Preliminary Review of Project Applications for HOME-LIHTC Projects
Upon receipt of a specific HOME funding request for a project with LIHTCs or where LIHTCs are anticipated, the PJ should:
- Review the state’s QAP or consult with the state to understand its funding priorities and application process.
- Determine if the project is eligible for both HOME and LIHTC programs (eligibility screening).
- Understand the project timetable.
Coordination with the State Allocating Agency
When a PJ receives a viable funding application and considers investing HOME funds in a project that has or is likely to pursue an allocation of tax credits, it is extremely important that the PJ coordinate with the state allocating agency to:
- Identify the best projects to leverage both funding sources.
- Determine the appropriate level of each source of subsidy for the project.
- Share information on the allocating agency’s underwriting assumptions.
- Identify important milestones in the application, funding, and development process.
- Share information on housing quality and project viability upon completion.
Allocating agencies have certain rights to make decisions about projects, and it is important for the PJ to build a partnership with the allocating agency so that the allocating agency understands the PJ’s interests when these project decisions are made. Likewise, the state allocating agency might have funding preferences that the PJ does not share. For instance, the state might target a special needs population to meet a statewide housing need, but a particular jurisdiction might not have that need in its community.
Determination of Preliminary Project Eligibility
Before investing time and resources in reviewing a project proposal, the PJ must determine that the project is an eligible HOME-LIHTC project. Both the HOME PJ and the state allocating agency have a range of choices in how they administer their respective programs to meet their jurisdictions’ affordable housing needs, in terms of the eligible activities and housing types they fund and the housing partners they work with. In addition, both programs have clear requirements about who can be served and the long-term affordability of the housing that is financed.
Eligible Target Population
Key to both the HOME and LIHTCs program are the requirements that funds must be invested in housing that is occupied by income-eligible households. Each program defines income eligibility in slightly different ways, however. Therefore, the tenant of a unit that is designated as both a HOME- and LIHTC-assisted unit must meet the income requirements of both programs (that is, the most restrictive income requirement).
During the preliminary screening of the project, the PJ should determine, generally, that the project is designed to provide affordable housing to income-eligible households. Both HOME and LIHTC programs permit mixed-income projects. The project can serve a mix of income- eligible occupants and over-income occupants. During the financial underwriting of the project (discussed in Chapter 2), the PJ evaluates whether the developer is proposing an appropriate level of affordability. The specific income targeting requirements of both programs are explained further in Chapter 4.
Special Needs Housing
Both HOME and LIHTC can be targeted to income-eligible persons with special needs, provided certain conditions are met. These groups can be served in standard rental housing, or funds can be invested in group homes or single room occupancy (SRO) projects. HOME and LIHTC both have particular requirements for these types of projects; even more restrictive rules apply if tax- exempt bond financing is used. PJs should encourage owners of these housing types to retain expert attorneys and/or advisors to assist with developing special needs housing.
For more information about using LIHTC and HOME to finance special needs housing, see IRC
§42(i)(l)(3) and HUD Notice CPD 94-01, Using HOME Funds for Single Room Occupancy (SRO) and Group Housing, issued January 4, 1994. This HUD Notice is available online at https://www.hud.gov/program_offices/comm_planning/affordablehousing/programs/home/.
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