Link to an amendment published at 90 FR 16087, Apr. 17, 2025.

(a) Maximum per-unit subsidy amount. The total amount of HOME funds that a participating jurisdiction may invest on a per-unit basis in affordable housing may not exceed the per-unit dollar limits established by HUD in accordance with section 212(e) of the Act. HUD will publish the per-unit dollar limits for the area in which the housing is located annually. HUD will publish its methodology for determining maximum per-unit dollar limits through a publication in the Federal Register with the opportunity for comment.

(b) Underwriting and subsidy layering. Before committing funds to a project, the participating jurisdiction must evaluate the project in accordance with guidelines that it has adopted for determining a reasonable level of profit or return on owner's or developer's investment in a project and must not invest any more HOME funds, alone or in combination with other governmental assistance, than is necessary to provide quality affordable housing that is financially viable for a reasonable period (at minimum, the period of affordability in § 92.252 or § 92.254) and that will not provide a profit or return on the owner's or developer's investment that exceeds the participating jurisdiction's established standards for the size, type, and complexity of the project. The participating jurisdiction's guidelines must require the participating jurisdiction to undertake:

(1) An examination of the sources and uses of funds for the project and a determination that the costs are reasonable; and

(2) An assessment, at minimum, of the current market demand in the neighborhood in which the project will be located, the experience of the developer, the financial capacity of the developer, and firm written financial commitments for the project.

(3) For projects involving rehabilitation of owner-occupied housing pursuant to § 92.254(b):

(i) An underwriting analysis of the homeowner's ability to repay the HOME-funded rehabilitation loan is required only if the loan is an amortizing loan; and

(ii) A market analysis or evaluation of developer capacity is not required.

(4) For projects involving HOME-funded homeownership assistance pursuant to § 92.254(a) and which do not include HOME-funded development activity, a market analysis or evaluation of developer capacity is not required.

[78 FR 44670, July 24, 2013, as amended at 90 FR 16086, Apr. 17, 2025]

(a) New construction projects—(1) State and local codes, ordinances, and zoning requirements. Housing that is newly constructed with HOME funds must meet all applicable State and local codes, ordinances, and zoning requirements. HOME-assisted new construction projects must meet State or local residential and building codes, as applicable or, in the absence of a State or local building code, the International Residential Code or International Building Code (as applicable to the type of housing) of the International Code Council. The housing must meet the applicable requirements upon project completion.

(2) Construction progress and final inspections. The participating jurisdiction must conduct on-site progress and final inspections of construction to ensure that work is done in accordance with the applicable codes, the construction contract, and construction documents. Before completing the project in the disbursement and information system established by HUD, the participating jurisdiction must perform an on-site inspection of the project to determine that all contracted work has been completed and that the project complies with the property standards and requirements in this paragraph (a). All inspections performed by the participating jurisdiction must be conducted in accordance with the participating jurisdiction's inspection procedures.

(3) HUD requirements. All new construction projects must also meet the following requirements upon project completion, unless an earlier deadline is otherwise required by the applicable statute, regulation, or standard:

(i) Accessibility. The housing must meet the accessibility requirements of 24 CFR part 8, which implements section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794), and Titles II and III of the Americans with Disabilities Act (42 U.S.C. 12131-12189) implemented at 28 CFR parts 35 and 36, as applicable. Covered multifamily dwellings, as defined at 24 CFR 100.201, must also meet the design and construction requirements at 24 CFR 100.205, which implements the Fair Housing Act (42 U.S.C. 3601-3619).

(ii) Energy efficiency standards. Newly constructed housing shall qualify as affordable housing under this part only if it meets the energy efficiency standards promulgated by the Secretary in accordance with section 109 of the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 12709).

(iii) Disaster mitigation. Where relevant, the housing must be constructed to mitigate the impact of future disasters (e.g., earthquakes, hurricanes, flooding, and wildfires) in accordance with State and local codes, ordinances, and requirements, and such other requirements that HUD may establish.

(iv) Written cost estimates, construction contracts, and construction documents. The participating jurisdiction must require the construction contract(s) and construction documents to describe the work to be undertaken in adequate detail so that inspections can be conducted. The participating jurisdiction must review and approve written cost estimates for construction and determine that costs are reasonable.

(v) Broadband infrastructure. For new commitments made after January 19, 2017, for a new construction housing project of a building with more than 4 rental units, the construction must include installation of broadband infrastructure, as this term is defined in 24 CFR 5.100, except where the participating jurisdiction determines and, in accordance with § 92.508(a)(3)(iv), documents the determination that:

(A) The location of the new construction makes installation of broadband infrastructure infeasible; or

(B) The cost of installing the infrastructure would result in a fundamental alteration in the nature of its program or activity or in an undue financial burden.

(vi) Carbon monoxide and smoke detection—(A) Carbon monoxide detection. A carbon monoxide alarm must be installed in the housing unit in a manner that meets or exceeds the carbon monoxide detection standards set by HUD through Federal Register publication.

(B) Smoke detection. (1) A hardwired smoke alarm must be installed:

(i) On each level of each housing unit;

(ii) In or near each sleeping area in each housing unit;

(iii) In the basement of each housing unit and in each common area of a project. A hardwired smoke alarm is not required in crawl spaces or unfinished attics of housing units;

(iv) Within 21 feet of any door to a sleeping area measured along a path of travel; and

(v) Where a smoke alarm installed outside a sleeping area is separated from an adjacent living area by a door, a smoke alarm must also be installed on the living area side of the door.

(2) Each hardwired smoke alarm must have an alarm system designed for hearing-impaired persons.

(3) The Secretary may establish additional standards through Federal Register publication.

(4) Following the relevant specifications of the International Code Council (ICC) or the National Fire Protection Association Standard (NFPA) 72 satisfies the requirements of this paragraph (a)(3)(vi)(B).

(vii) Green building standards. If a participating jurisdiction exceeds the maximum per-unit subsidy limit pursuant to § 92.250(c), then upon completion, the housing must meet one of the green building standards established by HUD through Federal Register publication.

(b) Rehabilitation projects. All rehabilitation that is performed using HOME funds must meet the requirements of this paragraph (b).

(1) Rehabilitation standards. The participating jurisdiction must establish rehabilitation standards for all HOME- assisted housing rehabilitation activities that set forth the requirements that the housing must meet upon project completion. The participating jurisdiction's description of its standards must be in sufficient detail to determine the required rehabilitation work including methods and materials. The standards may refer to applicable codes or they may establish requirements that exceed the minimum requirements of the codes. The rehabilitation standards must address each of the following:

(i) Health and safety. The participating jurisdiction's standards must identify life-threatening deficiencies that must be addressed immediately if the housing is occupied.

(ii) Major systems. Major systems are: structural support; roofing; cladding and weatherproofing (e.g., windows, doors, siding, gutters); plumbing; electrical; and heating, ventilation, and air conditioning. For rental housing, the participating jurisdiction's standards must require the participating jurisdiction to estimate (based on age and condition) the remaining useful life of these systems, upon project completion of each major systems. For multifamily housing projects of 26 units or more, the participating jurisdiction's standards must require the participating jurisdiction to determine the useful life of major systems through a capital needs assessment of the project. For rental housing, if the remaining useful life of one or more major system is less than the applicable period of affordability, the participating jurisdiction's standards must require the participating jurisdiction to ensure that a replacement reserve is established and monthly payments are made to the reserve that are adequate to repair or replace the systems as needed. For homeownership housing, the participating jurisdiction's standards must require, upon project completion, each of the major systems to have a remaining useful life for a minimum of 5 years or for such longer period specified by the participating jurisdiction, or the major systems must be rehabilitated or replaced as part of the rehabilitation work.

(iii) Lead-based paint. The participating jurisdiction's standards must require the housing to meet the lead-based paint requirements at 24 CFR part 35.

(iv) Accessibility. The participating jurisdiction's standards must require the housing to meet the accessibility requirements in 24 CFR part 8, which implements Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794), and Titles II and III of the Americans with Disabilities Act (42 U.S.C. 12131-12189) implemented at 28 CFR parts 35 and 36, as applicable. Covered multifamily dwellings, as defined at 24 CFR 100.201, must also meet the design and construction requirements at 24 CFR 100.205, which implements the Fair Housing Act (42 U.S.C. 3601-3619). Rehabilitation may include improvements that are not required by regulation or statute that permit use by a person with disabilities.

(v) [Reserved]

(vi) Disaster mitigation. Where relevant, the participating jurisdiction's standards must require the housing to be improved to mitigate the impact of future disasters (e.g., earthquake, hurricanes, flooding, and wildfires) in accordance with State and local codes, ordinances, and requirements, and such other requirements that HUD may establish.

