Homeownership Plan

In order to participate in Section 32, a PHA must create a Section 32 Homeownership Plan. This plan is then submitted to the SAC along with all applicable materials (application checklist found here). The specific requirements for the preparation of a homeownership plan are found in the Section 32 Desk Guide.

Essential Criteria of a PHA’s Homeownership Plan

HUD will use four key criteria to evaluate Section 32 homeownership plans. See the information on the Helpful Resources & Document Library to help guide your Homeownership Plan.

Feasibility: The program must be practically workable, with sound potential for long-term success. Simply put, the plan should make sense for the PHA to implement in its community. All the necessary components including sufficient demand for the proposed housing and adequate funding to cover program costs should be in place. See the Feasibility Tool and instructions for the tool at our Helpful Resources & Document Library.

Legality: The program must be consistent with all applicable federal, state, and local statutes and regulations and existing contracts law. The PHA must include a letter from the housing authority's legal counsel attesting to the legality of the proposed homeownership plan to HUD.

Documentation: The program must be complete and clear enough to serve as a working document for implementation and have sufficient basis for HUD review. The plan should be internally consistent and reflect the PHA's careful consideration of its elements.

PHA track record in implementing homeownership programs: The PHA (and any other entity with substantial responsibility for implementing the homeownership program) must demonstrate its commitment and capability to successfully implement the homeownership program. PHAs should describe successes in related activities including similar homeownership programs or modernization and development projects.

Eligibility Requirements

Eligible purchasers may earn up to, but not exceed 80% of Area Median Family Income (AMI). Except in the case of a PHA's offer of first refusal to a resident occupying the unit, a PHA must certify that the applicants' income is not over 80% of AMI at the time the contract to purchase the property is executed.

The PHA may sell units to a Purchase and Resale Entity (PRE). The PHA must demonstrate that the PRE has the necessary legal capacity and practical capability to carry out its responsibilities under the program and sell the units within five (5) years from the date of acquisition; otherwise the PRE must transfer ownership of the units back to the PHA. The PHA's homeownership program also must contain a written agreement and the applicable legal documentation that specifies the respective rights and obligations of the PHA and the PRE.

Affordability standards must be met for the purchaser. On an average monthly basis, the estimate of the sum of the applicant's payments for mortgage principal and interest, insurance, real estate taxes, utilities, maintenance and other recurring homeownership costs will not exceed the sum of 35% of the applicant's adjusted income and any subsidy that will be available for such payments.

Principal residence requirement. The dwelling unit sold to an eligible family must be used as the principal residence of the family.

PHAs must require purchasers to pay a minimum down payment. Each household purchasing housing must use its own resources to contribute an amount of the down payment that is not less than one percent of the purchase price of the housing.

Other eligibility restrictions. A PHA may establish additional limitations for households to purchase housing. Such requirements may include employment, no past criminal activity, participation in homeownership counseling programs, or other requirements.

Recapture and Anti-Speculation Restrictions

Anti-speculation. A PHA must have a policy that provides for retaining all or a portion of the gain from appreciation generated by the resale of the property to the extent that there are net proceeds if the house is sold within five years after purchase. The PHA may not recapture gains from appreciation if the home is resold over five years from the initial purchase. Gains from appreciation is defined as financial gain solely attributable to the home's appreciation over time and not attributable to below-market financing or government-provided assistance (recapture of that subsidy is discussed in recapture below). The anti-speculation provision must be recorded as a deed restriction or a restrictive covenant. The recapture amount can be one that the PHA considers appropriate under the guidelines in this section.

Recapture of subsidy. The PHA must implement a stated policy to recapture upon resale government-provided assistance and/or below-market financing made to the purchaser to the extent that there are net proceeds. This includes the PHA down payment, closing cost assistance, subordinate mortgage financing, or below-market financing (i.e., sale the unit for less than appraised value of the home). The PHA may recapture a portion or entire subsidy provided to the purchaser even for a period of longer than five years. [PHAs that elect to take back none of the subsidy must include that in a stated recapture policy.] This provision must be recorded in the appropriate form of title restriction(s).

Resale. Section 32 regulations do not require a PHA to implement a resale provision limiting resale to low-income buyers.

Eligible Program Activities

PHAs implementing a Section 32 program may use their funds to provide the following services:

• Subsidy to public housing residents (using Capital Funds or program income) or other low-income families (using only program income) in the forms of (a) down payment or closing cost assistance, (b) subordinate mortgages, and/or (c) below-market financing;
• Acquisition of existing homes (or homes built for the PHA by a third party 24 CFR 906.41(2)) using Capital Funds for the purpose of sale to income-eligible purchasers without adding these units to the Annual Contributions Contract (ACC);
• Sale of public housing rental (ACC) units to income-eligible purchasers; and,
• Operation of a lease-purchase program.

Key Program Features

PHAs must use Davis-Bacon wages for all construction activity. Except in specific cases of non-routine maintenance, Davis-Bacon prevailing wage rates apply to all construction activities under the program.

Section 32 can be implemented in conjunction with the Section 8(y) program. The Section 8(y) program is described separately in the PHA's Section 8 Administration Plan, if applicable to the PHA. See the Housing Choice Voucher (Section 8) homeownership program summary below for details regarding implementation of a voucher homeownership program. 8(y) can only be used in connection with units that are not currently under ACC or that are released from the ACC as a result of the sale of the unit. Lease to purchase programs would not be eligible for 8(y) during the lease phase.

Non-purchasing public housing residents may be displaced. In selling a public housing unit under a homeownership program, the PHA or Purchase and Resale Entity (PRE) must initially offer the unit to the resident occupying the unit if they meet the eligibility requirements. The current residents of the public housing units have the option of applying to the program in order to purchase their unit, relocating to another comparable unit, or receiving tenant-based assistance. PHAs must provide the resident with notice 90 days prior to the date of the sale of their unit, counseling, relocation expenses, and comparable replacement housing options. The right of first refusal does not extend to residents in non-public housing units

Plan Implementation

After a homeownership plan has been approved, the local HUD office having jurisdiction for the PHA will monitor the plan's implementation using the Monitoring Review Checklist.

Combining Section 32 and the Housing Choice Voucher/Section 8(y) Program

In some instances, a PHA may be able to use the Section 8(y) program in conjunction with Section 32 as long as the requirements for both programs are met.

New Construction and Substantial Rehabilitation

No new construction or substantial rehabilitation is allowed under Section 32. However, Section 32 generates an exception, allowing Public Housing Capital Funds to be used to acquire units for sale to residents that will not be put under public housing ACC contracts. This does not apply to the use of Capital Funds by a PHA to build or substantially rehabilitate units that are not public housing for sale under Section 32. Although public housing units that are newly constructed or substantially rehabilitated may be sold under Section 32, such construction and rehabilitation by the PHA is not covered under Section 32, but rather is governed by the public housing development regulations. Nonetheless, the final Section 32 rule (effective April 10, 2003) replaces the Section 5(h) rule.

If a PHA wants to use Capital Funds to newly construct or substantially rehabilitate units that are not currently public housing, it has two options:

1. Construct the units as low-rent, public housing units under 24 CFR part 905. After units are added to the PHA's ACC (low-rent PH inventory), the PHA can sell them under Section 32.
2. Apply under Mixed-Finance Public Housing requirements. In this case, the units are never added to the PHA's low-rent, public housing inventory but are immediately sold to eligible low-income families after development. No Section 32 approval is required.