The HOME Program

Participating Jurisdictions

Each fiscal year, Congress appropriates funding to HUD for the HOME program during the annual appropriations process. HUD then uses a formula to allocate 40% of the funds to states and the remaining 60% to eligible localities. (This is discussed in more detail in the “HOME Program Funding” section of this report.) States and localities that meet certain requirements to receive their own allocations of HOME funds are referred to as “participating jurisdictions” (PJs).

States are automatically eligible to become PJs and receive the greater of their formula grant amount or $3 million annually. Localities can only become PJs if they are metropolitan cities or urban counties, and if they meet two funding thresholds. First, localities must be eligible for a minimum amount of funding under the formula, usually $500,000. Once localities meet this threshold, they must also meet a second threshold: localities must dedicate a total of at least $750,000 to affordable housing activities, either by having a HOME formula grant of at least $750,000 or by making up the difference between their grant amount and the $750,000 threshold with their own funds or HOME funds provided by the state from the state’s formula allocation.

Localities that do not meet the requirements to become participating jurisdictions may join with other contiguous localities to form consortia in order to reach the minimum funding thresholds.

Localities that are not PJs can also participate in the HOME program by applying to their home state to receive a portion of the state’s allocation of HOME funds. States in which no locality receives its own allocation of HOME funding have their grant amounts increased by $500,000.

A state or locality that is otherwise eligible to receive HOME funds must submit a document describing how it plans to use HOME funds to meet its affordable housing needs for HUD’s approval before it can become a PJ. (This document, called a Consolidated Plan, is described in more detail in the following subsection.) Once a state or locality has been designated a PJ, it remains one – and therefore continues to be eligible to receive its own allocation of HOME funds – unless its designation is revoked by the Secretary of HUD. The Secretary has the authority to revoke a jurisdiction’s designation if he finds that the jurisdiction is not complying with program requirements, or if a locality’s formula grant amount falls below certain thresholds over a specified period of time, although he is not required to do so.

A participating jurisdiction can administer HOME funds itself, or it can designate a public agency or nonprofit organization to administer all or part of the HOME program on its behalf. Such an organization is referred to as a subrecipient. Participating jurisdictions or their subrecipients can distribute funds to a variety of organizations to undertake specific projects. These organizations can include developers, owners, and sponsors of affordable housing, Community Housing Development Organizations (CHDOs), private lenders, faith-based organizations, and third-party contractors.

The Consolidated Plan

In order to receive HOME funding, a state or locality must submit a Consolidated Plan to HUD for approval. The Consolidated Plan covers a three- to five-year period and includes a detailed description of the jurisdiction’s housing needs and an explanation of how it will use HOME funding and funding from three other HUD block grant programs to meet its specific housing needs. The Consolidated Plan also describes how the jurisdiction will leverage HOME funds to attract local, private, nonprofit, or other non-federal sources of funds for affordable housing, and it prioritizes projects by type and geographic location. While many activities are eligible uses of HOME dollars, participating jurisdictions must specify in their Consolidated Plan which activities they intend to fund.

As part of the consolidated planning process, PJs submit annual Action Plans that describe the specific activities that a PJ plans to undertake during the year to address its housing needs and make progress towards the goals that are included in its Consolidated Plan. PJs also submit annual performance reports on their use of funds and their progress towards their goals.

The Consolidated Plan is meant to be the product of “a participatory process among citizens, organizations, businesses, and other stakeholders” in a community. The HOME regulations stress community participation, especially by low- and moderate-income individuals, in developing the Consolidated Plan, and jurisdictions must submit a “citizen participation plan” that describes how citizens have been included and consulted in the process.

