Using HOME Funds for Homebuyer Programs- Structuring Recapture and Resale Provisions (HUD-1674-CPD, May 1997)

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The HOME Program can be used effectively to structure and operate a successful homebuyer program.

This guide summarizes recent modifications to HOME rules and provides detailed information on implementing HOME's recapture and resale provisions for a typical homebuyer program.

It serves as a companion to the HOME model guidebook entitled First-Time Homebuyers and the HOME Program, published in March 1993 by HUD's Office of Affordable Housing Programs.

This updated guide reviews key HOME Program rules related to homebuyer programs, including recent legislative and regulatory changes affecting homeownership.

It discusses basic program design issues with a particular focus on recapture and resale options.

All units receiving HOME Program subsidies are required to comply with a designated affordability period.

The affordability period of any project is contingent upon the amount of per unit subsidy received and may be five, ten, or fifteen years long.

Participating jurisdictions can ensure continued affordability either through recapture or resale provisions.

Under a recapture provision, the HOME subsidy generally must be repaid.

This option allows the seller to sell to any willing buyer at any price; participating jurisdictions can decide what proportion of net proceeds from sale, if any, will go to the homebuyer and what proceeds will go to the participating jurisdiction.

Once the HOME funds are repaid, the property is no longer subject to any HOME restrictions.

The funds netted may then be used for any other HOME-eligible activity.

Under a resale option, by contrast, an owner is obligated to resell the home to another income-eligible homebuyer.

The sale must be at a price affordable to the purchaser, although the owner is also allowed to realize a fair return on the sale.

Both recapture and resale options have distinct advantages; the decision of which option to use is a matter of weighing factors such as trends in the marketplace, the availability of homeownership opportunities for lower-income households in the community, and the homebuyer program's local objectives.

This guide provides an in-depth comparison of the two options, including sample calculations showing how these options may work in different markets with different recapture or resale provisions.

It does this through a basic explanation of the mechanics of each type of option and through illustrative case studies.