Arkansas Administrative Code
Agency 109 - Arkansas Development Finance Authority
Division 04 - Multi-Family Housing
Rule 109.04.07-005 - HOME Program Policy and Operations Manual

The state shall not exclude any organization or individual from participation under any program funded in whole or in part by HOME Program funds on the grounds of age, disability, race, creed, color, national origin, familial status, religion or sex. The following federal requirements as set forth in 24 CFR 5.105(a), Nondiscrimination and Equal Opportunity, are applicable to HOME Program developments:

Executive Order 11625, as amended (Minority Business Enterprises)

Executive Order 12432, as amended (Minority Business Enterprises)

Executive Order 12138, as amended (Women's Business Enterprise)

In addition to the above requirements, all HOME Program participants must ensure that their Equal Opportunity and Fair Housing policies related to activities funded by the HOME Program are consistent with the current Consolidated Plan adopted by their jurisdiction.

HOME Program funds committed to the state of Arkansas will be allocated as promulgated in the State of Arkansas' Consolidated Plan. In addition, the state may spend up to ten percent (10%) of its HOME Program allocation for administrative and planning expenses. ADFA HOME Program funds allocated within local participating jurisdictions (PJ) will be limited to American Dream Downpayment Initiative (ADDI) loans and joint Low-Income Housing Tax Credit/HOME developments . To date, these areas include Little Rock, North Little Rock, Pine Bluff and Fort Smith.

Layering is the combining of other federal resources on a HOME-assisted development that results in an excessive amount of subsidy for the development. Such activity is prohibited. ADFA will analyze each application to ensure that only the minimum amount of assistance is allocated to the development. In no case may the amount of HOME Program funds allocated exceed the maximum allocation limit as defined in Section IV. B (Maximum Amount of HOME Funding Per Applicant) and maximum per-unit allocation as defined in Section V. H (Maximum Per-unit HOME Assistance) of this manual.

Any entity applying for HOME Program funds must adopt affirmative marketing procedures and requirements for all HOME-assisted housing and submit the affirmative marketing plan with the HOME Program application. The affirmative marketing plan and requirements for HOME-assisted housing must be approved by ADFA prior to any HOME Program funds being committed to a development. Affirmative marketing requirements and procedures must include:

In implementing the HOME Program, the environmental effects of each activity must be assessed in accordance with the provisions of the National Environment Policy Act of 1969 and the related authorities listed in HUD's regulations at 24 CFR Parts 50 and 58.

ADFA, as the HOME Participating Jurisdiction, and the units of local government funded by ADFA will be responsible for carrying out environmental reviews. ADFA will approve the release of funds for local governments and must request the release of funds from HUD for any developments of CHDOs or nonprofit organizations. HOME Program funds are approved as a conditional commitment until the environmental review process has been completed, with the option to proceed, modify or cancel the project based upon the results of the review. ADFA reserves the right to require a Phase I Environmental Study for rental projects as part of the environmental review process.

The Lead-Based Paint Regulations described in 24 CFR Part 35 require that lead hazard evaluation and reduction activities be carried out for all developments constructed before 1978 and receiving HOME Program assistance. Applications for rehabilitation funds for existing buildings constructed prior to 1978 must include a lead hazard evaluation, by appropriate lead-certified personnel. The application must also include detailed lead hazard reduction plan, in accordance with the regulations, and separately identify within the rehabilitation budget, the costs associated with reduction of lead hazards in accordance with the regulation and guidelines. All HOME Program fund allocations will be contingent upon the applicant agreeing to complete lead hazard reduction, evidenced by a clearance report performed by appropriate lead-certified personnel. The Authority will allow up to two thousand five hundred dollars ($2,500) per unit for lead-based paint testing, assessment, and clearance report. In a development where HOME Program funds will be used on only a portion of the units, the lead-based paint requirements apply to ALL units and common areas in the development.

All general contractors working on all HOME-funded developments must have an active license issued by the Arkansas Contractor's Licensing Board (the "State Licensing Board") as applicable and meet all requirements of contractors in the state of Arkansas, including securing Builder's Risk insurance. Contractors may not "share" a license. That is, ADFA will not allow one contractor to work from another contractor's license.

All ADFA HOME-funded projects must have a general contractor that is properly licensed by the Arkansas State Contractor's Licensing Board. Any questions regarding licensing issues and a list of licensed contractors may be directed to the State Licensing Board at the following address:

Arkansas Contractor's Licensing Board

4100 Richards Road

North Little Rock, AR 72117

(501) 372-4661

Any contractor or subcontractor who has been debarred by any entity or had a contractor license suspended by any entity within the previous twelve (12) months will be prohibited from participating in the HOME Program. All general contractors working on all HOME-funded developments must obtain one of the following:

Davis-Bacon wage compliance and other federal laws and regulations pertaining to labor standards apply to all contracts for rehabilitation or construction of twelve (12) or more HOME-assisted units in a development. Davis-Bacon and related laws include:

* Davis-Bacon and Related Acts ( 40 USC 276a-276a-7)

* Contract Work Hours and Safety Standards Act (40 USC 327-333)

* Copeland (Anti-Kickback) Act (18 USC 874; 40 USC 276c)

* Fair Labor Standards Act of 1938, as amended (29 USC 201, et seq.)