In 2012, HUD implemented certain changes to the Consolidated Planning process. Specifically, HUD began providing additional data and mapping tools for PJs to utilize for planning purposes. The public can also access these data and mapping tools, which is intended to enable the community to be a more informed part of the consolidated planning process. Furthermore, HUD now requires Consolidated Plans to be submitted through a standardized template in the Integrated Disbursement & Information System (IDIS), the computer system into which PJs report their activities and uses of HOME funds. According to HUD, the new data are expected to help PJs produce better Consolidated Plans that more fully reflect local needs and to increase public participation in the process. The ability to submit plans directly to IDIS through a standard template is expected to make it easier for PJs to produce and submit Consolidated Plans, and to make it easier for HUD to track PJs’ progress toward the goals that they include in their plans.

Eligible HOME Activities

In the years leading up to NAHA’s passage, some experts argued that local affordable housing needs varied, and that localities should be free to develop solutions that fit local conditions. HUD describes one of the purposes of the HOME program as reinforcing the principle that states and localities should have flexibility and control over how to best meet their affordable housing needs. Accordingly, a wide range of activities related to increasing the supply of affordable housing for low-income households qualifies for HOME funding. These include both homeownership and rental housing activities.

The eligible uses of HOME funds fall into four broad categories:

• Rehabilitation of Owner-Occupied Housing. Funds may be used to help existing homeowners repair, rehabilitate, or reconstruct their homes.
• Assistance to Home Buyers. Funds may be used to help home buyers acquire, acquire and rehabilitate, or construct homes. For example, down payment assistance is an eligible use of funds under this category.
• Rental Housing Activities. Funds may be used to help developers or other housing organizations acquire, rehabilitate, or construct affordable rental housing.
• Tenant-Based Rental Assistance. Funds may be used to help renters with costs related to renting, such as security deposits, rent, and, under certain circumstances, utility payments. “Tenant-based” means that the rental assistance moves with the tenant rather than being tied to a specific housing unit.

A participating jurisdiction may use up to 10% of the funds it is allocated in a fiscal year for administrative purposes.

The law requires participating jurisdictions to give preference to rehabilitation of existing rental and owner-occupied units. However, a PJ can undertake other activities if it determines that rehabilitation is not the most cost-effective way for it to increase its supply of affordable housing or that rehabilitation of the existing housing stock would not adequately meet its affordable housing needs.

Participating jurisdictions can disburse HOME funds in a variety of ways. Forms of assistance that may be provided with HOME funds include grants, various types of loans, loan guarantees to lending organizations, interest rate subsidies, equity investments.

Certain activities are not eligible for funding under the HOME program. Ineligible uses of HOME funds include modernizing public housing, providing tenant-based rental assistance under the Section 8 program, supporting ongoing operational costs of rental housing, paying back taxes or fees on properties that are or will be assisted with HOME funds, and providing non-federal matching funds for any other federal program. Other uses not authorized in statute or regulation are also prohibited.

Selected HOME Program Requirements

While PJs have much flexibility in choosing which eligible activities they will fund with HOME dollars, any projects funded through HOME must meet certain requirements in keeping with the program’s stated objectives. This section describes some of the key requirements with which PJs must comply.

Income Targeting

A stated purpose of the HOME program, according to the authorizing statute, is to increase the supply of decent, affordable housing for people with low incomes and very low incomes.

Accordingly, all HOME funds must be used to assist low-income households, which are defined as households with annual incomes at or below 80% of area median income (AMI). Deeper income targeting requirements apply to rental housing and tenant-based rental assistance.

Owner-Occupied Housing. All HOME funds that are used for existing owner-occupied housing or to assist home buyers must benefit units that are occupied by households with incomes at or below 80% of area median income.

Rental Housing and Tenant-Based Rental Assistance. At least 90% of HOME-assisted rental units must be occupied by households whose incomes are at or below 60% of area median income, and at least 90% of households that receive tenant-based rental assistance with HOME funds must have incomes at or below 60% of area median income. The remaining rental units or TBRA must benefit households with incomes at or below 80% of area median income.

Affordability and Other Requirements

The income targeting requirements described above ensure that HOME-assisted units benefit low-income households. Additionally, HOME-assisted units must be affordable to low-income households, and must continue to be occupied by low-income households and remain affordable to such households over the long term.

