FHA Single Family Housing Policy Handbook 4000.1, Part I — c. Post-approval Requirements (07/14/2025)

FHA Single Family Housing Policy Handbook 4000.1, Part I — c. Post-approval Requirements (07/14/2025)

c. Post-approval Requirements (07/14/2025) Governmental Entities and HUD-approved Nonprofits must comply with the following requirements and restrictions for its FHA business operations in addition to continuing to operate in full compliance with the eligibility requirements outlined in this Handbook 4000.1. i. Consultant Services Consultant Services provided under an independent contractor relationship (as opposed to an employer-employee relationship) must not constitute more than half of the nonprofit’s activities in the operation of its FHA-approved programs. This measurement will be calculated by evaluating the ratio of nonprofit staff to contracted or consultant staff; the ratio of hours devoted to the implementation of the AHP by nonprofit staff versus contracted or consultant staff; and the funds devoted to paying nonprofit staff compared to those paying contracted or consultant staff. The nonprofit must have the in-house resources and capacity to run its own programs, and contract for services on a temporary and supplementary basis. Therefore, to ensure that the consultant services are provided on an arm’s length basis, the nonprofit must disclose any written and/or side agreements with parties that may derive financial gain through the homeownership program. Disclosure must identify the name of the business entity, and the individuals from the company who will be working with the nonprofit, the terms of the relationship and how the party will be compensated. Failure to adequately disclose may result in a conflict-of-interest determination. The nonprofit must contact FHA immediately if more than half of the nonprofit’s activities are provided by consultants under an independent contractor relationship at any time during the approval period. ii. Limitation on the Number of 203(k) FHA-Insured Mortgages A nonprofit is prohibited from further borrowing under its FHA Mortgagor approval if the nonprofit has 10 or more incomplete 203(k) developments at any given time. I. DOING BUSINESS WITH FHA B. Other Participants 4. Nonprofits and Governmental Entities Handbook 4000.1 110 Last Revised: 11/26/2025 Exceptional Performance Waiver Nonprofit agencies with an exceptional performance record of successfully completing 203(k) developments (defined as those agencies that have successfully completed 20 or more 203(k) developments) may apply to FHA for a waiver of the limitation on 203(k) Mortgages. This waiver request must contain a narrative describing the nonprofit agency’s homeownership or long-term rental program; current audited financial statements with an unqualified opinion from a CPA for the prior three years; a listing of all Properties currently owned by the nonprofit agency (both conventional and government financed); a record of performance on all 203(k) Mortgages (current as well as previous Loans); as well as the evidence to support the sale or rental of these Properties. Nonprofit agencies that are approved for this waiver, for financing for more than 10 203(k) Mortgages at one time, will have it stated in their approval letter from FHA. iii. HUD Homes – Name and Address Identification (A) Standard In order to bid on Real Estate Owned (REO) Properties, a nonprofit must obtain a Name and Address Identification (NAID), after it receives an approval letter from HUD to participate in the HUD Homes Program. To obtain an NAID, a nonprofit must submit the required documentation through the online NAID application portal at the HUD Home Store. (B) Required Documentation The nonprofit must submit the IRS Letter of Determination/Ruling and HUD Nonprofit Approval Letter. iv. HUD Homes – Individual Property Files (A) Definition Individual Property Files refer to files that Governmental Entities and HUD-approved Nonprofits participating in the HUD Homes program must maintain for each Property purchased, sold, or leased when a discount of 10 percent or greater is obtained at the time of purchase. (B) Standard Governmental Entities and HUD-approved Nonprofits must submit the Individual Property Files to FHA through the NPDMS no later than 60 Days after the resale of a Property to a subsequent homebuyer. Governmental Entities and HUD-approved Nonprofits must contact the FHA Resource Center at [email protected], notifying them when an Individual Property File is ready for review. Individual Property Files I. DOING BUSINESS WITH FHA B. Other Participants 4. Nonprofits and Governmental Entities Handbook 4000.1 111 Last Revised: 11/26/2025 are ready for review once all data has been entered and supporting documentation has been uploaded. The Individual Property File must be maintained for a minimum of three years after the Property is sold by the nonprofit. (C) Required Documentation The Individual Property File must include all supporting documentation for NDCs. The supporting documentation includes the following: • copies of the fully executed Closing Disclosures or similar legal documents for the nonprofit’s purchase from HUD and from the nonprofit’s resale of the Property to the new purchaser; • a copy of a signed Land Use Restriction Addendum (LURA); • income verification for the purchaser who bought from the nonprofit. This may be in the form