The construction contract for any HOME-assisted activity must contain the applicable wage provisions and labor standards. Davis-Bacon does not apply to projects using solely volunteer labor or to sweat equity projects. ADFA will monitor all developments subject to Davis-Bacon requirements to ensure compliance with all applicable regulations.

Inspections are required with all activities that are funded through the HOME Program. ADFA currently has inspectors that will be available as needed. There are currently four (4) required inspections that are identified below:

Stage 1

Excavation

Metals

Termite treatment

Rough-in plumbing

Earth work

Water proofing (vapor barrier)

Footing

Slab

Stage 2

Plumbing top-out

Electrical rough-in

Framing

Roof

Interior wall systems

Exterior wall systems

Ventilation

Insulation

Stage 3

Flooring systems

Painting

Doors

Cabinets

HVAC

Electrical top-out

Special construction (elevators, etc.)

Appliances

Stage 4

Final Inspection

Rental housing development inspections may be scheduled more frequently, as warranted.

* Pre-construction Meetings - ADFA inspector must attend any pre-construction meetings for multi-family developments;

* Rehabilitation Projects - when a project is ready for a draw on funds, the property must be inspected to verify that the work has been completed. ADFA will only make payments on work that has been completed and inspected by an ADFA inspector.

You may fax or mail your payment request, with all of the required documentation, to ADFA using the following contact information:

Arkansas Development Finance Authority

Attn: HOME Program Department

P.O. Box 8023

Little Rock, AR 72203-8023

FAX (501) 682-5859

ADFA staff will coordinate with recipients of HOME Program funds and inspectors to schedule all inspections.

ADFA recognizes that changes in a development occur from time to time. It is important that HOME Program participants submit change orders on the proper ADFA form. All change orders must be approved by the ADFA Staff prior to initiating work. No payment of HOME funds will be made on change orders that have not been approved by ADFA. Any changes to the original amounts of HOME Program assistance must be reflected by an Amended and Restated Mortgage and Promissory Note. Each Single-Family HOME Program Agreement will include provisions for possible funding of change orders on a limited basis.

ADFA will require participants in lower-tier transactions covered by 24 CFR 24 to certify that neither it nor its principals are presently debarred, suspended, proposed for debarment, declared ineligible or voluntarily excluded from any entity from a federally funded transaction. Any participant that remains on a debarred or suspended condition shall be prohibited from participation in the ADFA HOME Program as long as they are classified in this manner.

HOME Program funds may generally not be invested in housing located in an area identified by the Federal Emergency Management Agency as having special flood hazards. ADFA discourages developments located in special flood hazard areas but, in some instances and with written permission from ADFA, houses located in a flood plain may be assisted. It is the responsibility of the applicant to evaluate any remedies to remove any properties from the flood plain and ensure the feasibility of the proposed plan. ADFA is willing to consider the proposed remedy and must approve the proposal in writing prior to approval of any HOME Program allocation. The community must be currently participating in the National Flood Insurance Program, and flood insurance must be obtained and maintained for the full period of affordability.

All solicitation of bids for goods and services to be paid with HOME Program funds must be conducted openly and competitively in accordance with Arkansas State Procurement guidelines, when applicable.

ADFA will evaluate each application to determine if the proposal meets threshold criteria. Threshold criteria includes submission of a complete application; proposal of an eligible activity; proposal of a development that, in the opinion of ADFA, is physically, financially and administratively feasible; provision of written verification in support of the proposed activity from the chief elected official of the area where the activity will be undertaken; and proposal of a development that meets the requirements of 24

CFR Part 92, as amended. See the HOME Program application for a complete list of threshold items at the ADFA website:

www.state.ar.us/adfa

Applications will be taken on a continuous basis until available funds have been allocated. ADFA will review HOME Program applications in accordance with the Application checklist and on the following criteria:

* Affordable Housing Experience: Capacity must be demonstrated by including an application that identifies all necessary components to accomplish the development, e.g., effective control of sites for acquisition and construction developments, the financial capacity to repay the HOME loan and other financial arrangements, as well as comprehensive program design. ADFA's HOME Program staff will conduct reviews of:

Successful applicants must disburse twenty-five percent (25%) of the total HOME Program funds within ninety (90) days of the notice to proceed. Seventy-five percent (75%) of total HOME Program funds allocated must be disbursed on the development within one year from the date of the notice to proceed. If these performance standards are not met, any unspent HOME Program funds may be recaptured and reallocated to fund other affordable housing developments. Applicants approved for funding that do not complete the required number of units will be considered in default of their HOME Agreement and jeopardize future funding through the HOME Program. In addition, projects must adhere to the performance measurements and indicators as outlined in the State Consolidated Plan.