(vii) State and local codes, ordinances, and zoning requirements. The participating jurisdiction's standards must require the housing to meet all applicable State and local codes, ordinances, and requirements or, in the absence of a State or local building code, the International Existing Building Code of the International Code Council.

(viii) HUD housing standards. The standards of the participating jurisdiction must be such that, upon completion, the HOME-assisted project and units will be decent, safe, sanitary, and in good repair. This means that the HOME-assisted project and units will meet the standards in 24 CFR 5.703, except that the carbon monoxide detection requirements at 24 CFR 5.703(b)(2) and (d)(6) shall not apply. For all HOME-assisted projects and units, the requirements at 24 CFR 5.705 through 5.713 do not apply. At minimum, the participating jurisdiction's rehabilitation standards must require correction of the specific deficiencies published in the Federal Register for HOME-assisted projects and units. For SRO housing, 24 CFR 5.703(d) shall only apply to the extent that the SRO unit contains the room or facility referenced in 24 CFR 5.703(d).

(A) The participating jurisdiction may accept a determination in satisfaction of another funding source's requirements that, upon the completion of the rehabilitation, the HOME-assisted project and units are decent, safe, sanitary, and in good repair in an inspection conducted under the National Standards for the Condition of HUD housing (24 CFR part 5, subpart G) or an alternative inspection standard, which HUD may establish through Federal Register publication.

(B) If a participating jurisdiction is accepting a determination pursuant to paragraph (b)(1)(viii)(A) of this section, then the participating jurisdiction must document the determination in accordance with § 92.508(a)(3)(iv) and is not required to perform a HOME inspection of the project and units for compliance with 24 CFR 5.703.

(ix) Capital Needs Assessments. For multifamily rental housing projects of 26 or more total units, the participating jurisdiction must determine all work that will be performed in the rehabilitation of the housing and the long-term physical needs of the project through a capital needs assessment of the project.

(x) Broadband infrastructure. For new commitments made after January 19, 2017 for a substantial rehabilitation project of a building with more than 4 rental units, any substantial rehabilitation, as defined in 24 CFR 5.100, must provide for installation of broadband infrastructure, as this term is also defined in 24 CFR 5.100, except where the participating jurisdiction determines and, in accordance with § 92.508(a)(3)(iv), documents the determination that:

(A) The location of the substantial rehabilitation makes installation of broadband infrastructure infeasible;

(B) The cost of installing broadband infrastructure would result in a fundamental alteration in the nature of its program or activity or in an undue financial burden; or

(C) The structure of the housing to be substantially rehabilitated makes installation of broadband infrastructure infeasible.

(xi) Carbon monoxide and smoke detection—(A) Carbon monoxide detection. A carbon monoxide alarm must be installed in the housing unit in a manner that meets or exceeds the carbon monoxide detection standards set by HUD through Federal Register publication.

(B) Smoke detection. (1) A hardwired smoke alarm must be installed:

(i) On each level of each housing unit;

(ii) In or near each sleeping area in each housing unit;

(iii) In the basement of each housing unit, and in each common area of a project. A hardwired smoke alarm is not required in crawl spaces or unfinished attics of housing units;

(iv) Within 21 feet of any door to a sleeping area measured along a path of travel; and

(v) Where a smoke alarm installed outside a sleeping area is separated from an adjacent living area by a door, a smoke alarm must also be installed on the living area side of the door.

(2) Each hardwired smoke alarm must have an alarm system designed for hearing-impaired persons.

(3) The Secretary may establish additional standards through Federal Register publication.

(4) Where the use of hardwired smoke detectors places an undue financial burden on the owner or is infeasible, a participating jurisdiction may provide a written exception to allow the owner to install a smoke detector that uses 10-year non rechargeable, nonreplaceable primary batteries. The smoke detector must be sealed, tamper-resistant, contain a means to silence the alarm, and otherwise comply with the requirements of this section.

(5) Following the relevant specification of the International Code Council (ICC) or the National Fire Protection Association Standard (NFPA) 72 satisfies the requirements of this paragraph (b)(1)(xi)(B).

(xii) Green building standards. If a participating jurisdiction exceeds the maximum per-unit subsidy limit pursuant to § 92.250(c), then upon completion of the rehabilitation the housing must meet one of the green building standards established by HUD through Federal Register publication.

(2) Construction documents and cost estimates. The participating jurisdiction must require that the work to be undertaken will meet the participating jurisdiction's rehabilitation standards. The construction contract and documents (i.e., written scope of work to be performed) must be in sufficient detail to establish the basis for a uniform inspection of the housing to determine compliance with the participating jurisdiction's standards. The participating jurisdiction must review and approve a written cost estimate for rehabilitation after determining that costs are reasonable.

(3) Frequency of inspections. The participating jurisdiction must conduct an initial property inspection to identify the deficiencies that must be addressed and must conduct on-site progress and final inspections to determine that work was done in accordance with the construction contract and construction documents. Before completing the project in the disbursement and information system established by HUD, the participating jurisdiction must perform an on-site inspection of the project to determine that all contracted work has been completed and that the project complies with the property standards and requirements in this paragraph (b). All inspections performed by the participating jurisdiction must be conducted in accordance with the participating jurisdiction's inspection procedures.

(c) Acquisition of standard housing. (1) Existing housing that is acquired with HOME assistance for rental housing, and that was newly constructed or rehabilitated less than 12 months before the date of commitment of HOME funds, must meet the property standards for new construction in paragraph (a) or rehabilitation in paragraph (b) of this section, as applicable. The participating jurisdiction must document this compliance based upon a review of approved building plans and Certificates of Occupancy, and an inspection that is conducted no earlier than 90 days before the commitment of HOME assistance.

(2) All other existing housing that is acquired with HOME assistance for rental housing must meet the rehabilitation property standards requirements of paragraph (b) of this section. The participating jurisdiction must document this compliance based upon an inspection that is conducted no earlier than 90 days before the commitment of HOME assistance. If the property does not meet these standards, HOME funds cannot be used to acquire the property unless it is rehabilitated to meet the standards of paragraph (b) of this section.

(3) Existing housing that is acquired for homeownership using homeownership assistance must be decent, safe, sanitary, and in good repair. The participating jurisdiction must establish standards to determine that the housing is decent, safe, sanitary, and in good repair. At minimum, the standards must provide that the housing meets all applicable State and local housing quality standards and code requirements, and the housing does not contain the specific deficiencies established by HUD based on the applicable standards in 24 CFR 5.703 and published in the Federal Register for HOME-assisted projects and units. The housing must also meet or exceed the carbon monoxide and smoke detection standards contained in the participating jurisdiction's rehabilitation standards pursuant to paragraph (b) of this section. If the use of hardwired smoke detectors places an undue financial burden on the homebuyer or is infeasible, a participating jurisdiction may provide a written exception to the homebuyer consistent with the requirements contained in paragraph (b) of this section.

(i) The participating jurisdiction must inspect the housing and document compliance with this paragraph (c)(3) based upon an inspection that is conducted no earlier than 90 days before the commitment of HOME assistance. If the housing does not meet these standards, the housing must be rehabilitated to meet the standards of this paragraph (c)(3) before the acquisition, except as provided in paragraph (c)(3)(ii) of this section.

(ii) If the housing is not rehabilitated to meet the standards in this paragraph (c)(3) before acquisition, then the housing may still be acquired if all of the following conditions are satisfied:

(A) The written agreement between the participating jurisdiction and the homebuyer requires the property to meet the standards within 6 months of acquisition with HOME assistance;

(B) Funding is secured to complete the rehabilitation necessary to comply with the standards; and

(C) Unless an extension is provided pursuant to paragraph (c)(3)(ii)(D) of this section, the participating jurisdiction conducts a final inspection within six months after acquisition and determines that the property meets the standards.

(D) The participating jurisdiction may provide the homebuyer with an extension of up to 12 months from acquisition to meet the standards. If the participating jurisdiction provides an extension, the participating jurisdiction must amend the written agreement to reflect the extension and conduct a final inspection within 12 months of acquisition and determine that the property meets the standards.

(iii) All inspections performed by the participating jurisdiction must be conducted in accordance with the participating jurisdiction's inspection procedures.

(d) Projects involving a combination of rehabilitation and either new construction or reconstruction. If a project includes both rehabilitation of housing units and either new construction or reconstruction of housing units, then the participating jurisdiction must apply the rehabilitation standards to the housing units that are rehabilitated and the new construction requirements to housing that is either newly constructed or reconstructed.

