PROGRAM DESCRIPTION
1 to 5 Unit Rental Property

Application Period
Loan Funding
Basic Loan Terms
Property Requirements
Eligible Property Rehabilitation Costs
Affordable Housing Obligations
Lower Income Families
Income Figures for HUD
Affordable Rent
Processing and Review of Applications
Competitive Funding and Application Ranking
Application Ranking Criteria Table
Property Ownership
Occupied Property
Affirmative Fair Housing Marketing
Historic Preservation
Loan Financing
Nonprofit Organizations

Downloads
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Project Feasibility (Power Point Presentation)
MS Excel Underwriting Worksheet (MS Excel File)
Housing Loan Program Application

Summary

Under the Housing Loan Program, loan financing for rental property rehabilitation is for the purposes of assisting the rehabilitation of substandard rental housing and providing standard quality rental housing that is affordable to low and moderate income persons. The sources of financing for this program are the Community Development Block Grant Program and the HOME Program. Both are federal programs for which funds are received by the City-Parish from the U.S. Department of Housing and Urban Development. The City-Parish Office of Community Development (OCD) administers these programs.

Financing involves mortgage loans on the properties to be rehabilitated. Credit and property underwriting criteria apply to the evaluation of all loan applications. Applications are considered on a competitive basis. The information contained in this program description is an integral part of the application. Applicants should carefully review this information before submitting an application.

Application Period

Applications for 1 to 5 unit rental properties are accepted on an ongoing basis. This is subject to the availability of funds.

Loan Funding

Neither this program notice nor the acceptance of any loan application shall imply a funding obligation to any applicant. The City-Parish reserves the sole right to approve or reject any and all applications on such basis as it deems to be in its best interest.
 
Basic Loan Terms

• All loans are secured by a mortgage on the rehabilitation property. Only 1st and 2nd mortgage loans will be considered.

• Lending is at 3.0% interest (annual percentage rate). Properties having at least 50% ownership by non-profit corporations may be eligible for no interest loans.

• Loan amortization terms of up to 20 years.

• No application fees, loan origination nor discount points are charged to borrowers. All costs of closing the loan are those of the borrower.

• Total mortgage debt on the property may not exceed 95% of the after-rehab value of the property, established by appraisal prior to loan closing.

• Loan financing not to exceed 95% of eligible rehabilitation costs. Owner required to invest at least 5% of the rehabilitation costs.

• No interest charged during the property rehabilitation period, for loan funds disbursed during the rehab period.

• Loan funds are disbursed on a loan draw basis, as costs are incurred.

• No prepayment penalty for early pay-out of the loan.

• Property insurance is required. City-Parish named as mortgagee on the policy.

• Title insurance is required.

• Monthly loan amortization payments. Escrow for property taxes and insurance required.
   

Property Requirements

• Property must be residential and may be either single-family detached or a multi-unit property of up to 5 rental units.

• Property must be located within East Baton Rouge Parish, exclusive of the corporate limits of Baker and Zachary.

• Property must be substandard by City-Parish code and must require no less than $1,000 per rental unit in repairs needed to meet code requirements.

• Property rehabilitation must conform with City-Parish code requirements and HUD Housing Quality Standards.

• Property may be vacant or occupied. If occupied, additional requirements governing tenant protections from involuntary displacement and relocation will apply under federal program regulations.

• After-rehabilitation rents must be affordable to lower/moderate income households. In some cases (HOME program financing) additional occupancy and rent restrictions may apply. 

Eligible Property Rehabilitation Costs

Costs eligible for financing under this loan program include: the costs of labor and material for project construction; costs associated with closing this loan (e.g., legal fees, recordation, title policy, appraisal); related soft costs such as design services, and interim construction loan interest costs if applicable. If the owner serves as contractor for some or all of the property repairs, financing does not include owner's labor nor construction profit.

• No rehab work may commence prior to loan closing. Projects started before loan closing are ineligible for financing. 

Affordable Housing Obligations

The HOME and CDBG Programs that are the sources of financing for these loans include requirements governing the rental of properties that are financially assisted. Requirements may vary depending upon the source of funds made available for each approved loan. The source of funds for approved loans will be determined by OCD according to the particulars of each project, the availability of funds under each program, and its determination as to which loan source best meets the interests of the program.

Lower Income Families

At a minimum, initial occupancy of the property must be by a household meeting HUD's definitions of low or lower income. Under the HOME Program, occupancy by a low income family is required for a specified "affordability period"  the length of that period being determined by the amount of HOME funds invested. The affordability period for HOME financing of under $15,000 per unit for 5 years, and between $15,000 and $40,000 per unit for 10 years. Low income families are defined according to household income and family size. The current income definitions are in the table below.

Income figures are typically revised by HUD on an annual basis. 

Affordable Rent: The following "after rehab" rentals are a guide to what is considered as the maximum allowable in order for a property to be considered as eligible for loan financing. 