For applicants also applying for Low Income Housing Tax Credits (LIHTC), the ninety (90) day performance standard will begin upon the LIHTC reservation . For developments applying for both HOME Program funds and LIHTC, any allocation of HOME Program funds is contingent upon the successful reservation of LIHTC.

Multiple HOME applications may be submitted by HOME participants for funding. A participant may not have more than three (3) HOME projects underway at any given time period. If a participant has three (3) projects currently underway, additional applications may not be submitted until 100% of HOME funds on any one of the previously approved application(s) has been expended. A project is considered complete once ADFA has received all completion documentation. It is within ADFA's discretion to evaluate a participant's capacity in regards to undertaking multiple projects. A HOME program participant is defined as either an owner (i.e., rental projects), developer, consultant or public official/employee.

Any changes to any material aspect of the development must be presented as an amendment to the initial application for HOME Program funds. The request for amendment will go through the normal review and approval process as outlined in Section R, "HOME Program Application Process Path", of this manual.

ADFA allows up to ten percent (10%) of the HOME allocation for constuction contingencies. A rehabilitation, reconstruction, or new construction activity, including contingencies, may not exceed the ADFA established per unit limits for the HOME Funds (i.e., $25,000/unit for homeowner rehabilitation, $85,000/ unit for single-family reconstruction or new construction; and $40,000/unit for rental projects.

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Following ADFA Board approval of the HOME Program application, the following processes will apply:

One of the purposes of the HOME Program is to encourage governments to use HOME Program funds efficiently and to encourage partnerships between public and private entities. In keeping with this mission, ADFA requires that recipients leverage their HOME Program allocation to the greatest extent possible with funds from other sources. Two such sources include Rural Development and Low Income Housing Tax Credits.

To obtain information about the programs offered by Rural Development, please contact USDA Rural Development, Attention: Multi-Family Department, 700 West Capitol, Little Rock, AR 72201.

To obtain more information about ADFA's Low Income Housing Tax Credit Program, please contact ADFA, Attention: Multi-Family Department, 423 Main Street, Suite 500, Little Rock, AR 72201.

A variety of financing is often available to and used by developers of affordable housing. In fact, affordable housing developments are almost always funded by multiple sources. This is particularly true for HOME Program funded developments in light of the fact that the HOME Program is a "gap financing" source that assists in making the housing units affordable to low-income persons. HOME funds are not intended to be used to finance an entire development.

While the maximum HOME Program funding is four hundred thousand dollars ($400,000), ADFA will calculate the "gap financing" amount and fund only that amount. For mortgage subsidy projects, the maximum subsidy is the lesser of $25,000 or 20% of the purchase price. Note: Applicants must provide a copy of the final appraisal prior to disbursement of funds.

It is imperative that funds allocated to participants be used as quickly as possible and in the most efficient manner. ADFA will recapture allocated funds that have not been used in accordance with applicable performance standards. Applicable performance standards include performance standards adopted by ADFA (see section O. - PERFORMANCE STANDARDS) and HOME Program regulatory commitment and disbursement requirements. These funds will then be placed back into the pool of funds that are available to fund other developments.

During the period of affordability, ADFA must perform on-site compliance and monitoring inspections of all rehabilitation of single-family and multi-family developments utilizing HOME Program funds to determine compliance with the Final Rule and current ADFA HOME Program Policy and Procedures Manual.

ADFA requires that recipients have an audit conducted of federal funds received in accordance with Generally Accepted Accounting Principals (GAAP) and the Single Audit Act Amendments of 1996 (31 U.S.C. 7501-7507) and revised OMB Circular A-133, "Audits of States, Local Governments, and Non-Profit Organizations" as required in 24 CFR Part 84 and 85 respectively.

ADFA seeks to partner with individuals and organizations that will carry out the express goals of increasing and improving decent, safe and affordable housing for all Arkansans.

Multiple HOME applications may be submitted for funding. A participant may not have more than five (5) HOME projects underway at any given time period. An additional application may be submitted once 75% of HOME funds on any previously approved application(s) have been expended. Note: This policy excludes projects which HOME funds are combined with Low-Income Housing Tax Credits.

ADFA will accept applications for rentals at a minimum of five (5) units, from local governments, public housing authorities, Community Housing Development Organizations ("CHDOs") and other nonprofits and for-profit entities.

Eligible applicants may receive technical assistance by attending an information/training session prior to submitting an application. Sessions will address HOME Program and ADFA guidelines as well as application procedures. Applicant eligibility will be based on the designated responsible entity submitting the application. An eligible designated responsible entity is the entity responsible for project development, but may include all of its related affiliated entities.

Each applicant must request at least one hundred thousand dollars ($100,000) and no more than four hundred thousand dollars ($400,000) per application for affordable rental housing development. The maximum amount that can be requested for project delivery costs is ten percent (10%) of the final allocation amount. The allocation is generally meant to be used as gap financing, and is not intended to fund an entire development. The maximum contribution of HOME funds is forty thousand dollars ($40,000) per unit. ADFA limits the overall per unit cost for rental projects to $132,000 per unit . The maximum per unit cost on assisted living projects is $158,400.