(e) Manufactured housing. Construction of all manufactured housing including manufactured housing that replaces an existing substandard unit under the definition of “reconstruction” must meet the Manufactured Home Construction and Safety Standards codified at 24 CFR part 3280. These standards preempt State and local codes which are not identical to the federal standards for the new construction of manufactured housing. Participating jurisdictions providing HOME funds to assist manufactured housing units must comply with applicable State and local laws or codes. In the absence of such laws or codes, the installation must comply with the manufacturer's written instructions for installation of manufactured housing units. All new manufactured housing and all manufactured housing that replaces an existing substandard unit under the definition of “reconstruction” must be on a permanent foundation that meets the requirements for foundation systems as set forth in 24 CFR 203.43f(c)(i). All new manufactured housing and all manufactured housing that replaces an existing substandard unit under the definition of “reconstruction” must, at the time of project completion, be connected to permanent utility hook-ups and be located on land that is owned by the manufactured housing unit owner or land for which the manufactured housing owner has a lease for a period at least equal to the applicable period of affordability. In HOME-funded rehabilitation of existing manufactured housing the foundation and anchoring must meet all applicable State and local codes, ordinances, and requirements or in the absence of local or state codes, the Model Manufactured Home Installation Standards at 24 CFR part 3285. Manufactured housing that is rehabilitated using HOME funds must meet the property standards requirements in paragraph (b) of this section, as applicable. The participating jurisdiction must document this compliance in accordance with inspection procedures that the participating jurisdiction has established pursuant to § 92.251, as applicable.

(f) Ongoing property condition standards and inspections: Rental housing and housing occupied by tenants receiving HOME tenant-based rental assistance—(1) Ongoing property standards. The participating jurisdiction must establish property standards for rental housing (including manufactured housing) that apply throughout the period of affordability and for housing occupied by tenants receiving HOME tenant-based rental assistance. The standards must require that owners maintain the housing as decent, safe, sanitary, and in good repair. The participating jurisdiction's description of its property standards must be in sufficient detail to establish the basis for a uniform inspection of HOME rental projects and housing occupied by tenants receiving HOME tenant-based rental assistance. The participating jurisdiction's ongoing property standards must address all of the following:

(i) Compliance with State and local codes, ordinances, and requirements. The participating jurisdiction's standards must require the housing to meet all applicable State and local code requirements and ordinances. In the absence of existing applicable State or local code requirements and ordinances, at a minimum, the participating jurisdiction's ongoing property standards must provide that the property does not contain the specific deficiencies established by HUD based on the applicable standards in 24 CFR 5.703 and published in the Federal Register for HOME rental housing (including manufactured housing) and housing occupied by tenants receiving HOME tenant-based rental assistance, except that the carbon monoxide detection requirements at 24 CFR 5.703(b)(2) and (d)(6) shall not apply. The participating jurisdiction's property standards are not required to comply with 24 CFR 5.705 through 5.713.

(ii) Health and safety. The participating jurisdiction's standards must require the housing to be free of all health and safety defects. The standards must identify life-threatening deficiencies that the owner must immediately correct and the time frames for addressing these deficiencies.

(iii) Lead-based paint. The participating jurisdiction's standards must require the housing to meet the lead-based paint requirements in 24 CFR part 35.

(iv) Carbon monoxide and smoke detection—(A) Carbon monoxide detection. A carbon monoxide alarm must be installed in the housing unit in a manner that meets or exceeds the carbon monoxide detection standards set by HUD through Federal Register publication.

(B) Smoke detection. The participating jurisdiction's standards must require housing to contain smoke detectors in accordance with the requirements contained in 24 CFR 5.703(b) and (d).

(2) Projects to which HOME funds were committed before January 24, 2015 must meet all applicable State or local housing quality standards or code requirements, and if there are no such standard or code requirements, the housing must meet the housing quality standards in 24 CFR 982.401.

(3) Ongoing inspections of HOME-assisted rental housing. During the period of affordability, the participating jurisdiction must perform on-site inspections of HOME-assisted rental housing to determine compliance with the property standards in paragraph (f)(1) of this section and to verify the information submitted by owners in accordance with the requirements of § 92.252. The participating jurisdiction must perform inspections in accordance with its established inspection procedures. These procedures, at minimum, must include the following requirements:

(i) Frequency of inspections. The participating jurisdiction must perform an on-site inspection within 12 months after project completion and complete one of the following every 3 years during the period of affordability:

(A) Perform an on-site inspection in accordance with the participating jurisdiction's inspection procedures to determine compliance with the property standards; or

(B) Accept a determination made within the past 12 months in satisfaction of another funding source's requirements, that the HOME-assisted project and units are decent, safe, sanitary, and in good repair in an inspection conducted under the National Standards for the Condition of HUD housing (24 CFR part 5, subpart G) or an alternative inspection standard, which HUD may establish through Federal Register publication. If a participating jurisdiction is accepting a determination, then the participating jurisdiction must document the determination in accordance with § 92.508(a)(3)(iv) and is not required to perform an on-site HOME inspection of the project and the units for compliance with 24 CFR 5.703.

(ii) Annual certification. The owner must annually certify to the participating jurisdiction that each building and all HOME-assisted units in the project are suitable for occupancy, taking into account State and local health, safety, and other applicable codes, ordinances, and requirements, and the ongoing property standards established by the participating jurisdiction.

(iii) Units inspected. Inspections must be based on a random sample of the HOME-assisted units in the project with a mix of unit sizes (e.g., a mix of one-bedroom, two-bedroom, and three-bedroom units) in accordance with the chart contained in this paragraph. All inspections must include the inspectable areas for each building containing HOME-assisted units. For projects with one-to-four HOME-assisted units, the participating jurisdiction must inspect 100 percent of the HOME-assisted units and the inspectable areas for each building with HOME-assisted units.

(iv) Financial oversight. During the period of affordability, the participating jurisdiction must at least annually examine the financial condition of projects with 10 or more HOME-assisted units to determine the continued financial viability of the housing and must take actions to correct problems, to the extent feasible.

(4) Annual inspections for housing with tenants receiving HOME tenant-based rental assistance. All housing occupied by tenants receiving HOME tenant-based rental assistance must meet the property standards of paragraph (f)(1) of this section. The participating jurisdiction must annually determine that the housing is decent, safe, sanitary, and in good repair through one of the following methods:

(i) An annual on-site inspection in accordance with its inspection procedures for annual inspections to determine the housing meets the property standards in paragraph (f)(1) of this section; or

(ii) An inspection conducted within the past 3 months in satisfaction of another funding source's requirements under the National Standards for the Condition of HUD housing (24 CFR part 5, subpart G) or an alternative inspection standard, which HUD may establish through Federal Register publication. A participating jurisdiction may move its inspection cycle to align with an inspection covered by this paragraph. If a participating jurisdiction is accepting an inspection pursuant to this paragraph, then the participating jurisdiction must document the inspection's determination that the housing is decent, safe, sanitary, and in good repair in accordance with § 92.508(a)(3)(iv) and is not required to perform a HOME inspection of the project and units for compliance with 24 CFR 5.703.

(5) Corrective and remedial actions. The participating jurisdiction must have procedures for requiring that timely corrective and remedial actions are taken by the owner to address identified deficiencies.

(i) Health and safety deficiencies. Health and safety deficiencies must be corrected immediately. Except for small-scale housing, the participating jurisdiction must adopt a more frequent inspection schedule for properties that have been found to have health and safety deficiencies. For small-scale housing, the participating jurisdiction may adopt a more frequent inspection schedule if the small-scale housing is found to have health and safety deficiencies, as described in its inspection procedures.

(ii) Other deficiencies. If there are observed deficiencies for any of the inspectable areas in the property standards established by the participating jurisdiction, in accordance with the inspection procedures, a follow-up on-site inspection to verify that deficiencies are corrected must occur within 12 months. The participating jurisdiction may establish a list of non-hazardous deficiencies for which correction can be verified by third party documentation (e.g., paid invoice for work order) rather than re-inspection.

(g) Inspection procedures. The participating jurisdiction must establish written inspection procedures. The procedures must include detailed inspection checklists, a description of how and by whom inspections will be carried out, and procedures for training and certifying qualified inspectors. For ongoing property inspections, the procedures must also describe how frequently the property will be inspected, consistent with this section and § 92.209.

[78 FR 44670, July 24, 2013, as amended at 81 FR 92635, Dec. 20, 2016; 88 FR 30496, May 11, 2023; 90 FR 870, Jan. 6, 2025]

The HOME-assisted units in a rental housing project must be occupied by households that are eligible as low-income families and must meet the requirements of this section to qualify as affordable housing. If the housing is not occupied by eligible tenants within six months following the date of project completion, the participating jurisdiction must revise its marketing plan to enable the project to reach required occupancy. The participating jurisdiction must repay HOME funds invested in any housing unit that has not been rented to eligible tenants within 18 months after the date of project completion. The affordability requirements in this section also apply to the HOME-assisted non-owner-occupied units in single family housing purchased with HOME funds in accordance with § 92.254. A tenant must have a written lease that complies with § 92.253.