In order to achieve this goal, HOME-assisted units must meet a number of requirements. Some of these requirements govern the value of HOME-assisted units or the amounts that a household can pay to rent or purchase a unit. HOME-assisted units must also meet additional requirements, separate from the value of the home, to ensure affordability. As with income targeting, the precise requirements that must be met depend on whether HOME funding is used for assistance to home buyers, owner-occupied housing rehabilitation, or rental housing activities.

Assistance to Home Buyers. Housing bought by home buyers with the assistance of HOME funds must meet the following requirements:

• The home buyer must belong to a low-income family, and the family must use the home as a principal residence.
• The initial purchase price or value after rehabilitation must be no more than 95% of the median purchase price of homes in the area, as determined by the

Secretary of HUD and adjusted as the Secretary deems necessary for different types of structures and the age of the housing.

• Home buyer units must continue to meet the definition of affordability described above for between five and fifteen years, depending on the per-unit amount of HOME funds expended on a project.
• The housing must be single-family housing.
• If the housing is newly constructed, it must meet energy-efficiency standards.
• Participating jurisdictions must impose resale or recapture restrictions on units in which they have assisted the home buyer using HOME funds. These restrictions specify that if a homeowner sells his or her home during the affordability period, he or she is required to sell it to another qualified low-income buyer (resale) or to return some of the proceeds of the sale to the PJ in order to cover the HOME funds that were invested in the home (recapture).
• HOME-assisted home buyers must receive housing counseling.

Home buyer units that are not sold to eligible home buyers within nine months of the project’s completion are to be rented to eligible tenants.

Resale and recapture restrictions are set by the jurisdiction and approved by the Secretary. Resale restrictions must ensure that, upon resale, (1) the housing remains affordable to low-income home buyers, and (2) the owner receives a fair return on investment. Recapture restrictions must ensure that the investment in the housing is recaptured in order to assist others who qualify for HOME-assisted housing.

Owner-Occupied Housing Rehabilitation. Owner-occupied housing that is rehabilitated using HOME funds must meet the following requirements:

• The owner must belong to a low-income family at the time HOME funds are committed to the project, and the family must use the housing as a principal residence.
• The value of the housing after rehabilitation must be no more than 95% of the median purchase price of homes in the area, as determined by the Secretary of

HUD and adjusted as the Secretary deems necessary for different types of structures and the age of the housing.

• There are no statutory long-term affordability requirements for owner-occupied units that are rehabilitated using HOME funds. However, the PJ can choose to impose an affordability period.

Rental Housing. Rental housing that benefits from the use of HOME funds must meet the following requirements:

• HOME-assisted units must be occupied only by low-income households.
• Rents must not exceed HUD’s published maximum rents for the HOME program. The maximum rent for a HOME-assisted rental unit is the lesser of (1) the fair market rent for comparable units in the jurisdiction, or (2) 30% of the adjusted income of a household whose income is 65% percent of area median income.
• If a project includes five or more HOME-assisted units, at least 20% of the HOME-assisted units must be occupied by families with incomes at or below 50% of area median income. Additionally, those families must have rents that meet one of the following requirements:
• Rents are no higher than 1) the fair market rent for a comparable unit in the jurisdiction, or 2) 30% of 50% of area median income, whichever is lower.
• Rents are no higher than 30% of the household’s adjusted income.

If rental projects temporarily fail to meet the requirements governing the incomes of occupants of HOME-assisted units because of an increase in the current tenants’ income, the project is still considered to be in compliance as long as vacancies are filled according to these requirements.

• Rental units must continue to meet these requirements for between five and twenty years, depending on the per-unit amount of HOME funds expended on a project and the type of activity for which HOME funds are used.
• If the housing is newly constructed, it must meet energy-efficiency standards.
• The housing must be available to Section 8 voucher holders.

PJs must repay any HOME funds used for rental units that are not rented to eligible tenants within 18 months of the project being completed.