HOME Program funds can be used to fund the following rental activities:

* Rehabilitation of existing structure - Rehabilitation of multi-family and single-family structures is eligible.

* Reconstruction - Reconstruction of both multi-family and single-family structures is eligible. Any single-family structure not economically feasible to rehabilitate or has projected per unit rehabilitation costs equal to or greater than twenty-five thousand dollars ($25,000) will be considered for reconstruction.

* New Construction - New developments must contain five (5) or more units. Units may be on scattered sites. Developers may not fund an entire development using HOME Program funds.

For-profit property owners are required to provide a one-to-one (1:1) matching contribution of funds (e.g., one hundred thousand dollars ($100,000) in HOME Program funds must be matched by one hundred thousand dollars ($100,000) in funds provided by the for-profit owner).

Nonprofit property owners are required to provide point five-to-one (0.5:1) matching contribution of funds (e.g., one hundred thousand dollars ($100,000) in HOME Program funds must be matched by fifty thousand dollars ($50,000) in funds provided by the nonprofit owner).

Community Housing Development Organizations (CHDOs) are exempt from the this requirement requirement.

Eligible projects include:

* Multiple buildings on a single site; or

* single or multiple units on scattered sites.

These developments may be privately or publicly owned. To qualify as a "development" the property must consist of one (1) or more buildings on a single site, under common ownership, management, and financing.

HOME Program funds may be used for a mixed-income development as long as HOME Program funds are used solely for affordable housing units occupied by low-income tenants. Common area costs must be prorated based upon the number of HOME-assisted units and non-HOME-assisted units.

A building that is designed, in part, for other than residential housing may qualify as affordable housing under the HOME Program as long as HOME Program funds are used for the residential portion and those units meet the rent and income limitations of the HOME Program. The rent and income limits are established and published annually by HUD. Rental units must be occupied as follows:

* A minimum of twenty percent (20%) of the total HOME-assisted units must be occupied by persons or families whose income does not exceed fifty percent (50%) of the area median family income ; and

HOME Program funds may be used for certain development costs as dictated by 24 CFR Part 92 and are outlined below:

Ineligible rental projects include:

* public housing units;

* developments assisted under Title VI of NAHA (prepayment of mortgages insured by HUD);

* properties used for commercial purposes;

* emergency shelters with limited occupancy requirements;

* developments where developers/contractors do not have a valid Arkansas contractor's license, and

* developments that do not have a written verification in support of the proposed development from the chief elected official of the area where the development will be located.

ADFA discourages developments involving displacement or relocation. Prior to application, contact ADFA if you are planning any development that may involve displacement or relocation. In the event relocation is unavoidable, applicants must adhere to the Uniform Relocation Act.

Applications for HOME Program funds will be accepted on a continuous basis. Applications will be taken at any time during the year as long as funds are available. Applicants for HOME Program funds will be allocated funding according to the criteria found in the application for funding. The steps in approving an application include:

ADFA has developed three (3) forms of standard loan terms and conditions for repayment of Rental Housing Program loans to be evidenced by fully executed promissory notes.

The following buiding design criteria for HOME-funded rental projects will be effective for implementation on the date the Board of Directors for the Arkansas Development Finance Authority adopts the 2008 HOME Program Policy and Operations Manual.

Universal Design Criteria:

ADFA will accept applications for owner-occupied rehabilitation and new construction projects from units of local governments or other nonprofit organizations (collectively, the "Eligible Applicant"), on a first come, first served basis until all funds are committed. For-profit entities may not apply for HOME Program funds to perform homeowner rehabilitation, but may apply for HOME Program funds for new construction projects. Applicants may receive technical assistance by attending an information/training session prior to submitting an application. Sessions will address HOME and ADFA guidelines as well as application procedures.

The Eligible Applicant is the entity responsible for the HOME application, project development, project implementation and accountability for uses of all HOME funds. The Eligible Applicant will also be responsible for performing required compliance and monitoring of all HOME activities for the full applicable affordability period.

ADFA will grant HOME Program funds to the approved Eligible Applicant as outlined in the HOME Program Agreement. The Eligible Applicant will then loan funds to homeowners, as approved by ADFA, for eligible HOME activities. The homeowner will be required to execute a Promissory Note, Mortgage, and Deed Restriction through an ADFA-approved closing entity.

Each Eligible Applicant must request at least one hundred thousand dollars ($100,000) and no more than Four Hundred Thousand Dollars ($400,000). Entities applying for single-family new construction may apply for up to Four Hundred Twenty-Five Thousand Dollars ($425,000). Additional applications may be submitted if currently funded project expenditures of HOME Program funds comply with established performance standards.

Eligible Applicants may apply to perform single-family housing rehabilitation (including reconstruction), new construction, and/or provide mortgage subsidies. A minimum of five (5) units must be submitted with each application, and all five units must be approved before HOME funds will be allocated. Applicants may not include more than ten (10) units in an application for homeowner rehabilitation.