(a) HOME rent limits. The rent for a HOME-assisted unit must not exceed the rent limits in this section. HUD will publish the HOME rent limits on an annual basis, with adjustments for number of bedrooms in the unit. The rent limits do not apply to any rental assistance or subsidy payment provided under a Federal, State, or local rental assistance or subsidy program. Regardless of changes in fair market rents and in median income over time, the rents for a project are not required to be lower than the HOME rent limits for the project in effect at the time of project commitment. The participating jurisdiction may designate (in its written agreement with the owner) more than the minimum HOME units in a rental housing project, regardless of project size. The rent limits apply to the rent plus the utilities or utility allowance.

(1) High HOME rent limits. If a low-income family is participating in a program where the family pays as a contribution toward rent no more than 30 percent of the family's monthly adjusted income or 10 percent of the family's monthly income, then the maximum rent due from the family is the family's contribution. For all other cases, the rent does not exceed the lesser of:

(i) The fair market rent for existing housing for comparable units in the area as established by HUD under 24 CFR 888.111; or

(ii) 30 percent of the adjusted income of a family whose annual income equals 65 percent of the median income for the area, as determined by HUD.

(2) Low HOME rent limits. In rental projects with five or more HOME-assisted rental units, at least 20 percent of the HOME-assisted units must be occupied by very low-income families. If a very low-income family is participating in a program where the family pays as a contribution toward rent no more than 30 percent of the family's monthly adjusted income or 10 percent of the family's monthly income, then the maximum rent due from the family is the family's contribution. All other Low HOME Rent units must have rent that meet one of the following requirements:

(i) The rent does not exceed 30 percent of the annual income of a family whose income equals 50 percent of the median income for the area, as determined by HUD. If the rent determined under this paragraph is higher than the fair market rent under paragraph (a)(1)(i) of this section, then the maximum rent for units under this paragraph is the fair market rent under paragraph (a)(1)(i);

(ii) The rent contribution of the family is not more than 30 percent of the family's adjusted income; or

(iii) The unit is a LIHTC unit and has rents not greater than the gross rent for rent-restricted residential units as determined under 26 U.S.C. 42(g)(2).

(3) HOME rent limits for SRO projects. (i) For SRO units that have both sanitary and food preparation facilities, the rent limit is the zero-bedroom fair market rent as established by HUD under 24 CFR part 888. The project must meet the requirements of paragraphs (a)(1) and (2) of this section.

(ii) For SRO units that have no sanitary or food preparation facilities or only one of the two, the rent limit is 75 percent of the zero-bedroom fair market rent as established by HUD under 24 CFR part 888. The project must be occupied by very low-income tenants.

(b) Utility allowances. The participating jurisdiction must establish maximum monthly allowances for utilities and services (excluding telephone, cable, and broadband) and update the allowances annually. The participating jurisdiction may determine the utility allowance for the project based on the type of utilities and services paid by the tenant, including any energy efficiency measures. The participating jurisdiction may use any of the following for its maximum monthly allowances: the HUD Utility Schedule Model, the utility allowance established by the applicable local public housing authority, or another method approved by HUD.

(c) Review and approval of rents. The participating jurisdiction must review and approve rents proposed by the owner for units, subject to the rent limits in paragraph (a) of this section. For all units subject to the rent limits in paragraph (a) for which the tenant is paying utilities and services, the participating jurisdiction must require that the rents do not exceed the rent limits in paragraph (a) minus the monthly allowances for utilities and services in paragraph (b) of this section.

(d) Period of affordability. The HOME-assisted units must meet requirements under this part for the applicable period specified in the table in this paragraph (d), beginning from project completion.

(1) The affordability requirements, including the applicable rent limits, period of affordability, and income requirements:

(i) Apply without regard to the term of any loan or mortgage, repayment of the HOME investment, or the transfer of ownership;

(ii) Must be imposed by a deed or use restriction, lien on real property, a covenant running with the land, a recorded agreement restricting the use of the property, or other mechanisms approved by HUD in writing, under which the participating jurisdiction has the right to require specific performance (except that the participating jurisdiction may provide that the affordability requirements may terminate upon foreclosure or transfer in lieu of foreclosure); and

(iii) Must be recorded in accordance with State recordation laws.

(2) The participating jurisdiction may use purchase options, rights of first refusal, or other preemptive rights to purchase the housing before foreclosure or deed in lieu of foreclosure in order to preserve affordability.

(3) The affordability restrictions shall be revived according to the original terms if, during the original period of affordability, the owner of record before the foreclosure, or deed in lieu of foreclosure, or any entity that includes the former owner or those with whom the former owner has or had family or business ties, obtains an ownership interest in the project or property.

(4) The termination of the affordability requirements on the project does not terminate the participating jurisdiction's repayment obligation under § 92.503(b).

(e) Subsequent rents during the period of affordability. (1) The HOME rent limits are recalculated on a periodic basis after HUD determines fair market rents and median incomes. HUD then publishes the updated HOME rent limits.

(2) The participating jurisdiction must provide project owners with information on updated HOME rent limits so that rents may be adjusted (not to exceed the rent limits in paragraph (a) of this section) in accordance with the written agreement between the participating jurisdiction and the owner. Owners must annually provide the participating jurisdiction with information on rents and occupancy of HOME-assisted units to demonstrate compliance with this section. The participating jurisdiction must review rents for compliance and approve or disapprove them every year.

(3) Any increase in rents for HOME-assisted units is subject to the provisions of outstanding leases, and in any event, the owner must provide tenants of those units not less than 60 days prior written notice before implementing any increase in rents.

(f) Adjustment of HOME rent limits for an existing project. (1) Changes in fair market rents and in median income over time should be sufficient to maintain the financial viability of a project within the HOME rent limits in this section.

(2) HUD may adjust the HOME rent limits for a project, only if HUD finds that an adjustment is necessary to support the continued financial viability of the project and only by an amount that HUD determines is necessary to maintain continued financial viability of the project. HUD expects that this authority will be used sparingly.

(g) Tenant income. The income of each tenant must be determined initially in accordance with § 92.203(b)(1)(i) unless the participating jurisdiction accepts an annual income determination pursuant to § 92.203(a)(1), (2), or (3) or determines income in accordance with § 92.203(b)(3). In addition, each year during the period of affordability, the participating jurisdiction must require the project owner to re-examine each tenant's annual income in accordance with the option in § 92.203(b)(1) selected by the participating jurisdiction and included in the written agreement, except as follows:

(1) A participating jurisdiction may permit an owner of small-scale housing to re-examine each tenant's annual income in accordance with the chart in this paragraph (g)(1), instead of annually, during the period of affordability.

(2) A participating jurisdiction that permits an owner of a rental project (including small-scale housing projects) with a period of affordability of ten years or more to re-examine a tenant's annual income through a statement and certification in accordance with § 92.203(b)(1)(ii), must require the owner to re-examine the income of each tenant, in accordance with § 92.203(b)(1)(i), at minimum, every sixth year during the period of affordability; and,

(3) If the participating jurisdiction accepts an annual income determination pursuant to § 92.203(a)(1), (2), or (3), an owner is not required to re-examine a tenant's annual income in accordance with § 92.203(b) for HOME.

(h) Over-income tenants. (1) HOME-assisted units continue to qualify as affordable housing despite a temporary noncompliance caused by increases in the incomes of existing tenants if actions satisfactory to HUD are being taken to ensure that all vacancies are filled in accordance with this section until the noncompliance is corrected.

(2) A tenant who no longer qualifies as low-income must pay a rent amount equal to the lesser of the amount payable by the tenant under State or local law or 30 percent of the family's adjusted income, except that:

(i) A tenant of a HOME-assisted unit subject to rent restrictions under section 42 of the Internal Revenue Code of 1986 (26 U.S.C. 42) must pay a rent amount that complies with that section;

(ii) A tenant in a HOME-assisted unit designated as floating pursuant to paragraph (j) of this section shall pay a rent amount no greater than the fair market rent for comparable, unassisted units in the neighborhood; and

(iii) The rent limits do not apply to any rental assistance or subsidy payment provided under a Federal, State, or local rental assistance or subsidy program.

(i) Surety bonds. Surety bonds, security deposit insurance, or instruments similar to surety bonds and security deposit insurance may not be used in lieu of or in addition to a security deposit in HOME-assisted units.

(j) Fixed and floating HOME units. In a project containing HOME-assisted and other units, the participating jurisdiction may designate fixed or floating HOME units. This designation must be made at the time of project commitment in the written agreement between the participating jurisdiction and the owner, and the HOME units must be identified not later than the time of initial unit occupancy. Fixed units remain the same throughout the period of affordability. Floating units are changed to maintain conformity with the requirements of this section during the period of affordability so that the total number of housing units meeting the requirements of this section remains the same, and each substituted unit is comparable in terms of size, features, and number of bedrooms to the originally designated HOME-assisted unit.

