sell, transfer or refinance within the remaining two (2) years, the loan will be forgiven at the rate of 50% after five (5) full years, 75% after six (6) full years, and 100% after seven (7) full years. The City will monitor for compliance with this provision. Registered letters will be sent annually to the home address requesting that the homeowner confirm their residence at this address. If confirmation isn't received, another registered letter will be sent and if necessary a home visit conducted. If confirmation of residence is not achieved at this time, the City will move to foreclose on the property. V. GENERAL PARAMETERS A. The City will provide the minimum assistance to bridge an appraisal gap. First mortgage financing shall be from sources that finance close to 100% or more of the appraised value. All available resources including buyer downpayment and other available downpayment assistance such as the State Downpayment Assistance Program shall be utilized before any City appraisal gap financing assistance will be provided. Support will be in the form of a 0% seven (7) year term loan to the homebuyer. (Appraisal Gap Financing will not be available as a construction loan nor as a loan to developers. Loans will only be made to the actual homebuyer/owner-occupant). Taxes and insurance will be escrowed by the first mortgagee. The loan will have deferred principal payments. If the borrower complies with the conditions of the loan, namely, maintains the residence as the borrower’s primary residence for the required periods of occupancy described in Section IV; maintains the property; complies with the terms and conditions of any first mortgage lien; and maintains appropriate hazard insurance, the City’s loan will be reduced pro-rata based upon the time the homeowner has occupied the unit. See Section IV. B. Maximum Appraisal Gap Assistance will be as follows: Thirty percent (30%) of the total development cost up to $20,000 per unit with a maximum of $40,000 on any one property. No more than 20% of the total development cost can be soft costs* including developer’s fees and profits. The amount will be determined by comparing the actual cost of rehabilitation to the After-Rehab Appraisal which shall include the construction cost method as well as comparable sales, and, after all other resources such as buyer funds, first and second mortgages, etc. have been utilized. The City reserves the right to inspect and approve rehabilitation work performed, and, to determine if costs are reasonable based on the specifications and drawings and the actual work and materials installed. An independent review by a certified construction estimator may be required to verify that costs are reasonable and as economic as possible. Appraisal Gap Financing will not be provided to projects with unreasonable costs or inflated costs. Luxury items such as swimming pools, jacuzzi's, etc. will not be eligible for Appraisal Gap Financing. If the After-Rehab Appraisal was done more than six months in advance of the completion of the rehab/construction, the Appraisal must be updated so that it is no more than six months old at the time of completion/sales offering. Sales prices must be at least the amount of After-Rehab Appraised Value. All sales must be advertised/published to the general public including publications or announcements which serve varied communities in Hartford; all sales transactions must be "arms length" transactions. No principal, agent, or immediate family relative of the Developer or General Contractor is eligible to become the homebuyer/recipient of City Gap Financing Assistance. No elected official or public official or their agent or designee who exercises any oversight, decisions, etc. in respect to the City's Gap Program is eligible to participate in the program as a Developer, a contractor, or a homebuyer. Nor shall they have any interest, financial or otherwise in any entity participating in the Gap Program. The City will consider the need for Gap financing in excess of the above limits when the project is in a targeted high impact area/development and generally meets the following criteria: . The project encompasses multiple properties in a specific targeted area such that the physical character of the entire area is improved by the completion of the project . The project reinforces existing City investment within the same targeted area. . The project completes a comprehensive development plan that has already been initiated. . Units are considerably larger than average due to the original design of the structure and/or where it is desirable to convert a small two family house into a single family or convert a multi-unit building into less units. For multi-unit/three story structures or three family houses which are being converted to less units, the third floor(s) of the structure shall be at minimum insulated, heated, sheetrocked, and have the minimum required electrical outlets and fixtures and smoke detectors. Any environmental hazards will also be removed, etc. . An independent review by a certified, professional construction estimator/reviewer must be submitted to verify that the cost of rehab/construction is reasonable, and as economic as possible, if requested by the City. . The project is of a scale which is significant enough to have measurable economic and social effect beyond the immediate area. . Evidence must be submitted with the proposal showing that there is no other source of funding for the gap. Homebuyers utilizing the City’s Appraisal Gap Financing are not eligible for any other City financing related to the purchase and rehab of the property for five (5) years. *soft costs are all costs except acquisition and construction costs, contingency, site preparation and remediation. VI. APPLICATION PROCESS 1. City provides developer with Program Description, Application materials and Closing Requirements. 2. Developer submits Proposal including required information: a. Property Description b. Appraisal that includes after-rehab value based on both construction cost method and comparable sales. (If the appraisal was done more than six months in advance of the rehab/construction, the Appraisal must be updated so that it is no more than six months old at the time of completion/sales offering. Sales prices must be at least the amount of After-Rehab Appraised Value). c. Proof that Developer and all principals are current on city taxes. d. Budget detailing all hard and soft costs and financing sources (including the name of the first and second mortgagees) and estimated homebuyer downpayment. e. Funding Request including justification for City’s Appraisal Gap Financing Assistance. f. Developer information including names of principals, business address, phone, contact person/project manager; relevant history of experience in housing development or comparable experience; financial statements for past two years. g. Projected timetable from acquisition to sale to a qualified homebuyer. h. Independent review by certified construction/rehab estimator as to reasonableness and economy of construction costs, if requested by the City. i. Letter from the City's Office of Human Relations stating that Developer agrees to comply with applicable EEO/Affirmative Action requirements. (A minimum of 15% of the total dollar amount of the project must go to Minority/Women Owned Businesses; a minimum of 15% of the total hours must go to Minority/Women tradesworkers; and, a good faith effort must be shown toward meeting a hiring goal of 30% Hartford residents. 3. City provides developer with a tentative commitment letter subject to developer submitting items required on the attached checklist if proposal meets with approval. 4. Developer secures all other necessary financing (first and second mortgages). 5. Developer acquires property, contracts for rehab and markets property to interested homebuyers. 6. Developer submits all items on attached checklist to the City. 7. Lender notifies City of closing (sale to homebuyer) 8. City prepares its loan documents and provides them to lender for execution at closing. 9. City provides check at closing 10. Lender Records all Documents and returns City documents to the City. City of Hartford Department of Housing and Community Development Homeownership APPRAISAL GAP Financing Program SAMPLE PRO FORMA
Costs/Uses
After Rehab Appraised Value: $81,000 Sources
* Some Purchase Rehab Mortgages will go over 100% of the After-Rehab Value ** State Downpayment Assistance in Hartford will go up to 25% of the After-Rehab Value City of Hartford Homeownership Appraisal GAP Financing Program Application to Closing Checklist The following documentation on the above referenced application is required. Copy of application from Homebuyer submitted to bank Borrower’s Income Verification Borrower’s Most Recent Tax Return(s) Sources and Uses List including detailed breakdown of all soft costs Independent Review By Certified Estimator as to Reasonableness/Justification of Cost of Construction/Rehab, If Requested by the City. Copy of Purchase and Sales Agreement Copy of all Mortgage Commitments Copy of Appraisal (to include construction cost method). Final Appraisal must be no older than six months prior to rehab/construction/sales offering. Good Faith Estimate of Closing Costs/Final Settlement Statement Executed Construction Contract with cost breakdown Certification signed by Borrower verifying receipt of Lead Paint Notification and Lead Paint Management Plan. Certificate of Occupancy Final Status Report from City's Office of Human Relations Check Requisition (prior to closing)
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