An eligible owner must be low-income. A low-income owner is defined as an owner whose annual gross household income does not exceed eighty percent (80%) of the median income for the area, adjusted for family size. (Reference HUD's "Technical Guide for Income Determination.")

* While HOME uses the Section 8 definition for low-income, there are no HUD prescribed methods for verifying income eligibility. Applicable Income Verification forms will be provided by ADFA. Participants will use these forms for calculating and verifying incomes. For homeowner applicants applying for repayable HOME Program Loans, ADFA will perform a credit inquiry to determine the homeowner's ability to repay the repayable portion of the HOME Program Loan.

* Without exception, HOME Program funds cannot be used on projects where the income of the owners is greater than eighty percent (80%) of the median income for the area adjusted for family size.

The homeowner must provide proof of fee simple title and owner occupancy for a period of at least the immediate past three (3) years through approval of application by ADFA. A family or individual owns the property if they have fee simple title to the property, and there are no restrictions or encumbrances that would unduly restrict the good and marketable nature of the ownership interest. An executed and recorded warranty deed in the name of the owner is required as proof of ownership. To ensure proper ownership, a title search must be performed prior to funding the activity . Existing mortgages may be acceptable, but will be reviewed for acceptability on a case-by-case basis.

In cases where an owner-occupant dies before the affordability period expires and/or a HOME Program promissory note is paid in full, the following remedies will be exercised by ADFA:

The geographic location of properties included in the application will be reviewed to ensure the applying entity has the necessary capacity to perform the proposed activities within the designated geographic location.

Eligible properties must be modest in value. The estimated value of the HOME assisted property - AFTER REHABILITATION - must not exceed the HUD 203(b) mortgage limit for the area for the type of property being assisted (e.g., single family, condominium). In addition, the cost of repairs must be reasonable compared to the value of the house (i.e., the level of rehabilitation is intended to allow continued owner occupation for at least the affordability period as regulated by the HOME Program). The rehabilitation must be financially and structurally feasible.

A formal appraisal is not required to establish value. Use of an alternative valuation method or market analysis must be documented in the application.

If ADFA is in a subordinate position on the property, ADFA will coordinate its efforts with the first mortgage lien holder.

HOME Program funds may be used only for eligible costs as defined under the federal HOME Program. HOME Program funds may be used to cover soft and hard costs associated with a project. These costs include the following:

ADFA will not allocate HOME funds to projects that have total development costs (including HOME funds and any other resources) which exceed the 203(b) mortgage limits for that respective county. Mortgage subsidies may be provided at a maximum of $25,000 or 20% of purchase price, whichever is lower in the purchase of single family houses. Total development costs include profit, overhead and developers' fees and must be in compliance with 24 CFR Section 92.254.

* Rehabilitation. Rehabilitation projects with projected costs in excess of twenty-five thousand dollars ($25,000) will be required to perform reconstruction instead of rehabilitation.

* Reconstruction. In reconstruction projects, the total amount of HOME funds per structure may not exceed Eighty-Five Thousand Dollars ($85,000). If the proposed reconstruction costs exceed Eighty-five thousand dollars ($85,000), the homeowner will be responsible for providing the amount over Eighty-five thousand dollars ($85,000).

* New Construction. Eighty-Five Thousand Dollars ($85,000) is the maximum amount of HOME funds ADFA will provide for new construction financing. The funds will be in the form of a direct repayable loan to the applicant for construction of a single housing unit. In essence, this loan provides funding allowing the applicant to complete the construction process. The terms of the direct repayable loan at a one percent (1%) interest rate from ADFA will be set according to the payment terms as outlined in Section "K" entitled "Types of Financial Assistance." A financial feasibility and marketing plan must be submitted in addition to all normal requirements of HOME applications for new construction. If HOME funds are requested for use in providing mortgage subsidies, the marketing plan must include a plan for the use of those HOME-funded mortgage subsidies.

Minimum property standards must be met at project completion when HOME Program funds are used for a project. ADFA has developed "rehabilitation standards" which will be provided to approved applicants.

At a minimum, the requirements set forth in the Section 8 Housing Quality Standards and the ADFA Construction Performance Manual Sections I and II, when applicable, the International Code Council (ICC), and all applicable local, sate, and federal requirements must be met for all rehabilitation and new construction projects. Single-family units constructed (i.e., new construction and recontruction) with HOME funds must adhere to Energy Star standards.

Rehabilitation projects funded with HOME Program funds must also meet all local codes, rehabilitation standards, zoning ordinances, the cost effective energy conservation and effectiveness standards ( 24 CFR Part 39) and the Arkansas Energy Code.

The objective of the HOME Program is to build quality homes that have aesthetic appeal in construction and design. To that end, ADFA maintains plans that are available for use by participants to assist in the planning process. Single-family units constructed with HOME funds as part of the homebuyer program must be a minimum of 1,200 sf heated and cooled with a minimum of three bedrooms and two bathrooms.