HOME Subsidy Limits

When using HOME funds for owner-occupied housing rehabilitation, home buyer assistance, or rental housing activities, participating jurisdictions must follow restrictions on the minimum and maximum amounts of HOME funds that they can contribute to a given project. When participating jurisdictions use HOME funds for tenant-based rental assistance, they must establish both a maximum subsidy amount and a minimum tenant contribution to the tenant’s rent.

Owner-Occupied and Rental Housing. The minimum amount of HOME funds that can be used for new construction, rehabilitation, or acquisition of owner-occupied or rental housing is $1,000 multiplied by the number of HOME-assisted units in a project. The maximum per-unit subsidy for a project varies by participating jurisdiction and is based on the Federal Housing Administration’s mortgage limits for moderate-income multifamily housing.

Tenant-Based Rental Assistance. The maximum HOME subsidy amount for tenant-based rental assistance is the difference between 30% of the household’s adjusted monthly income and a jurisdiction-wide rent limit established by the participating jurisdiction. The rent limit must conform to certain parameters established by HUD. Each participating jurisdiction is also required to set a minimum tenant contribution for tenant-based rental assistance. The minimum tenant contribution can either be a flat dollar amount or a percentage of tenant income.

Subsidy Layering

HOME funds may be combined with other federal resources to support affordable housing projects. For example, a project that uses HOME funds might also use funds from other HUD programs, funds raised through the Department of the Treasury’s Low-Income Housing Tax Credit (LIHTC) program, or funds from rural housing programs administered by the U.S. Department of Agriculture.

Using a combination of federal funds from different sources for a single project is known as subsidy layering. The HOME statute and regulations require a participating jurisdiction that plans to use both HOME funds and other federal funds for a project to certify to HUD that the aggregate amount of federal funds, including HOME funds, that is invested in a housing project is no more than is necessary to provide affordable housing.

Community Housing Development Organizations (CHDOs)

As noted earlier, one of the stated purposes of the HOME authorizing legislation is to expand the capacity of nonprofit agencies to provide affordable housing for low and very-low income households. As a means of furthering this goal, the HOME statute requires each participating jurisdiction to reserve at least 15% of its HOME funding for Community Housing Development Organizations (CHDOs).46 CHDOs are private nonprofit organizations that meet certain legal and organizational requirements and have the capacity and experience to carry out affordable housing projects.

CHDO reservation funds must be used for projects where the CHDO develops, owns, or sponsors affordable housing. CHDOs can engage in other eligible HOME activities using HOME funds, but any funding spent on projects in which the CHDO is not the developer, owner, or sponsor will not count toward the 15% set-aside requirement for CHDOs.47 For example, a CHDO could administer a TBRA program, but since the CHDO would not be developing, owning, or sponsoring affordable housing in this case the funds would not count towards the 15% of funds that must be reserved for CHDOs.

The HOME final rule promulgated in July 2013 to amend the HOME program regulations made several changes related to CHDOs. Among other things, the rule made changes to the requirements that an organization must meet to qualify as a CHDO, and it clarified the activities that CHDOs can undertake with a reservation of CHDO funds. It also increased PJs’ oversight of CHDO reservation funds by strengthening the requirement for PJs to ensure that organizations meet the definition of a CHDO and requiring PJs to document that an organization has the necessary capacity to undertake affordable housing activities each time the CHDO receives a commitment of HOME funds. The rule also requires PJs to commit funds to CHDOs for specific projects, rather than committing funds to CHDOs for projects that have not yet been identified.

The 2013 rule also made changes to how a CHDO must demonstrate that it has the capacity to undertake affordable housing activities. Under the new rule, a CHDO must have paid staff with experience in the affordable housing role that the CHDO intends to play in a project (e.g., a CHDO that will develop affordable housing must have staff with development experience, and a CHDO that will own and manage affordable housing must have staff with owner and management experience). CHDOs can use consultants or volunteers to undertake some project activities, but it cannot use consultants or volunteers to demonstrate its capacity. A CHDO can use consultants to demonstrate development capacity during its first year as CHDO only, if the consultant trains the CDHO’s staff to undertake affordable housing development.