(k) Tenant selection. The tenants must be selected in accordance with § 92.253(e).

(l) Ongoing responsibilities. The participating jurisdiction's responsibilities for on-site inspections and financial oversight of rental projects are set forth in § 92.251(f).

[90 FR 873, Jan. 6, 2025]

Link to an amendment published at 90 FR 876, Jan. 6, 2025. This amendment was delayed until April 20, 2025, at 90 FR 8780, Feb. 3, 2025. This amendment was further delayed until Oct. 30, 2025 at 90 FR 16085, Apr. 17, 2025.

(a) Lease. There must be a written lease between the tenant and the owner of rental housing assisted with HOME funds that is for a period of not less than 1 year, unless by mutual agreement between the tenant and the owner a shorter period is specified. The lease must incorporate the VAWA lease term/addendum required under § 92.359(e), except as otherwise provided by § 92.359(b).

(b) Prohibited lease terms. The lease may not contain any of the following provisions:

(1) Agreement to be sued. Agreement by the tenant to be sued, to admit guilt, or to a judgment in favor of the owner in a lawsuit brought in connection with the lease;

(2) Treatment of property. Agreement by the tenant that the owner may take, hold, or sell personal property of household members without notice to the tenant and a court decision on the rights of the parties. This prohibition, however, does not apply to an agreement by the tenant concerning disposition of personal property remaining in the housing unit after the tenant has moved out of the unit. The owner may dispose of this personal property in accordance with State law;

(3) Excusing owner from responsibility. Agreement by the tenant not to hold the owner or the owner's agents legally responsible for any action or failure to act, whether intentional or negligent;

(4) Waiver of notice. Agreement of the tenant that the owner may institute a lawsuit without notice to the tenant;

(5) Waiver of legal proceedings. Agreement by the tenant that the owner may evict the tenant or household members without instituting a civil court proceeding in which the tenant has the opportunity to present a defense, or before a court decision on the rights of the parties;

(6) Waiver of a jury trial. Agreement by the tenant to waive any right to a trial by jury;

(7) Waiver of right to appeal court decision. Agreement by the tenant to waive the tenant's right to appeal, or to otherwise challenge in court, a court decision in connection with the lease;

(8) Tenant chargeable with cost of legal actions regardless of outcome. Agreement by the tenant to pay attorney's fees or other legal costs even if the tenant wins in a court proceeding by the owner against the tenant. The tenant, however, may be obligated to pay costs if the tenant loses; and

(9) Mandatory supportive services. Agreement by the tenant (other than a tenant in transitional housing) to accept supportive services that are offered.

(c) Termination of tenancy. An owner may not terminate the tenancy or refuse to renew the lease of a tenant of rental housing assisted with HOME funds, except for serious or repeated violation of the terms and conditions of the lease; for violation of applicable Federal, State, or local law; for completion of the tenancy period for transitional housing or failure to follow any required transitional housing supportive services plan; or for other good cause. Good cause does not include an increase in the tenant's income or refusal of the tenant to purchase the housing. To terminate or refuse to renew tenancy, the owner must serve written notice upon the tenant specifying the grounds for the action at least 30 days before the termination of tenancy.

(d) Tenant selection. An owner of rental housing assisted with HOME funds must comply with the affirmative marketing requirements established by the participating jurisdiction pursuant to § 92.351(a). The owner must adopt and follow written tenant selection policies and criteria that:

(1) Limit the housing to very low- income and low-income families;

(2) Are reasonably related to the applicants' ability to perform the obligations of the lease (i.e., to pay the rent, not to damage the housing; not to interfere with the rights and quiet enjoyment of other tenants);

(3) Limit eligibility or give a preference to a particular segment of the population if permitted in its written agreement with the participating jurisdiction (and only if the limitation or preference is described in the participating jurisdiction's consolidated plan).

(i) Any limitation or preference must not violate nondiscrimination requirements in § 92.350. A limitation or preference does not violate nondiscrimination requirements if the housing also receives funding from a Federal program that limits eligibility to a particular segment of the population (e.g., the Housing Opportunity for Persons with AIDS program under 24 CFR part 574, the Shelter Plus Care program under 24 CFR part 582, the Supportive Housing program under 24 CFR part 583, supportive housing for the elderly or persons with disabilities under 24 CFR part 891), and the limit or preference is tailored to serve that segment of the population.

(ii) If a project does not receive funding from a Federal program that limits eligibility to a particular segment of the population, the project may have a limitation or preference for persons with disabilities who need services offered at a project only if:

(A) The limitation or preference is limited to the population of families (including individuals) with disabilities that significantly interfere with their ability to obtain and maintain housing;

(B) Such families will not be able to obtain or maintain themselves in housing without appropriate supportive services; and

(C) Such services cannot be provided in a nonsegregated setting. The families must not be required to accept the services offered at the project. In advertising the project, the owner may advertise the project as offering services for a particular type of disability; however, the project must be open to all otherwise eligible persons with disabilities who may benefit from the services provided in the project.

(4) Do not exclude an applicant with a voucher under the Section 8 Tenant-Based Assistance: Housing Choice Voucher Program (24 CFR part 982) or an applicant participating in a HOME tenant-based rental assistance program because of the status of the prospective tenant as a holder of such voucher or comparable HOME tenant-based assistance document.

(5) Provide for the selection of tenants from a written waiting list in the chronological order of their application, insofar as is practicable;

(6) Give prompt written notification to any rejected applicant of the grounds for any rejection; and

(7) Comply with the VAWA requirements prescribed in § 92.359.

[61 FR 48750, Sept. 16, 1996, as amended at 67 FR 61756, Oct. 1, 2002; 78 FR 44674, July 24, 2013; 81 FR 80803, Nov. 16, 2016; 89 FR 38290, May 7, 2024]

(a) Acquisition with or without rehabilitation. Housing that is for acquisition by a family must meet the affordability requirements of this paragraph (a).

(1) The housing must be single family housing.

(2) The housing must be modest housing as follows:

(i) In the case of acquisition of newly constructed housing or standard housing, the housing has a purchase price for the type of single family housing that does not exceed 95 percent of the median purchase price for the area, as described in paragraph (a)(2)(iii) of this section.

(ii) In the case of acquisition with rehabilitation, the housing has an estimated value after rehabilitation that does not exceed 95 percent of the median purchase price for the area, described in paragraph (a)(2)(iii) of this section.

(iii) If a participating jurisdiction intends to use HOME funds for homebuyer assistance or for the rehabilitation of owner-occupied single family properties, the participating jurisdiction must use the HOME affordable homeownership limits provided by HUD for newly constructed housing and for existing housing.

(A) HUD will provide limits for affordable newly constructed housing based on 95 percent of the median purchase price for the area using Federal Housing Administration (FHA) single family mortgage program data for newly constructed housing, with a minimum limit based on 95 percent of the U.S. median purchase price for new construction for nonmetropolitan areas.

(B) HUD will provide limits for affordable existing housing based on 95 percent of the median area purchase price for the area using FHA single family mortgage program data for existing housing and other appropriate data that are available Nation-wide for purchase of existing housing, with a minimum limit based on 95 percent of the State-wide nonmetropolitan area median area purchase price using this data.

(iv) In lieu of the limits provided by HUD, the participating jurisdiction may determine 95 percent of the median area purchase price for single family housing in the jurisdiction annually, as follows:

(A) The participating jurisdiction must set forth the limits for single family housing of one, two, three, and four units, for the jurisdiction. The participating jurisdiction may determine separate limits for existing housing and newly constructed housing.

(B) For the limits on housing located outside of metropolitan areas, a State may aggregate sales data from more than one county if the counties are contiguous and similarly situated.

(C) The participating jurisdiction must include the following information in the annual action plan of the Consolidated Plan submitted to HUD for review and must update the information in each action plan.

(1) The 95 percent of median area purchase price must be established in accordance with a market analysis that ensured that a sufficient number of recent housing sales are included in the survey;

(2) Sales must cover the requisite number of months based on volume: For 500 or more sales per month, a 1-month reporting period; for 250 through 499 sales per month, a 2-month reporting period; for less than 250 sales per month, at least a 3-month reporting period. The data must be listed in ascending order of purchase price;

(3) The address of the listed properties must include the location within the participating jurisdiction. Lot, square, and subdivision data may be substituted for the street address;

(4) The housing sales data must reflect all, or nearly all, of the single family housing sales in the entire participating jurisdiction; and.

(5) To determine the median area purchase price, a participating jurisdiction must take the middle sale on the list if an odd number of sales, and if an even number, take the higher of the middle numbers and consider it the median. After identifying the median area purchase price, the amount should be multiplied by 0.95 to determine the 95 percent of the median area purchase price.