Single-family units reconstructed with HOME funds as part of the homeowner rehabilitation program must be a minimum of 1,000 sf heated and cooled for two bedroom houses and a minimum of 1,200 sf heated and cooled for three bedroom structures. Applicants must use one of ADFA's house plans for all single-family reconstruction projects. The use of different sets of plans may be permitted provided the plans are comparable to the ADFA plans(s) and are approved by ADFA HOME staff prior to bidding and submission of application for funding.

Ineligible projects include (1) properties that are not owner-occupied, (2) rental properties, and (3) projects where contractors do not have a state contractor's license or cannot obtain a builder's risk insurance policy, and payment and performance bond for the full amount of the construction contract.

Homeowners may be eligible for one or both of the following forms of assistance, providing their monthly housing expense does not exceed forth percent (40%) of their adjusted monthly gross income (housing expenses include principal, interest, taxes, insurance and utilities):

Homeowner new construction assistance is funded under the following terms:

Homeowner rehabilitation/reconstruction assistance is funded under the following terms:

RECAPTURE:

ADFA will recapture that portion of HOME Program investment unforgiven by the elasped affordability period or recapture the maximum net proceeds from sale of property (whether recapture is effected through foreclosure or no foreclosure action). Net proceeds recovered will be used to:

ADFA discourages projects involving displacement or relocation. Prior to application, contact ADFA if you are planning any project that may involve displacement or relocation. In the event relocation is unavoidable, the applicant must adhere to the Uniform Relocation Act.

Construction bids (rehabilitation and new construction projects) must be good for a minimum of 60 days from date received by ADFA.

Applications for single-family new construction or acquisition/rehabilitation for sale must provide documentation demonstrating a demand for the requested activity. Acceptable documentation must include at least one of the following:

The following buiding design criteria for HOME-funded homeowner projects will be effective for implementation on the date the Board of Directors for the Arkansas Development Finance Authority adopts the 2008 HOME Program Policy and Operations Manual.

The American Dream Downpayment Initiative (ADDI) was signed into law by President Bush on December 16, 2003, under the American Dream Downpayment Act (Public law 18-186) (ADDI statute). Funds made available under the ADDI statute will be allocated to eligible HOME Investment Partnerships Program Participating Jurisdictions (PJ) to assist low-income families become first-time homebuyers. The PJs in Arkansas administering the ADDI funds include the Arkansas Development Finance Authority and the City of Little Rock.

The goals of the ADDI funds are as follows:

* Increase the overall homeownership rate

* Create greater opportunity for homeownership among lower income and minorities

* Revitalize and stabilize communities

ADFA will make available ADDI funds for downpayment and closing cost assistance toward the purchase of single-family housing (i.e., 1-4 family residence, condiminium unit, or combination of manufactured housing and lot) by low-income families (80% of area median income or less) who are first-time homebuyers. Under ADDI, a first-time homebuyer is an individual and his or her spouse who have not owned a home during the three-year period prior to purchase of a home. In addition, the unit must meet all applicable State and local building codes or minimum housing quality standards in the absence of local codes. The purchase price cannot exceed the HUD 203(b) Mortgage Limits.

ADFA will provide the ADDI funds in the form of a forgivable loan (soft second mortgage) in an amount necessary to close the transaction adhering to HOME Program subsidy layering guidelines. The ADDI amount may not exceed six percent (6%) of the purchase price for downpayment, closing costs in conjunction with ADFA's HomeToOwn (Mortgage Revenue Bond) Program through ADFA-approved participating lenders located throughout Arkansas. The minimum amount of ADDI assistance is $1,000. The borrower may not received any cash back on ADDI loans. ADFA will not provide HOME funds for rehabilitation costs associated with the ADDI loan. The homebuyer and/or real estate agent will be responsible for identifying and securing a contract with an Arkansas licensed contractor to complete the rehabilitation work identified in the ADFA inspection report. All repairs must be completed on the structure prior to the approval of ADDI funds. ADFA will inspect all construction work completed as part of the ADDI loan.

The assistance will be forgiven in equal annual installments over the period of affordability. The homebuyer must maintain the house as their principal residence for the full affordability period. The homebuyer will be required to complete a homebuyer education course through an ADFA approved homebuyer counselor. If the property is sold during the affordability period, ADFA will recapture the amount of ADDI/HOME funds that have not been forgiven. The homebuyer will also be required to execute a Promissory Note and Second Mortgage for the amount of assistance provided in accordance with established HOME Program affordability periods (see Table below).

AFFORDABILITY PERIOD

Community Housing Development Organizations

All HOME Program funds used for rental housing activities and tenant-based rental assistance must be used to assist families at or below sixty percent (60%) of the median income, adjusted for family size. An applicant awarded HOME Program funds for the purpose of providing TBRA must select households in accordance with locally established preferences.

