Houston Habitat for Humanity Homeowner Selection Criteria
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Houston Habitat for Humanity Homeowner Selection Criteria
Three basic homeowner selection criteria are required:
1. Need for adequate housing.
2. Ability to pay for the Habitat home.
3. Willingness to partner with Habitat.
Criterion 1: Need for Adequate Housing
Potential homeowners must have a need for safe adequate housing. Potential homeowner’s current housing or financial
situations must meet one or more of the following conditions:
Current housing situation:
• Structural problems (leaky roof, unsafe flooring, etc.).
• Inadequate electrical system, plumbing or lack of an indoor bathroom.
• Lack of functioning entrance and exit points—back and front doors.
• Unsafe heating system or no formal heating system.
• Unsuitable neighborhood (unsafe or unsanitary).
• Unhealthy conditions, including, but not limited to, mold or pest infestation.
• Unsuitable for human habitation (crime-ridden or deteriorated).
• Inadequate number of bedrooms, as determined by number, ages and gender of household.
• Homelessness—living with friends or relative or in temporary housing, including FEMA trailers.
• Potential homeowner has been denied conventional or government-assisted mortgage loan.
• Government-subsidized housing (i.e. housing authority or Section 8 housing).
Potential homeowner is housing cost burdened. . Households paying more than 30 percent of income to housing
costs and utilities (excluding phone) are said to be “cost-burdened
Criterion 2: Ability to Pay the Houston Habitat Mortgage
Potential homeowner’s income is defined as all the funds legally received on a regular schedule by all
applicants from sources determined by the approved HUD guidelines. (See the HFHI MPAR Ability to Pay
Policy). Food stamps are temporary assistance, and are not counted as income.
HUD defines “low-income” families as those living below 80 percent of the area median income. Families
living below 50 percent of median income are classified as “very low-income.”
Income range: Houston Habitat for Humanity uses 50 percent to 80 percent of area median income as their
window of service. Eighty percent of median income would be the upper income guideline and would still
reflect need. Gross family income (based on all means of income generated by the family) must fall within
approximately 50 percent to 80 percent of the median income for the family size.
A. Income Guideline
A potential homeowner can be considered to have the income necessary if the total family income falls within
the annual HUD income guidelines.
B. Debt-to-Income Ratio
To determine a level of spending comfort for prospective homeowners, the applicant’s monthly housing
expenses in relation to his or her income will be considered. This is referred to as the “housing expense ratio” or
Debt-to-income (DTI) Ratio and includes the projected mortgage payment, property taxes, insurance, interest and
any applicable association assessments. Further analysis of the applicant’s total indebtedness, referred to as the
“long-term debt ratio” will also be conducted. “Long-term debt” is defined as any debt that will take more than
10 months to pay off. The applicant’s long-term debt ratio will include housing expenses, plus obligations
(recurring charges) such as car payments, charge cards and any reserve fund (such as home maintenance).
1Please note that utilities are not part of the calculation that HUD uses for FHA loans or by conventional lenders.
Low-income families may not be regular users of the credit system, but an applicant who does not use credit
may nevertheless have such monthly obligations as alimony or child support. These expenses should be
included in the debt analysis. Information necessary to analyze the applicant’s obligations usually is
acquired through a credit report.
An applicant can be considered to be within the guidelines if the applicants total debt payment (excluding
projected house payment to Houston Habitat) does not prohibit the family from paying for child care, food,
clothing, transportation, education, health insurance and care, house maintenance and other items critical to
basic living. Houston Habitat requires the Debt to Income Ratio to be no greater than 30% for housing expenses
and no greater than 43% for housing plus all other expenses.
C. Credit Worthiness
Houston Habitat for Humanity has creditworthiness criteria for reviewing applications. HHFH requires at least a
620 credit score but keeps in mind that it is Houston Habitat’s mission to select families in need and often have
financial problems.
If a family has an unacceptable debt and/or credit situation, Houston Habitat should support the family to by
providing assistance through a number of financial literacy and credit counseling services to improve their
debt/credit situation.
D. Monthly Payment Consistency
A family can be considered to meet this expectation if the family has demonstrated ability to make regular
monthly payments for rent, utilities and other credit obligations.
