Box 22, Folder 19, Document 14

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Box 22, Folder 19, Document 14

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FINANCING METHODS

PUBLIC HOUSING ADMINISTRATION

The 1965 Housing Act authorizes the Public Housing Authority to fund the
purchase and rehabilitation of existing structures through local Housing

Authorities.

This program permits local Housing Authorities to contract a property pur-
chase and rehabilitation with a builder. Upon project completion, the
builder is reimbursed for total project costs (land acquisition-rehabilitation).
The project title and management reverts to the local Housing Authority.

FNMA financing is not included in this provision.: The Public Housing
Authority makes the appraisal, reviews cost contracts and will accept a
cost figure from a builder without competitive bids. Upon completion,
the project is turned over (turnkey) to the local Housing Authority.

The one requirement under this program stipulates that acquisition and
rehabilitation costs do not exceed 90% new construction costs.

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1965 HOUSING ACT: Contains new legislation that provides a below

market interest rate (3%) on rehabilitation financing for non-profit
sponsors and limited profit corporations.

221(d)3: 1965 Housing Act provision that defines financial methods
available to non-profit sponsors and limited profit corporations.
The non-profit sponsor category has two provisions:

1) Non-profit sponsor who holds property title.
Rehabilitaree and continues ownership.
2) Builder-Seller who purchases and rehabilitates the property

under an agreement with a non-profit sponsor to purchase
the property upon rehabilitation completion.

221(d)3 provides a 100% total mortgage (acquisition, reconstruction)
at 3% for 40 years.

221(d)3 Limited Dividend Sponsor - Limited to 90% total mortgage at 3%
for 40 years. Investment return on 10% equity is limited to 6%.

221(d)4 Conventional FHA Financing - Limits sponsors to 90% total
mortgage at 54% for 40 years.


FINANCING METHODS

1965 HOUSING ACT
‘Section 221 (D) (3)

LIMITED DIVIDEND SPONSOR = Agrees to a 6% return on initial



investment.
Mortgage Terms - 90% total project cost (land
acquisition-rehabilitation) at 3% for
- 40 years.* ;

A limited dividend sponsor must have 10% equity in the total project cost.

. (Example)
Building Purchase Price $ 30,000
Rehabilitation Costs 170,000
Total Project Costs $200, 000

Final FNMA mortgage at
90% project cost $180,000

10% investment (equity) $ 20,000

6% return on investment
allowed under this provision $ 1,200 per year

* 40 year maximum under law. Actual term determined by local FHA.

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FINANCING METHODS

1965 HOUSING ACT
Section 221 (D) (3)

BUILDER-SELLER - Builder purchases property with agreement to
sell property to a non-profit sponsor after
property has been rehabilitated.

Mortgage Terms — - 100% total project cost (land acquisition-
rehabilitation) at 3% for 40 years. *
Assigns 100% mortgage to non-profit sponsor

upon job completion.

Property. Title - Is transferred to non-profit sponsor after FHA
final inspection upon job completion.

Invested Monies - (Same as non-profit sponsor) .

Mortgage Loan - 3% interest (below market rate) by FNMA
after FHA insures loan after rehabilitation
job completion.

100% mortgage is assigned non-profit sponsor.
FNMA reimburses property purchase price.

FNMA reimburses rehabilitation cost.

FNMA reimburses incidental fees.
Construction Loan - (Same as non-profit sponsor)

Final Settlement - (Same as non-profit sponsor)
Upon final mortgage settlement, property owner-

ship and management is the responsibility of the
non-profit sponsor.

* 40 year maximum under law. Actual term determined by local FHA.

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O

FINANCING METHOD$



1965 HOUSING ACT
Section 221 (D) (3)

NON-PROFIT SPONSOR



Mortgage Terms

Property Title

Invested Monies -

Mortgage Loan

Construction Loan

Final Mortgage Settlement

Foundation, church, university, etc., incor-
porated as a non-profit organization.

100% total project cost (land acquisition-
rehabilitation) at 3% for 40 years. *

Must be held for mortgage term.

Property purchase (FNMA) reimbursed after
(FHA) final inspection upon project completion.

3% interest (below market rate) by FNMA after

FHA insures loan. FNMA mortgage loan made
after final FHA inspection upon job compl etion.

For actual rehabilitation costs made by private
lending institution to non-profit sponsor as a
temporary loan until final FNMA mortgage loan
is closed. The construction loan is made in
timed stages as rehabilitation costs become due.
Construction loan insured by FHA.

Permanent FNMA mortgage finalized. Private
lending institution repaid construction loan by
FNMA.

Final mortgage balance minus construction loan
payment awarded to non-profit sponsor by FNMA.
(This balance covers property purchase and other
fees, e.g., architect, legal, etc.)

Non-profit sponsor pays mortgage for term set in
mortgage from property rentals.

* 40 year maximum under law. Actual term determined by local FHA.

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FINANCING METHODS

1965 HOUSING ACT
Section 221 (D) (4)

CONVENTIONAL FHA FINANCING = For individuals or groups who do

_ not qualify under 221 (D) (3)

provisions.

Mortgage Terms - 90% total project cost (land
acquisition-rehabilitation) at
54% for 40 years. *

All other 221 (D) (3) financing provisions apply except private lending
institutions lend the monies instead of FNMA.

Under this provision, there is no limit on amount of return on initial
investment,

* 40 year maximum under law. Actual term determined by local FHA.

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  1. http://allenarchive.iac.gatech.edu/originals/ahc_CAR_015_022_019_014.pdf

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