of pay stubs; Verification of Employment (VOE); the most recent IRS Form W-2, Wage and Tax Statement; or Tax Returns. Nonprofits must also provide a certification that the resale purchaser’s income was at or below 115 percent of HUD’s determination of median income for their area when adjusted for family size; • appraisal reports if the Property was purchased as a 203(k) or financed with 203(b) or other FHA insurance funds; • rehabilitation documents must include: o Work Write-Up/contractor estimate of repair costs o change orders o inspection of repairs by nonprofit o invoices from contractors o copies of payments to contractors • additional rehabilitation documents for 203(k) must include: o draw requests o Lien Waivers o Final Release Notice • if the Property is leased under an approved lease/purchase program: o copies of executed lease o income verification o evidence of proactive work of nonprofit to move tenants into homeownership o appraisal or document from independent third party to determine fair market rent o list of other program costs, including developer’s fees Accounting records must be maintained in a property-specific format so that cost calculations can be made for all expenses related to each specific Property. I. DOING BUSINESS WITH FHA B. Other Participants 4. Nonprofits and Governmental Entities Handbook 4000.1 112 Last Revised: 11/26/2025 In addition, Governmental Entities and HUD-approved Nonprofits must submit a list of all business partners participating in the acquisition, rehabilitation and resale of the Property. The list must include the name of the company, the name of the principals, the name and title of all staff with whom the nonprofit is working, a description of the services provided by the company, and an accounting of the costs and fees associated with those services. This information must be reported for all real estate agents, Lenders, and contractors involved in the acquisition, rehabilitation and sale of the HUD Homes Property. (D) HUD Homes – Net Development Costs The NDCs are composed of the allowable property Acquisition Costs plus allowable rehabilitation, holding, and selling costs which Governmental Entities and HUD- approved Nonprofits incur when purchasing HUD Homes at discounted prices, redeveloping the Properties for resale, and selling those Properties. The NDC calculation applies to all HUD Homes sold to nonprofit organizations and Governmental Entities at a 10 percent or greater discount regardless of the source of the financing (FHA, conventional Mortgage, or cash), except for discounted REO homes purchased through the Dollar Home Sales to Local Governments, Asset Control Areas (ACA), and Good Neighbor Next Door (GNND) programs. The purpose of these discounts and the limits on development costs is to make housing affordable to Low- to Moderate-Income families. HUD limits the costs that are eligible to be included in the NDC calculation and prohibits the nonprofit organization or Governmental Entity from reselling the repaired or improved Properties at prices in excess of 110 percent of the NDC calculation. If the nonprofit organization’s or Governmental Entity’s resale price of the HUD Home exceeds 110 percent of the NDC, or if non-allowable items that are included in the NDC result in an excessive sales price, the HUD-approved Nonprofit or Governmental Entity must use the excess profit to pay down the existing Mortgage associated with that particular resale. (1) Costs Allowed in Calculating the Net Development Costs Only the costs specifically included in the following list, within the prescribed limitations and/or conditions, may be included in calculating the NDCs: • the discounted purchase price paid to HUD; • upon the purchase of the Property from HUD, prepaid items and financing and closing costs actually incurred, which must be reasonable and customary for the area in which the Property is located; • for the time period the nonprofit organization or Governmental Entity holds title, the following costs, limited to amounts that are reasonable and customary for the area in which the Property is located, may be included: o fees paid to an approved 203(k) Consultant for Work Write-Ups, Cost Estimates, and inspections only; I. DOING BUSINESS WITH FHA B. Other Participants 4. Nonprofits and Governmental Entities Handbook 4000.1 113 Last Revised: 11/26/2025 o property management, but only if related to periodic inspection and/or minor maintenance of the Property; o architectural fees, but only if the services are provided by a licensed architectural firm or individual architect; o rehabilitation costs, which are the total verifiable contractor and vendor expenditures incurred in the actual reconstruction, repair, restoration, and physical improvement of the Property. Rehabilitation costs are limited to the actual price paid to the contractor for completing each repair or improvement, and may also include expenditures for mechanical systems inspections, sewer and well inspections, repair inspections, foundation certifications for Manufactured Housing obtained from a licensed engineer, and roof inspections from a licensed contractor. HUD may require canceled checks and corresponding receipts as proof of rehabilitation costs. When calculating the NDC, Governmental Entities or HUD-approved Nonprofits using grant funds for the rehabilitation of HUD Homes acquired at a discount, cannot include