E. Bankruptcy, Liens and Judgments
A family can be considered to meet this expectation if:
• The family has not declared bankruptcy within seven years.
• The family has no liens or judgments that cannot be cleared prior to closing.
F. Alimony/Child Support
The Houston Habitat for Humanity homeownership program qualifies as a “special purpose credit program”
under federal law, because qualified applicants for a Habitat mortgage must satisfy certain eligibility
requirements based on need. In determining the need of an applicant, Houston Habitat’s policy allows for
the consideration of alimony, child support or maintenance for determination of creditworthiness (i.e., ability
to pay). Houston habitat will disclose to the applicant that he or she can elect for this information not to
be considered for this purpose. If it is considered, the Houston Habitat will assess the length of time the
payments are expected to be received and the consistency of the payment history. Houston Habitat may also
ask about obligations to pay alimony, child support or maintenance as part of the ability to pay
determination.
Calculating Household Size
Household size is an important factor in measuring both need for adequate housing and ability to pay.
Household size is determined by adding the potential applicant, any co-applicants and their dependents who
would live in the home. Nondependent adults (brothers, sisters, parents, cousins, friends, etc.) who will not be
co-applicants should not be included in household size.
The number of family members is a factor in determining median family income and Habitat house size.
The need criterion measures overcrowding that is related to family size.
Income guidelines compare family income to the median family income for other families of the same size.
2 The need criterion measures whether the family income falls within the income guidelines and;
The ability to pay criterion measures the family’s ability to pay for a house appropriately sized to their family.
The following items may disqualify a candidate:
A. Judgments or Liens
Any person with an active judgment or lien filed against them in any court is disqualified from a
homeownership program. If the credit report reflects a judgment or lien, but the family can provide proof that
the judgment or lien is paid and released, they may proceed. If active, unpaid judgments or liens exist, the
family does not qualify, but may be encouraged to reapply once the issues are resolved.
B. Bankruptcies
A bankruptcy should not prevent a family from qualifying for a Habitat home. The critical issue is if the family
can meet the obligations of homeownership in the future. Houston Habitat for Humanity uses a seven year
history for bankruptcies.
C. Excessive debt
Applicants with excessive debt are not likely to qualify for HFH homeownership because such debt will prevent a
family from being able to make mortgage payments. Excessive debt may be charge-offs or collections on credit
reports.
D. Down payment
Since most applicants will not have much savings accumulated, setting aside funds for a down payment may
place undue financial strain on the household. Houston Habitat does not require a down payment from
homeowners.
E. Credit Report Score < 620
Houston Habitat for Humanity relies on credit reports as a convenient source of information on the use of money
and debt by the applicant family. A credit report is a summary of a person’s financial history—how he or she
has borrowed and repaid debt.
Never assume a credit score is a good indicator of creditworthiness for a Houston Habitat home applicant. Do
not disqualify a family solely on the basis of a credit report. Errors and out-of-date information are common on
credit reports. Any concerns should be discussed with the family to ensure that negative information that affects
the affiliate’s decision is accurate. If errors are found, direct the family to a reputable credit agency and
encourage them to work on clearing their records.
The Federal Fair Credit Reporting Act requires creditors to provide certain information to applicants relating to
a denial of an application for credit. When credit is denied either wholly or partly because of information
contained in a consumer report obtained from a consumer reporting agency (e.g., a credit bureau), the affiliate
must so advise the applicant and supply the name and address of the consumer reporting agency making the
report.
When credit is denied either wholly or partly because of information obtained from a person other than a
consumer reporting agency bearing upon the applicant’s creditworthiness, credit standing, credit capacity,
character, general reputation, personal characteristics or mode of living, Houston Habitat for Humanity must
disclose the nature of the information on the applicant’s written request. Houston Habitat for Humanity must
clearly and accurately disclose that the applicant has a right to make such written request at the time the adverse
action is communicated.
Credit reports are confidential documents and should be accessible only to those authorized to read family
selection application documents.
3The signature block on the Houston Habitat for Humanity standard application for housing is an
“authorization and release.” It authorizes the affiliate and a reporting agency to exchange information in order
to provide the credit report to the affiliate. Photocopies of the final page of the completed and signed
application are usually required to accompany your requests for the release of information. A photocopy of the
signed application is sufficient authorization to obtain the information.