(3) The housing must be acquired by a homebuyer whose family qualifies as a low-income family, and the housing must be the principal residence of the family throughout the period described in paragraph (a)(4) of this section. If there is no ratified sales contract with an eligible homebuyer for the housing within 12 months of the date of completion of construction or rehabilitation, the housing must be rented to an eligible tenant as affordable rental housing and must comply with the requirements in § 92.252, including the period of affordability in § 92.252(d). In determining the income eligibility of the family, the participating jurisdiction must include the income of all persons living in the housing. The homebuyer must receive housing counseling. If housing is being purchased by an in-place tenant pursuant to § 92.255, then the housing may be acquired if the homebuyer's family was low-income at the time the homebuyer's family began occupying the HOME rental housing unit. If the housing does not meet the participating jurisdiction's property standards in § 92.251 at the time of acquisition, then the housing may still be acquired if the written agreement between the participating jurisdiction and the homebuyer requires the property to meet the standards within the period specified in § 92.251(c)(3)(ii) and funding is secured to complete the rehabilitation necessary to comply with the standards.

(4) Periods of affordability. The HOME-assisted housing must meet the affordability requirements for not less than the applicable period specified in the following table, beginning after execution of the instrument that requires the recapture of the HOME investment or recordation of the resale restrictions for sale to the next homebuyer. Execution of the instrument that requires the recapture of the HOME investment or recordation of the resale restrictions for sale to the next homebuyer may only occur after the housing meets the participating jurisdiction's property standards in accordance with § 92.251(c)(3) and the property title is transferred to the homebuyer. The per unit amount of HOME funds and the period of affordability that they trigger are described more fully in paragraphs (a)(5)(i) (resale) and (ii) (recapture) of this section. The period of affordability is based on the total amount of HOME funds invested in the housing.

(5) Resale and recapture. The participating jurisdiction must establish the resale or recapture requirements that comply with the standards of this section and set forth the requirements in its consolidated plan. HUD must determine that they are appropriate and must specifically approve them in writing.

(i) Resale. Resale requirements must ensure, if the housing does not continue to be the principal residence of the family for the duration of the period of affordability, that the housing is made available for subsequent purchase only to a buyer whose family qualifies as a low-income family and will use the property as the family's principal residence. The resale requirement must also ensure that the price at resale provides the HOME-assisted homeowner a fair return on investment (including the homeowner's investment and any improvements) and ensure the housing will remain affordable to a reasonable range of low-income homebuyers. The resale price is the fair return on investment added to the original sales price of the property, subject to market conditions. The participating jurisdiction must specifically define “fair return on investment” and “affordability to a reasonable range of low-income homebuyers,” and specifically address how it will make the housing affordable to a low-income homebuyer in the event that the resale price necessary to provide a fair return is not affordable to the subsequent homebuyer. The period of affordability is based on the total amount of HOME funds invested in the housing.

(A) Permissible methods of determining fair return and the resale price include but are not limited to the following:

(1) Itemized formula. To determine fair return on investment and resale price, the participating jurisdiction may use an itemized formula to add or subtract common, clearly defined factors that increase or decrease the value of a homeowner's investment in the property over the term of ownership. This formula must include the value of capital improvements and the sum of the downpayment and all principal payments by the homeowner on the loan secured by the property. The formula may depreciate the value of the capital improvements and may take into consideration any reduction in value due to property damage or delayed or deferred maintenance of the property condition. The fair return on a homeowner's investment under this formula is calculated by taking the sum of the defined factors for the homeowner's investment in the property over the term of ownership and multiplying this amount by a clearly defined, publicly accessible index or standard.

Formula 1 to Paragraph (a)(5)(i)(A)(1)

(2) Appraisal formula. The participating jurisdiction may use an appraisal formula to determine fair return on investment and resale price based on the amount of market appreciation, if any, over the term of ownership. Under this method, the appraisals must be conducted by a State licensed or certified third-party appraiser. The amount of market appreciation over the term of ownership is determined by subtracting the appraised value at the time of initial purchase from the appraised value of the property at the time of resale. The fair return on a homeowner's investment under this formula is calculated by multiplying a clearly defined, publicly accessible standard or index by the amount of market appreciation over the term of homeownership.

Formula 2 to Paragraph (a)(5)(i)(A)(2)

(3) Index formula. The participating jurisdiction may use an index formula to determine fair return on investment and resale price based on the change in value of a homeowner's investment over the term of ownership. Index formulas adjust the value of the homeowner's investment in proportion to changes in an index, such as the change in median household income. To determine the homeowner's fair return using this model, the sum of the property's original purchase price and the value of any capital improvements to the property is multiplied by the change in the specified index during the term of ownership. The formula may also depreciate the value of the capital improvements and may take into consideration any reduction in value due to property damage or delayed or deferred maintenance of the property condition.

Formula 3 to Paragraph (a)(5)(i)(A)(3)

(4) Fixed-rate formula. The participating jurisdiction may use a fixed-rate formula to determine the homeowner's fair return on investment. Fixed-rate formulas adjust the value of the homeowner's investment by a fixed percentage (rate) per year (e.g., 3.5 percent). To determine the fair return on investment using this model, the fixed rate is multiplied by the number of years the homeowner owned and occupied the home (e.g., 3.5 percent × 10 years = 35%). The resulting rate is then multiplied by the sum of the original purchase price of the home and the value of any capital improvements to the property to calculate the fair return to the homeowner. The formula may also depreciate the value of the capital improvements and may take into consideration any reduction in value due to property damage or delayed or deferred maintenance of the property condition.

Formula 4 to Paragraph (a)(5)(i)(A)(4)

(B) Except as provided in paragraph (a)(5)(i)(C) of this section, deed or use restrictions, a recorded agreement restricting the use of the property, liens on real property, covenants running with the land, or other similar mechanisms approved by HUD in writing must be used to impose the resale requirements.

(C) The affordability restrictions may terminate upon occurrence of any of the following termination events: foreclosure, transfer in lieu of foreclosure, or assignment of an FHA-insured mortgage to HUD. If the owner of record before the termination event obtains an ownership interest in the property after the termination event, then the affordability restrictions shall be revived under the same terms prior to the termination event, including a minimum period of affordability equal to the terminated period of affordability.

(D) Certain housing may be presumed to meet the resale restrictions (i.e., the housing will be available and affordable to a reasonable range of low-income homebuyers; a low-income homebuyer will occupy the housing as the family's principal residence; and the original owner will be afforded a fair return on investment) during the period of affordability without the imposition of enforcement mechanisms by the participating jurisdiction. The presumption must be based upon a market analysis of the neighborhood in which the housing is located. The market analysis must include an evaluation of the location and characteristics of the housing and residents in the neighborhood (e.g., sale prices, age and amenities of the housing stock, incomes of residents, percentage of owner-occupants) in relation to housing and incomes in the housing market area. An analysis of the current and projected incomes of neighborhood residents for an average period of affordability for homebuyers in the neighborhood must support the conclusion that a reasonable range of low-income families will continue to qualify for mortgage financing. For example, an analysis shows that the housing is modestly priced within the housing market area and that families with incomes of 65 percent to 80 percent of the area median income can afford monthly payments under average FHA terms without other government assistance and housing will remain affordable at least during the next five to seven years compared to other housing in the market area; the size and amenities of the housing are modest and substantial rehabilitation will not significantly increase the market value; the neighborhood has housing that is not currently owned by the occupants, but the participating jurisdiction is encouraging homeownership in the neighborhood by providing homeownership assistance and by making improvements to the streets, sidewalks, and other public facilities and services. If a participating jurisdiction in preparing a neighborhood revitalization strategy under § 91.215(e)(2) of its Consolidated Plan has incorporated the type of market data described above, that submission may serve as the required analysis under this section. If the participating jurisdiction continues to provide homeownership assistance for housing in the neighborhood, it must periodically update the market analysis to verify the original presumption of continued affordability.

(ii) Recapture. (A) Recapture provisions must require that the participating jurisdiction recoups all or a portion of the HOME assistance provided to the homebuyers if the housing does not continue to be the principal residence of the family for the duration of the period of affordability. The participating jurisdiction may structure its recapture provisions based on its program design and market conditions. The period of affordability is based upon the amount of HOME funds that directly assisted the homebuyer to buy the housing unit. This amount includes any HOME assistance that assisted the homebuyer to purchase the housing or reduced the purchase price paid by the homebuyer from fair market value to an affordable price but excludes the amount of HOME assistance provided to develop the unit that does not assist the homebuyer or reduce the purchase price paid by the homebuyer. Recapture provisions may permit the subsequent homebuyer to assume the HOME assistance (subject to the HOME requirements for the remainder of the period of affordability) if the subsequent homebuyer is low-income and no additional HOME assistance is provided.

