HOME and CDBG Guidebook - HUD Exchange

Foreword

One of the major priorities of the U.S. Department of Housing and Urban Development (HUD) is the creation of affordable housing. The Department administers several Federal programs that assist state and local governments, as well as nonprofits and other partners, to develop affordable homeownership and rental units for low-income households. Two of the most important programs are the HOME Investment Partnerships Program (HOME) and the Community Development Block Grant (CDBG) Program. Both HOME and CDBG are important resources in the local development of homes and communities. While sharing similar goals related to improving the living conditions of low-income families, each program differs in its eligible activities and requirements. In addition, there is a tremendous need for affordable housing in many communities and these needs often exceed available resources. So, it is important that state and local governments make strategic decisions about how to spend their HOME and CDBG funds. HUD's Office of Affordable Housing Programs, in partnership with HUD's Office of Block Grant Assistance, developed this guidebook as a tool for community development practitioners to assist in making these strategic choices about HOME and CDBG resources for affordable housing. Its purpose is to provide practical guidance on how both HOME and CDBG requirements are interpreted and to provide examples of how the two funding sources might be used in tandem. The Department encourages communities to seek strategic, effective, and innovative ways of using two of its most important affordable housing resources ? the HOME and CDBG Programs.

HOME and CDBG

Table of Contents

Introduction........................................................................................................................................................................................... 1 Making Effective Use of Program Resources ......................................................................................................................... 1 Selecting Suitable Activities............................................................................................................................................ 1 Complying with the Rules .............................................................................................................................................. 2 Leveraging CDBG and HOME .................................................................................................................................... 3 Planning for CDBG and HOME.............................................................................................................................................. 3 Assessment of Community Needs................................................................................................................................ 3 Community-Wide Plan.................................................................................................................................................... 3 Individual Project Plan.................................................................................................................................................... 4 How to Use this Model............................................................................................................................................................... 4 About the Model Program Guides ........................................................................................................................................... 5

Chapter 1: HOME and CDBG Basics ............................................................................................................................................. 6 What is HOME? .......................................................................................................................................................................... 6 HOME Program Partners .......................................................................................................................................................... 6 HOME Program Activities ........................................................................................................................................................ 7 Eligible Costs.................................................................................................................................................................... 7 Prohibited Activities and Costs ..................................................................................................................................... 8 HOME Program Requirements ................................................................................................................................................ 9 Income Eligibility and Verification ............................................................................................................................... 9 Subsidy Limits ................................................................................................................................................................ 10 Affordability Periods ..................................................................................................................................................... 10 Maximum Value ............................................................................................................................................................. 10 Property Standards......................................................................................................................................................... 11 HOME Administrative Requirements.................................................................................................................................... 11 Administrative and Planning Costs............................................................................................................................. 11 Match ............................................................................................................................................................................... 11 Commitment and Expenditure Deadlines ................................................................................................................. 12 Program Income ............................................................................................................................................................ 12 Pre-Award Costs ............................................................................................................................................................ 12 What is CDBG? ......................................................................................................................................................................... 13 CDBG Program Partners ......................................................................................................................................................... 13 CDBG Program Activities ....................................................................................................................................................... 14 Eligible CDBG Activities ............................................................................................................................................. 14 Ineligible CDBG Activities........................................................................................................................................... 15 CDBG National Objectives ..................................................................................................................................................... 15 Benefit Low- and Moderate-Income Persons ........................................................................................................... 16 Elimination of Slum and Blight ................................................................................................................................... 17 Urgent Need ................................................................................................................................................................... 17 CDBG Administrative Requirements and Caps ................................................................................................................... 18 Administrative Cap ........................................................................................................................................................ 18 Low- and Moderate-Income Benefit Expenditures ................................................................................................. 18 Public Services Cap........................................................................................................................................................ 19 Program Income ............................................................................................................................................................ 19 Timely Use of Funds ..................................................................................................................................................... 20 Pre-Award Costs ............................................................................................................................................................ 20

