|Volume 1, Issue 6, 2001||Federal Reserve Bank of Dallas|
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Overview of the Section 8 Home-Ownership Option
Seeking to promote affordable housing for low-income families, Congress created the home-ownership option for families receiving Section 8 tenant-based assistance. The Department of Housing and Urban Development (HUD) issued its final rule implementing the Section 8 home-ownership program on October 12, 2000.
e-Perspectives asked Roman Palomares, deputy director of HUD's Office of Public Housing in Fort Worth, Texas, to provide an overview of the program. Here's what he had to say.
What is the Section 8(y) home-ownership option program?
The home-ownership option allows families to use their Section 8 rental voucher toward a portion of their mortgage payment. The voucher can be applied to principal and interest, mortgage insurance, real estate taxes and home insurance. Section 8 payments supplement the family's own income. In most cases, a family is required to pay at least 30 percent of their monthly income, and the home-ownership assistance payment covers the balance.
What are the eligibility requirements?
Generally, the program is limited to first-time homebuyers who earn at least $10,300 a year and who have been continuously employed full-time at least one year. The program also requires the borrower to secure his own financing, which can be a challenge for families without the financial sophistication to shop for a favorable interest rate. For this reason, the program also requires that families attend home-ownership counseling sessions.
Being knowledgeable about the mortgage loan process and current mortgage interest rates is important for the administering public housing authority as well. The PHA must have the capacity to educate and protect families from accepting financing terms that may not be affordable. The program allows the PHA to review lender qualifications and loan terms before authorizing home-ownership assistance.
What happens if a family's income changes?
The PHA will examine family income and composition annually and make appropriate adjustments to the amount of the monthly housing assistance payment. The payment may increase or decrease according to the family's monthly income. In cases where the working adult loses his or her job because of a layoff or other extenuating circumstances, the family can be required to make a minimum payment of up to $50 and the PHA is required to pick up the remainder of the mortgage payment.
What underwriting criteria do the families need to meet to obtain financing?
Families are subject to the regular underwriting standards of the lender. The subsidy can be counted as part of the family's income for underwriting purposes, or it can be used to finance a second mortgage. Payments can be made directly to the family or to the lender on the family's behalf.
How long will the home-ownership program participants receive assistance payments?
Home-ownership assistance is available for 15 years if the mortgage term is 20 years or longer. In other cases, assistance lasts for 10 years.
Are there circumstances in which the home-ownership assistance payments may be terminated?
The PHA may terminate program assistance for a participant for a variety of reasons. However, chances of this happening are rare because of the extensive screening and counseling provided these families. If the housing assistance payment were to cease, the family is still responsible for the full monthly mortgage payment due the lender.
Program details may vary with an individual borrower's special circumstances. Interested parties, including lenders, nonprofits and builders, may contact Ed Ellis, HUD Community Builder (Dallas Office), at (214) 767-8385.
e-Perspectives, Volume 1, Issue 6, 2001