(B) The following options for recapture requirements are acceptable to HUD. The participating jurisdiction may adopt, modify, or develop its own recapture requirements for HUD approval. In establishing its recapture requirements, the participating jurisdiction is subject to the limitation that when the recapture requirement is triggered by a sale (voluntary or involuntary) of the housing unit, the amount recaptured cannot exceed the net proceeds, if any. The net proceeds are the sales price minus superior loan repayment (other than HOME funds) and any closing costs.

(1) Recapture entire amount. The participating jurisdiction may recapture the entire amount of the HOME investment from the homeowner.

(2) Reduction during period of affordability. The participating jurisdiction may reduce the HOME investment amount to be recaptured on a pro rata basis for the time the homeowner has owned and occupied the housing measured against the required period of affordability.

(3) Shared net proceeds. If the net proceeds are not sufficient to recapture the full HOME investment (or a reduced amount as provided for in paragraph (a)(5)(ii)(A)(2) of this section) plus enable the homeowner to recover the amount of the homeowner's downpayment and any capital improvement investment made by the owner since purchase, the participating jurisdiction may share the net proceeds. The net proceeds are the sales price minus loan repayment (other than HOME funds) and closing costs. The net proceeds may be divided proportionally as set forth in the following mathematical formulas:

Formula 5 to Paragraph (a)(5)(ii)(A)(2)

(4) Owner investment returned first. The participating jurisdiction may permit the homebuyer to recover the homebuyer's entire investment (downpayment and capital improvements made by the owner since purchase) before recapturing the HOME investment.

(5) Amount subject to recapture. The HOME investment subject to recapture is the amount of HOME funds that directly assisted the homebuyer to buy the housing. This includes the amount that assisted the homebuyer to purchase the housing or reduced the purchase price paid by the homebuyer from fair market value to an affordable price but excludes the amount of HOME assistance provided to develop the unit that did not assist the homebuyer or reduce the purchase price paid by the homebuyer. The recaptured funds must be used to carry out HOME-eligible activities in accordance with the requirements of this part. If the HOME assistance is only used for the development subsidy and therefore not subject to recapture, the resale option must be used.

(6) Special considerations for single family properties with more than one unit. If the HOME funds are only used to assist a low-income homebuyer to acquire one unit in single family housing containing more than one unit and the assisted unit will be the principal residence of the homebuyer, the affordability requirements of this section apply only to the assisted unit. If HOME funds are also used to assist the low-income homebuyer to acquire one or more rental units in the single-family housing, the affordability requirements of § 92.252 apply to the assisted rental units, except that the participating jurisdiction may impose resale or recapture restrictions on all assisted units (owner-occupied and rental units) in the single-family housing. If resale restrictions are used, the affordability requirements on all assisted units continue for the period of affordability. If recapture restrictions are used, the affordability requirements on the assisted rental units may be terminated, at the discretion of the participating jurisdiction, upon recapture of the HOME investment. If HOME funds are used to assist only the rental units in a single-family property, then the requirements of § 92.252 would apply and the owner-occupied unit would not be subject to the income targeting or affordability provisions of § 92.254.

(7) Lease-purchases in the HOME program. A homeownership project may consist of acquisition, rehabilitation, or new construction of housing to be sold to an eligible low-income homebuyer through a lease-purchase program.

(i) The homebuyer must qualify as a low-income family at the time of signing the lease-purchase agreement. In determining the income eligibility of the family, the participating jurisdiction must include the income of all persons living in the housing. If a family is also receiving HOME tenant-based rental assistance, the participating jurisdiction is not required to reexamine the family's income during the term of the lease-purchase agreement.

(ii) The owner and homebuyer must execute a lease-purchase agreement under an existing lease-purchase program prior to occupancy of the unit. The lease-purchase agreement must require the purchase of the housing within 36 months of execution. Owners and homebuyers that have entered into a lease-purchase agreement pursuant to the requirements in this paragraph are subject to the affordability requirements in this section unless the housing is not purchased within the required timeframes in this paragraph in accordance with the lease-purchase agreement.

(iii) If the first homebuyer does not acquire the housing in accordance with the lease-purchase agreement, the owner must sell the housing to another eligible low-income homebuyer within 48 months from the execution of the original lease-purchase agreement. The next homebuyer is eligible for homeownership assistance from the participating jurisdiction. The owner is not permitted to sell the unit through another lease-purchase agreement. When the next homebuyer purchases the housing, the homebuyer shall be subject to the affordability requirements in this section.

(iv) If the owner is unable to sell the unit within 48 months from the execution of the lease-purchase agreement, the housing is subject to the requirements for affordable rental housing in § 92.252.

(8) Contract to purchase. If HOME funds are used to assist a homebuyer who has entered into a contract to purchase housing to be constructed, the homebuyer must qualify as a low-income family at the time the contract is signed.

(b) Preserving affordability of housing assisted with HOME funds. When there is a termination event for affordability restrictions, a participating jurisdiction may take the following actions to preserve the affordability of the property:

(1) The participating jurisdiction may exercise purchase options, rights of first refusal, or other preemptive rights to obtain ownership of the housing before foreclosure to preserve affordability, subject to the following requirements:

(i) The housing must be sold to an eligible homebuyer in accordance with paragraph (a)(3) of this section within 12 months of the date the participating jurisdiction obtains ownership;

(ii) The period of affordability for the eligible homebuyer must be equal to the remaining period of affordability of the former homeowner unless additional HOME funds are used to directly assist the eligible homebuyer (i.e., homeownership assistance);

(iii) If the participating jurisdiction directly assists the eligible homebuyer with additional HOME funds, then the period of affordability must be recalculated in accordance with the table in § 92.254(a)(4) based on the total amount of additional HOME funds invested. The additional investment must be treated as a new project; and

(iv) The total HOME funds for a project (original investment plus additional investment) must not exceed the per-unit subsidy limit in § 92.250(a) in effect at the time of the additional investment, subject to HUD approval.

(2) The participating jurisdiction may use additional HOME funds for the following costs:

(i) The cost for the participating jurisdiction to obtain ownership of the HOME-assisted housing through a purchase option, right of first refusal, or other preemptive right before foreclosure or at the foreclosure sale. This cost must be treated as an amendment to the original project. The foreclosure costs to acquire housing with a HOME loan in default is an eligible cost; however, HOME funds may not be used to repay a loan made with HOME funds.

(ii) The cost of the participating jurisdiction to undertake any necessary rehabilitation for the housing acquired. This includes the rehabilitation required for the housing to meet applicable property standards in § 92.251. This cost must be treated as an amendment to the original project.

(iii) The cost to the participating jurisdiction of owning the housing pending resale to another homebuyer. This cost must be treated as an amendment to the original project.

(iv) The cost to assist an eligible homebuyer in purchasing the housing. This cost must be treated as a cost for a new project and not as an amendment to the original project.

(v) As an alternative to charging costs to the HOME program under § 92.206, the participating jurisdiction may charge the costs to the HOME program under § 92.207 as a reasonable administrative cost of its HOME program. To the extent administrative funds are used, they may be reimbursed, in whole or in part, when the housing is sold to a new eligible homebuyer. If the housing is sold for more than the amount of administrative funds that the participating jurisdiction expended to preserve the affordability, then the excess sale proceeds shall be program income.

(3) The participating jurisdiction may permit the Community Land Trust, as defined in § 92.2, that originally developed the HOME-assisted housing, to exercise a purchase option, right of first refusal, or other preemptive right to obtain ownership of the housing to preserve affordability, including but not limited to the right to purchase the housing in lieu of foreclosure, under the following conditions:

(i) The Community Land Trust obtains ownership of the housing, subject to existing HOME affordability restrictions;

(ii) The housing must be resold to an eligible homebuyer in accordance with paragraph (a)(3) of this section within 12 months;

(iii) The period of affordability for the eligible homebuyer is equal to the remaining period of affordability of the former homeowner, unless the participating jurisdiction provides additional HOME funds to directly assist the eligible homebuyer in accordance with subparagraph (b)(3)(iv) below (i.e., homeownership assistance); and,

(iv) The participating jurisdiction may not provide additional HOME funds to the Community Land Trust to obtain ownership, rehabilitate the housing, own/hold the housing pending resale to the next homebuyer, or provide homeownership assistance to the next eligible homebuyer. The participating jurisdiction may provide homeownership assistance to the next eligible homebuyer and the period of affordability shall be based upon the homeownership assistance provided to the homebuyer, in accordance with subparagraphs (b)(1)(iii) and (b)(1)(iv) of this section.