the cost of the rehabilitation that is paid for by those grant funds; o cost of public and municipal services and utilities and real property taxes for the subject premises, except for delinquent interest or penalty charges incurred as a result of failure of program participant to pay these expenses in a timely manner; o cost of termite inspection and extermination services; o Homeowners’ Association (HOA) or Condominium Fees; o permits and other fees paid to units of state and local governments that are required by rule, law, regulation, or other legally binding mandate that must be paid before initiating or completing the rehabilitation or property improvement; o survey costs; o hazard and liability insurance premiums; and o interest portion of Mortgage Payments limited to a maximum of 18 months’ interest payments, less any and all rents received. If the Property is resold in less than 18 months, the interest payment credit must be pro-rated on the basis of the actual payments made – rent received and interest paid would be allowable costs but not the principal; and • upon the resale of the Property to a new purchaser, only the following seller closing costs that are actually incurred, limited to amounts that are reasonable and customary for the area in which the Property is located, may be included: o ½ of closing agent fee (seller’s portion); o electronic wiring fees; o courier and mailing fees (seller’s documents only); o title insurance premium (owner’s policy only); o state, county, or city tax stamps, if local law requires the seller to pay these costs; I. DOING BUSINESS WITH FHA B. Other Participants 4. Nonprofits and Governmental Entities Handbook 4000.1 114 Last Revised: 11/26/2025 o homeowners warranty premium; o environmental hazard certification; o document preparation fee (seller’s documents only); o recording (deed only) and reconveyance fees; o sales commissions for real estate broker/agent services; and o condominium transfer fee. (2) Costs Not Allowed in Calculating the Net Development Costs Costs not listed in Costs Allowed in Calculating the Net Development Costs are ineligible and cannot be included in the NDC calculation. Ineligible costs include: • general administration cost of the nonprofit organization’s or Governmental Entity’s AHPP and homeownership programs, including overhead and staffing costs; • housing developer fees and/or real estate consultant fees; • sales bonuses and sales incentives (other than sales commissions) for selling or listing real estate brokers/agents; • Gifts to the Low- to Moderate-Income purchaser for downpayment, financing or closing costs, prepaid items, and any other purchaser-related expenses associated with their purchase of the Property; • development, maintenance, and management costs related to other Properties in the nonprofit organization’s or Governmental Entity’s inventory; • delinquent property tax or utility penalties and interest; and • Mortgage Payment late fees, prepayment penalties, payoff quote fees, and fax charges. (E) HUD Homes – Land Use Restriction Addendum (1) Definition The Land Use Restriction Addendum (LURA) is a legally binding contractual agreement between HUD and the Governmental Entities or nonprofits imposing restrictions on the resale of a HUD Home that the nonprofit organization or Governmental Entity purchased at a discount of 10 percent or greater. (2) Standard Governmental Entities and HUD-approved Nonprofits participating in the HUD Homes program must execute the LURA as part of the FHA sales contract for any Property purchased at a 10 percent or greater discount. The LURA terminates five years from the date of execution. The LURA requires the purchaser to expand affordable housing opportunities by complying with the following requirements: I. DOING BUSINESS WITH FHA B. Other Participants 5. Real Estate Brokers Handbook 4000.1 115 Last Revised: 11/26/2025 • The purchaser must complete needed repairs to bring the Property into compliance with local housing code followed by resale, lease, or lease purchase only to a person who intends to occupy the Property as their Principal Residence and whose income is at or below 115 percent of the median income in the area, when adjusted for family size, or state, Governmental Entity, tribe, or agency thereof. • If sold, the purchaser must resell the Property for an amount not in excess of 110 percent of the NDCs. The NDCs are the total HUD-allowable costs to purchase, rehabilitate, and resell the Property. • The Property may not be occupied by or resold to any of the purchaser’s officers, directors, elected or appointed officials, employees, or business associates, either during their tenure or for one year thereafter, or to any individual who is related by blood, marriage, or law to any of the above. • There may be no conflict of interest with individuals or firms that may provide acquisition or rehabilitation funding; management, sales or rehabilitation services; or other services associated with the Property. The Governmental Entity or HUD-approved Nonprofit must provide periodic reports, in the format and frequency specified in the HUD Homes – Individual Property Files section. Exception Discounted homes purchased through the Dollar Homes Sales to Local Governments, GNND and ACA programs are not subject to the LURA restrictions. 5. Real Estate Brokers

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