Tenants receiving HOME TBRA must use the assistance in units that:

* meet Section 8 Housing Quality Standards (Inspections are made at initial occupancy and annually during the length of the contract.);

* have affordable rents as defined and adjusted annually by HUD;

* may be publicly or privately owned; however, TBRA may not be used in units that receive other forms of rent subsidy, i.e. public housing or Section 8 Substantial Rehabilitation as defined annually by HUD; and

* must meet lead-based paint requirements.

Unlike Section 8, cooperatives are considered owner-occupied housing under the HOME Program. Therefore, HOME TBRA may not be used to assist resident owners of cooperatives. It is the responsibility of the HOME Program recipient to determine whether or not these housing standards are met by implementing their own inspection process. However, ADFA reserves the right to inspect units and monitor for compliance with HOME Program requirements.

Recipients may submit a written request for project delivery costs directly associated with provision of tenant-based rental assistance not to exceed one hundred twenty dollars ($120) per tenant assisted during the fiscal year. The total amount of the request for project delivery costs will be based on an estimate of the number of tenants (new and continuing) to be assisted during the year. TBRA project delivery costs are not "unlimited" and are based on the number of tenants indicated in the HOME Program Agreement. Additionally, the participant is eligible to receive $20 per month for continued project delivery processing.

The amount of subsidy is set by ADFA pursuant to the federal HOME Program regulations.

* Maximum Subsidy. ADFA may pay up to the difference between a "rent and payment standard" preapproved by ADFA and thirty percent (30%) of the family's monthly adjusted income..

* Minimum Tenant Contribution to Rent. The minimum tenant contribution to housing cost (rent and utilities) is the greatest of thirty percent (30%) of the family's monthly adjusted income or fifty dollars ($50). The Rental Voucher Program meets the HOME regulation requirements regarding maximum subsidy and minimum tenant contribution.

When HOME Program assistance expires, tenants who were selected from the public housing authority's waiting list may return to the waiting list and qualify for the same tenant selection preferences as when they were selected for the HOME assistance. Public housing authorities must plan ahead for expiring contracts.

Prohibited Lease Provisions. The owner 's lease may not include certain provisions, which in general have the effect of waiving a tenant's rights in advance. All owner 's leases must be in compliance with 24 CFR Part 92.253. A sample lease addendum is available to successful applicants.

The incomes of tenants receiving rental assistance must be recertified at least annually. Rent and assistance is adjusted accordingly based on the circumstances in effect at the time of recertification. If a participating tenant's income goes above the Section 8 Low Income Limit at recertification, assistance must be terminated.

Recipients should provide a copy of any project revisions to ADFA, including revisions of tenancy, income, rental assistance, vacancy, etc.

Tenants must use the tenant-based rental assistance within the public housing authority's jurisdiction unless the tenant relocates to accept employment or training that leads to employment. In this case, inspection and recertification requirements still apply.

TBRA typically requires a twenty-five percent (25%) matching requirement; however, the match requirement for Arkansas is twelve and one-half percent (12.5%).

HOME TBRA rental assistance contracts with individual households may not exceed two (2) years. ADFA requires that TBRA subsidy contracts not exceed one (1) year. Contracts can be renewed, subject to availability of HOME funds. The one-year period begins on the first day of the lease and will end upon termination of the lease (if the TBRA payment is made directly to the landlord).

Entities lacking experience administering rental assistance (i.e., Section 8, TBRA) programs must partner with an experienced public housing authority or other experienced TBRA provider to jointly administer the program.

Adjusted Income

Adjusted income is annual (gross income) reduced by deductions for dependents, elderly households, medical expenses, disabled assistance expenses and child care (these are the same adjustment factors used by the Section 8 Program). Adjusted income is used in the HOME Program to compute the actual tenant payment in tenant-based rental assistance programs.

Affordability

As used in this guide, affordability refers to the requirements of the HOME Program that relate to the cost of housing both at initial occupancy and over established timeframes, as prescribed in the HOME Final Rule. Affordability requirements vary depending on the nature of the HOME-assisted activity (i.e., homeownership or rental housing).

Annual (Gross) Income

The HOME Program allows the use of one of the three definitions of income: Section 8 annual income (as defined under 24 CFR Part 5); annual income as reported on the U.S. Census Long Form; and adjusted gross income as defined for the purposes of reporting on IRS Form 1040.

Commitment

The written, legally binding agreement between the participating jurisdiction (or other entity) and the project owner providing the HOME Program funds to a project. For tenant-based rental assistance, the commitment is the rental assistance contract between the participating jurisdiction (or other entity) and the tenant or owner. Once a commitment occurs, HUD expects construction to start or a purchase to occur within twelve (12) months. HUD recognizes the commitment when the project is set up in the Integrated Disbursement and Information System.

Community Housing Development Organization ("CHDO")

A private, nonprofit organization that meets a series of qualifications prescribed in the HOME Program regulations. CHDOs must receive at least fifteen percent (15%) of a participating jurisdiction's annual allocation of HOME Program funds. CHDO's may own, develop or sponsor HOME Program-financed housing.