(c) Rehabilitation not involving acquisition. Housing that is currently owned by a family qualifies as affordable housing only if:

(1) The estimated value of the property, after rehabilitation, does not exceed 95 percent of the median purchase price for the area, described in paragraph (a)(2)(iii) of this section; and

(2) The housing is the principal residence of an owner whose family qualifies as a low-income family at the time HOME funds are committed to the housing. In determining the income eligibility of the family, the participating jurisdiction must include the income of all persons living in the housing.

(d) Ownership interest. The ownership in the housing assisted under this section must meet the definition of “homeownership” in § 92.2, except that housing that is rehabilitated pursuant to paragraph (b) of this section may also include inherited property with multiple owners, life estates, living trusts and beneficiary deeds under the following conditions. The participating jurisdiction has the right to establish the terms of assistance.

(1) Inherited property. Inherited property with multiple owners: Housing for which title has been passed to several individuals by inheritance, but not all heirs reside in the housing, sharing ownership with other nonresident heirs. (The occupant of the housing has a divided ownership interest.) The participating jurisdiction may assist the owner-occupant if the occupant is low-income, occupies the housing as his or her principal residence, and pays all the costs associated with ownership and maintenance of the housing (e.g., mortgage, taxes, insurance, utilities).

(2) Life estate. The person who has the life estate has the right to live in the housing for the remainder of his or her life and does not pay rent. The participating jurisdiction may assist the person holding the life estate if the person is low-income and occupies the housing as his or her principal residence.

(3) Inter vivos trust, also known as a living trust. A living trust is created during the lifetime of a person. A living trust is created when the owner of property conveys his or her property to a trust for his or her own benefit or for that of a third party (the beneficiaries). The trust holds legal title and the beneficiary holds equitable title. The person may name him or herself as the beneficiary. The trustee is under a fiduciary responsibility to hold and manage the trust assets for the beneficiary. The participating jurisdiction may assist if all beneficiaries of the trust qualify as a low-income family and occupy the property as their principal residence (except that contingent beneficiaries, who receive no benefit from the trust nor have any control over the trust assets until the beneficiary is deceased, need not be low-income). The trust must be valid and enforceable and ensure that each beneficiary has the legal right to occupy the property for the remainder of his or her life.

(4) Beneficiary deed. A beneficiary deed conveys an interest in real property, including any debt secured by a lien on real property, to a grantee beneficiary designated by the owner and that expressly states that the deed is effective on the death of the owner. Upon the death of the owner, the grantee beneficiary receives ownership in the property, subject to all conveyances, assignments, contracts, mortgages, deeds of trust, liens, security pledges, and other encumbrances made by the owner or to which the owner was subject during the owner's lifetime. The participating jurisdiction may assist if the owner qualifies as low-income and the owner occupies the property as his or her principal residence.

(e) New construction without acquisition. Newly constructed housing that is built on property currently owned by a family which will occupy the housing upon completion, qualifies as affordable housing if it meets the requirements under paragraph (a) of this section.

(f) Providing homeownership assistance through lenders. Subject to the requirements of paragraph (f) of this section, the participating jurisdiction may provide homeownership assistance through a lending institution that is a contractor or nonprofit lending institution that is a subrecipient that also provides the first mortgage loan to a low-income family.

(1) The homeownership assistance may be provided only as specified in a written agreement between the participating jurisdiction and the lender. The written agreement must specify the forms and amounts of homeownership assistance that the participating jurisdiction authorizes the lender to provide to families and any conditions that apply to the provision of such homeownership assistance.

(2) Before the lender provides any homeownership assistance to a family, the participating jurisdiction must verify that the family is low-income and must inspect the housing for compliance with the property standards in § 92.251.

(3) No fees (e.g., origination fees or points) may be charged to a family for the HOME homeownership assistance provided pursuant to this paragraph (e), and the participating jurisdiction must determine that the fees and other amounts charged to the family by the lender for the first mortgage financing are reasonable. Reasonable administrative costs may be charged to the HOME program as a project cost. If the participating jurisdiction requires lenders to pay a fee to participate in the HOME program, the fee is program income to the HOME program.

(4) If the nonprofit lender is a subrecipient or contractor that is receiving HOME assistance to determine that the family is eligible for homeownership assistance, but the participating jurisdiction or another entity is making the assistance to the homebuyer (e.g., signing the documents for the loan or the grant), the requirements of paragraphs (e)(2) and (3) of this section are applicable.

(g) Homebuyer program policies. The participating jurisdiction must have and follow written policies for:

(1) Underwriting standards for homeownership assistance to determine the amount of assistance necessary to achieve sustainable homeownership. These standards must evaluate the projected overall debt of the family after the purchase of the housing, the maximum amount that a participating jurisdiction may provide a family, the appropriateness of the amount of assistance, assets available to a family to acquire the housing, and financial resources to sustain homeownership. A participating jurisdiction may not provide a single, fixed amount of assistance to each homebuyer that participates in the participating jurisdiction's homebuyer program;

(2) Responsible lending, and

(3) Refinancing loans to which HOME loans are subordinated to require that the terms of the new loan are reasonable.

[61 FR 48750, Sept. 16, 1996, as amended at 67 FR 61756, Oct. 1, 2002; 68 FR 10161, Mar. 4, 2003; 69 FR 16766, Mar. 30, 2004; 69 FR 68052, Nov. 22, 2004; 72 FR 16685, Apr. 4, 2007; 78 FR 44674, July 24, 2013; 90 FR 881, Jan. 6, 2025]

(a) During a HOME-assisted rental unit's period of affordability, the participating jurisdiction may permit an owner to sell or otherwise convey a HOME-assisted rental unit to an existing tenant in accordance with the requirements of § 92.254. However, refusal by the tenant to purchase the housing does not constitute good cause for termination of tenancy or failure to renew the lease. The participating jurisdiction may not permit the use of a lease-purchase program under this section.

(b) If no additional HOME funds are used to enable the tenants to become homeowners, the homeownership units are subject to a period of affordability equal to the remaining period of affordability if the units continued as rental units. The participating jurisdiction must impose resale requirements that comply with § 92.254(a) for the required period of affordability. The period of affordability and resale restrictions must be applied to the property regardless of the income of the family at purchase. If the tenant's family is no longer low-income at the time of the purchase, then the family must occupy the housing as a principal residence in accordance with § 92.254(a)(3) and must agree to the imposition of resale restrictions on the housing, in accordance with § 92.254(a)(5), for the period of affordability specified in this paragraph (b).

(c) If additional HOME funds are used to directly assist the tenants to become homeowners, the period of affordability is the remaining period of affordability if the unit had remained a rental unit or the required period under § 92.254(a)(4) for the amount of direct homeownership assistance provided, whichever is longer. No additional HOME funds may be provided to an in-place tenant to become a homebuyer if the tenant's family is no longer low-income at the time of the purchase.

[90 FR 886, Jan. 6, 2025]

The HUD program requirements in § 5.109 apply to the HOME program, including the requirements regarding disposition and change in use of real property by a faith-based organization.

[81 FR 19418, Apr. 4, 2016]

(a) General. HOME funds may be used for the initial purchase and initial placement costs of elder cottage housing opportunity (ECHO) units that meet the requirements of this section, and that are small, free-standing, barrier-free, energy-efficient, removable, and designed to be installed adjacent to existing single family housing units.

(b) Eligible owners. The owner of a HOME-assisted ECHO unit may be:

(1) The owner-occupant of the single family host property on which the ECHO unit will be located;

(2) A participating jurisdiction; or

(3) A non-profit organization.

(c) Eligible tenants. During the period of affordability, the tenant of a HOME-assisted ECHO unit must be an elderly or disabled family as defined in 24 CFR 5.403 and must also be a low-income family.

(d) Applicable requirements. The requirements of § 92.252 apply to HOME-assisted ECHO units, with the following modifications:

(1) Only one ECHO unit may be provided per host property.

(2) The ECHO unit owner may choose whether or not to charge the tenant of the ECHO unit rent, but if a rent is charged, it must meet the requirements of § 92.252.

(3) The ECHO housing must remain affordable for the period specified in § 92.252(d). If within the period of affordability the original occupant no longer occupies the unit, the ECHO unit owner must:

(i) Rent the unit to another eligible occupant on site;

(ii) Move the ECHO unit to another site for occupancy by an eligible occupant; or

(iii) If the owner of the ECHO unit is the host property owner-occupant, the owner may repay the HOME funds in accordance with the recapture provisions imposed by the participating jurisdiction consistent with § 92.254(a)(5)(ii). The participating jurisdiction must use the recaptured HOME funds for additional HOME activities.

(4) The participating jurisdiction has the responsibility to enforce the project requirements applicable to ECHO units.

[61 FR 48750, Sept. 16, 1996, as amended at 90 FR 886, Jan. 6, 2025]