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Chapter 2: Using HOME and CDBG for Rental Housing ........................................................................................................ 26 Approaches to Creating Rental Housing ............................................................................................................................... 26 Acquisition ...................................................................................................................................................................... 26 Tenant-Based Rental Assistance.................................................................................................................................. 27 Rehabilitation.................................................................................................................................................................. 28 New Construction.......................................................................................................................................................... 28 Financing and Developing Rental Housing........................................................................................................................... 29 Partners............................................................................................................................................................................ 30 Forms of Assistance ...................................................................................................................................................... 33 Eligible Projects.............................................................................................................................................................. 35 Assisted Units ................................................................................................................................................................. 36 Eligible Costs.................................................................................................................................................................. 37 Property and Neighborhood Standards ..................................................................................................................... 38 Other Federal Requirements........................................................................................................................................ 38 Ongoing Compliance ................................................................................................................................................................ 38 Affordability Period....................................................................................................................................................... 38 Rent Requirements ........................................................................................................................................................ 39 Income Eligibility........................................................................................................................................................... 40 Ongoing Property Quality ............................................................................................................................................ 41

Chapter 3: Using HOME and CDBG for Homeownership ...................................................................................................... 42 Approaches to Creating Homebuyer Units ........................................................................................................................... 42 Development Approaches............................................................................................................................................ 42 Direct Homebuyer Subsidy Approach ....................................................................................................................... 43 Financing and Developing Homebuyer Housing................................................................................................................. 46 Eligible Property Types................................................................................................................................................. 49 Property Standards......................................................................................................................................................... 50 Other Federal Requirements........................................................................................................................................ 50 Ongoing Requirements ............................................................................................................................................................. 50 Affordability Period....................................................................................................................................................... 50 Recapture Option .......................................................................................................................................................... 51 Resale Option ................................................................................................................................................................. 51 Enforcing Resale and Recapture Provisions.............................................................................................................. 53 Low-Income Targeting ................................................................................................................................................. 53 3-1: American Dream Downpayment Initiative (ADDI)--Side-By-Side Comparison of Downpayment Assistance Requirements--By Source of Funds ...................................................................................................................................... 55

Chapter 4: Using HOME and CDBG for Homeowner Rehabilitation.................................................................................... 57 Approaches to Homeowner Rehabilitation........................................................................................................................... 57 Minor Rehabilitation...................................................................................................................................................... 57 Moderate/Substantial Rehabilitation .......................................................................................................................... 57 Reconstruction ............................................................................................................................................................... 58 Historic Preservation..................................................................................................................................................... 59 Lead-based Paint Hazard Evaluation and Reduction .............................................................................................. 59 Code Enforcement ........................................................................................................................................................ 60 Home-based Business Rehabilitation ......................................................................................................................... 61 Financing and Undertaking Homeowner Rehabilitation..................................................................................................... 61 Partners............................................................................................................................................................................ 61 Forms of Financial Assistance ..................................................................................................................................... 61 Eligible Costs.................................................................................................................................................................. 64 Property and Rehabilitation Standards ....................................................................................................................... 65

HOME and CDBG

Initial Owner Incomes .................................................................................................................................................. 66 Other Federal Requirements........................................................................................................................................ 67 Chapter 5: Using HOME and CDBG for Comprehensive Neighborhood Revitalization ................................................... 68 Approaches to Neighborhood Revitalization........................................................................................................................ 68 Planning Models for Urban Redevelopment............................................................................................................. 68 Housing Assistance........................................................................................................................................................ 69 Property Inspections and Code Enforcement .......................................................................................................... 69 Infrastructure Development and Improvement ....................................................................................................... 70 Economic Development............................................................................................................................................... 70 Community Facilities and Public Services ................................................................................................................. 71 Financing and Requirements for Neighborhood Revitalization ........................................................................................ 71 Partners............................................................................................................................................................................ 71 Approaches to Financing.............................................................................................................................................. 72 Eligible Costs.................................................................................................................................................................. 74 Chapter 6: Making Strategic Investment Decisions ..................................................................................................................... 75 Step 1: Evaluate community needs and preferences............................................................................................... 76 Step 2: Determine program types based upon needs and preferences ................................................................ 77 Step 3: State intended program outcomes ................................................................................................................ 78 Step 4: Evaluate the strengths of HOME and CDBG v. intended outcomes.................................................... 78 Step 5: Assess CDBG and HOME constraints ....................................................................................................... 80 Step 6: Determine whether program should be co-funded with HOME and CDBG...................................... 81 Step 7: If co-funded program, evaluate each project to determine appropriate uses of funds ........................ 82 Administering Programs ........................................................................................................................................................... 83 Choosing Projects and Partners .................................................................................................................................. 83 Setting Up Adequate Financial Systems ................................................................................................................................. 85 Developing Efficient Reporting and Record Keeping Systems ......................................................................................... 86 Reviewing Program Performance and Compliance ............................................................................................................. 87 Endnotes .............................................................................................................................................................................................. 90

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