In addition to base rent, affordability also considers estimated utility costs of the tenant that are in addition to the rental cost. This table of affordable rents assumes that the tenant will be separately responsible for all utility costs, and makes certain assumptions about the types of utilities, as gas/electricity/heat/and a/c. Separate affordability calculations will need to be made as a part of the initial review of each application, based on the specifics of that application.

Therefore, this table can serve as only a general guide to the applicant. However, as a general rule, planned rentals that are at or below those of this table can be reasonably assumed to meet the affordability criteria, with possibly minor adjustments.
 
Rent restrictions also apply throughout the term of the affordability period of HOME-financed projects, including provisions for annual recalculations based on HUD's periodic updates of income and rents.

For HOME-assisted properties, the low income occupancy and rent limitations requirements are governed by a covenant running with the land for the period of affordability.

There is no prohibition against a tenant occupying the rehab property with rental subsidy assistance under the Section 8 or other subsidy program. Owners may not refuse to lease solely on the basis of a prospective tenant's participation in a rent subsidy program. Rehab loan financing does not include a commitment to provide rental assistance for new tenants of the loan property.

Processing and Review of Applications

• Applications will undergo a preliminary review and rating. These reviews will be processed in the order received. Incomplete applications will not be considered, and will be returned.

• Rated applications will be ranked and considered on a competitive basis for further review. Approximately every three weeks, the top-ranked proposals will be scheduled for inspection and property review.

• An inspection of the property will be made including an OCD review of needed repairs and a cost estimate. Results will be compared against information from the application.

• OCD project review, incorporating its inspection finding. For approvable projects, a preliminary approval notice is sent to the applicant. For disapproved projects, notice to the applicant is sent with an explanation of the reason(s).
   
  1. Preliminary approval notices will require submission of additional satisfactory financial and related information as a condition to final loan approval.
  2. Execution of  loan agreement for approved projects, prior to loan closing.
  2. Loan Closing.

Because the volume of submitted applications at any future point in time can not be known, and the possible effect of that volume on staff time and resources, and because selection for inspection and further review is dependent upon the competitive ranking of outstanding applications, an exact estimate of processing time can not be provided for individual applications. Monthly notices will be issued to outstanding applicants, providing summary information as to each relative status. Processing time for the more competitive applications (from application submission through loan agreement) is estimated at 8 weeks.

Competitive Funding and Application Ranking

• Applications will be considered on a competitive basis, according to the needs and priorities of the program
  
• The following is a summary of primary considerations that will be applied in competitively evaluating applications
  
• Property that is and has been vacant is preferred over property that is occupied
  
• Rental units that meet housing needs of larger families is preferred

• Property for which a first mortgage loan may be made is preferred over applications involving a second mortgage

• Loans for which the applicant assumes a higher percentage of the rehab costs than the required minimum are preferred

• Loans involving interim construction financing from other sources (with a take-out through this program at rehab
  completion) is preferred over loans involving disbursements of these loan proceeds during rehab construction

• Based upon the information in the application, and after initial review for project feasibility and eligibility, project applications will be scored and ranked by the following criteria

1. Applications will be processed for property inspection and final review according to their relative ranking as of each ranking period.

2. Applications that are not chosen for further processing in a selection cycle will be held over and reconsidered at the next cycle. Ranking updates on 3-week cycles.

Property Ownership

Applicants may be individuals, partnerships or corporations. Loans involving second mortgage financing may require loan guarantees by the appropriate parties.

Occupied Property

If an application involves occupied rental property, the existing tenant is afforded certain protections against involuntary displacement as the result of any loan financing provided through this program. Upon acceptance of a loan application by OCD for further loan consideration, the loan applicant will be required to provide notice to any such tenant-occupant. The form of the notice will be issued by OCD. In summary, it provides notice that the property is being considered and the tenant's right to remain (subject to the tenant remaining in full compliance, with his/her lease).

In the event that the loan applicant intends to temporarily relocate a tenant during the rehab construction, all costs of such relocation must be borne by the owner. Applications involving planned permanent relocation of the tenant from the rehab property will not be considered.

Affirmative Fair Housing Marketing

Property owners receiving rehabilitation assistance shall ensure that the rehabilitated units will be marketed for rent in a manner to affirmatively further fair housing practices. The Equal Opportunity/Fair Housing logo shall be displayed in advertisements for rent. Owners must agree not to discriminate against tenants solely because they are receiving rental subsidy assistance, or are qualified for the same.

Historic Preservation

If a project qualifies for assistance and is, or potentially is, historically significant or within an historic district, additional state and federal property rehab review requirements must be satisfied before the project can receive assistance.

Loan Financing

The program does not provide for any refinancing of existing debt. Financing is for eligible rehab costs only, and is not generally available for purchase financing.

Nonprofit Organizations

Rental projects undertaken by nonprofit organizations [501(c) corporations as determined by the Internal Revenue Service] are eligible for no interest loan financing and a reduction in the required percentage of owner investment in rehab costs. Some purchase financing may be available for qualified non profit. In such cases, the organization should submit a written proposal, fully describing the project and its financing. Such proposals will be separately considered on a case-by-case basis.