Consolidated Plan

A plan prepared in accordance with the requirements set forth in 24 CFR Part 91, which describes community needs, resources, priorities and proposed activities to be undertaken under certain HUD programs, including the HOME Program.

Development

A site or an entire building or two (2) or more buildings, together with the site or sites on which the building are located, that are under common ownership, management and financing and are to be assisted with HOME Program funds-under commitment by the owner-as a single undertaking.

Development Fees

Compensation to the developer for developing the property, includes overhead and profit, consult/processing agent fees, project administration, the value of personal guarantees and a portion of any reserves determined by the housing credit agency to be in excess of industry norms.

Eligibility Criteria

Property characteristics, tenant income limits and maximum rent levels, which qualify a project as eligible for the LIHTC.

Equity

The value of a property less the amount of outstanding debt on it.

Financing Plan

The proposed financing for a project.

General Partner

A partner who is liable and responsible for completing a project as proposed, managing the partnership and guaranteeing funding required to complete the project. A general partner oversees construction, leasing and property management; maintains the books and records of the partnership; and submits periodic reports to the limited partners on the project's financial status.

General Partnership

A form of ownership in which all partners participate materially in the partnership's operations and share liability.

HOME Program-Assisted Units

Units within a HOME Program project where HOME Program funds are used and rent, occupancy and/or resale restrictions apply.

HOME Program funds

All appropriations for the HOME Program, plus all repayments and interest or other return on the investment of these funds.

Housing Investment Partnerships Act ("HOME Program")

The act that created a formula-based allocation program intended to support state and local affordable housing programs. The goal of the program is to increase the supply of affordable rental and ownership housing through acquisition, construction, reconstruction, and moderate or rehabilitation activities (Title I, National Affordable Housing Act of 1990).

HUD

U.S. Department of Housing and Urban Development.

Interest Subsidy

The amount of subsidy required to reduce the interest rate on a loan to a below-market rate over the term of the loan.

Limited Partner

A passive investor in a limited partnership who, in exchange for contributing equity to the project, receives a pro rata share of cash flow and tax benefits and the right to approve the sale or refinancing of the property and removal of the general partner in the event of gross negligence or breach of contract.

Limited Partnership

An ownership vehicle comprising limited and general partners that allows for central management but has no tax liability, instead passing tax benefits through to its limited and general partners.

Low-Income Family/Person

Family or person whose annual (gross) income does not exceed eighty percent (80%) of the median income for the area (adjusted for family size). HUD may establish, on an exception basis, income ceilings higher or lower than eighty percent (80%) of the median income for an area.

Managing General Partner

The general partner responsible for the day-to-day management of a limited or general partnership.

Moderate Rehabilitation

The cost of a rehabilitation project that costs $25,000 or less.

National Affordable Housing Act of 1990 ("NAHA")

Enacted by Congress to authorize the HOME Investment Partnership Act program, the National Homeownership Trust program, and programs to amend and extend certain laws relating to housing, community and neighborhood preservation and related programs.

Net Operating Income/(Surplus Cash)

The operating income derived by the project owner from development cash flow (excluding interest income earned on tenant security deposits and reserve accounts) which exceeds operating expenses. Operating expenses include: salaries of on-site property managers, management fees, accounting services, loan repayments, amounts deposited into a replacement reserve account, travel expenses, legal services, insurance expenses, utility expenses, office supplies, rental and maintenance (but not purchase) of office space, and developers' fees, each specifically related to the development (See ADFA Form to calculate NOI and surplus cash payments included in the Forms section of this manual).

New Construction

For purposes of the HOME Program, new construction is any project with commitment of HOME Program funds made within one (1) year of the date of initial certification of occupancy. Any project that includes the creation of additional dwelling units outside the existing walls of a structure is also considered new construction.

Parti cipating Jurisdiction ("PJ")

The term given to any state, local government or consortium that HUD has designated to administer a HOME Program. HUD designation as a PJ occurs if a state or local government meets the funding thresholds, notifies HUD that it intends to participate in the program and obtains approval by HUD of its Consolidated Plan.

Partnership Agreement

A legal document that specifies the rights and responsibilities of the general and limited partners and governs the ongoing relationship between these parties.

Project

A site or an entire building or two (2) or more buildings, together with the site or sites on which the building are located, that are under common ownership management and financing and are to be assisted with HOME Program funds - under a commitment by the owner - as a single undertaking.

Recapture

Losses of HOME Program funds due to lack of performance with applicable performance standards as defined under General Requirements in Section O of this manual.

Reconstruction

The rebuilding, on the same lot, of housing standing on a site at the time of project commitment. The number of housing units on the lot may not be decreased or increased as part of the reconstruction project, but the number of rooms per unit may be increased or decreased. Reconstruction is considered to be rehabilitation for the purposes of ADFA's Homeownership Housing Program.

Restrictive Covenant

A limitation placed on a property, which is recorded and attached to the deed, thereby passing to subsequent owners.