Three credit reporting agencies (there may be others in your area) in the United States that can be of assistance
in obtaining credit information are:
1. Experian www.experian.com 888-397-3742
2. Equifax www.equifax.com 800-685-1111
3. Trans Union Corporation www.transunion.com 800-888-4213
Criterion 3: Willingness to partner with Habitat
Willingness to partner is best represented by the sum of all of the potential homeowners interactions with
Houston Habitat for Humanity.
Willingness to Partner may include:
• The applicant(s) will provide all application information in a timely, honest manner.
• The applicant(s) will meet the sweat-equity requirements. (At least 100 on the construction site)
• The applicant(s) will participate in education sessions. ( At least 50 hours)
• The applicant(s) will live where the affiliate has land to build.
• The applicant(s) will notify the affiliate of any change in family composition.
• The applicant(s) will notify the affiliate of loss of income.
• The applicant(s) will notify the affiliate of changes in contact information.
• The applicant(s) agrees to maintain the home.
• The applicant(s) agrees to the terms of the mortgage.
• The applicant(s) agrees to pay the monthly mortgage without default.
• The applicant(s) agrees to include the escrow in the mortgage payments.
Applicants must be willing to fulfill all the partnership requirements for Houston Habitat homeownership.
Houston Habitat should be equally willing to partner with the family.
Sweat Equity
Sweat equity is a core tenet of Habitat’s ministry. It is Houston Habitat’s most valuable tool in building the
partnership between families, HHFH staff and volunteers. The term refers to the hands-on involvement of
prospective homeowners in the construction of their homes, as well as in other Houston Habitat activities. The
applicant has an opportunity when doing sweat equity to invest physically and emotionally in the mission of
Houston Habitat.
Although sweat equity is a programmatic requirement, it is not in any way meant to be a test for homeowner
families to pass or fail. Rather, sweat equity is an exciting cornerstone to the Houston Habitat ministry, designed
to meet these important goals:
• Partnership: Sweat equity provides meaningful interaction between homeowner families,
affiliate representatives and Houston Habitat volunteers.
• Pride in homeownership: Working sweat-equity hours in their own homes helps families begin
the transition to ownership.
• Development of skills and knowledge: On the building site, homeowner family members gain
a real understanding of the construction of their home and of maintenance issues they will face
after occupancy.
• Financial Literacy: Financial literacy helps individuals become self-sufficient so that they can
achieve financial stability through homeownership.
4Sweat equity has no monetary value. It is neither part of a down payment nor a substitute for a down payment.
Giving sweat equity a financial value could result in a legal requirement to pay wages or a cash reimbursement
if a partnership with a family is unexpectedly terminated before the purchase of a Habitat home is completed.
Houston Habitat has a board-approved sweat-equity policy which requires 200 or 250 hours (200 for a single
mortgage holder and 250 for a 2 person mortgage holder) of sweat equity per household, including 50 hours of
financial education for each person on the mortgage and a minimum of 100 hours of construction. The Homeowner
Services Committee is responsible for developing the sweat-equity policy. The Homeowner Services
Committee manages sweat equity policy; and the Construction Committee oversees the building of the house.
Acceptance of Sweat-Equity Requirements
Acceptance of the sweat-equity requirement is seen as an indicator of the applicant’s willingness to partner. It is
a vital element of the Houston Habitat for Humanity ministry. Homeowners work on their home alongside
other volunteers as they pound nails, paint, hang drywall, etc. Measurable and realistic requirements for sweat
equity must be established. The affiliate’s sweat equity policy must be communicated to the applicant early in
the application process. This includes placing specific information regarding sweat-equity requirements in ALL
materials related to homeownership.
Sweat-Equity Timeline
Once a potential homeowner is approved for the program, staff works with the applicant to establish a timeline for
completing sweat equity requirements.
Developing the Homeowner Selection Process
The best way to ensure that family selection is consistent, even-handed, objective and legal is to prepare and
follow a board-approved process that guides each step. Houston Habitat has adopted a comprehensive selection
process that accomplishes two goals in support of the mission and program.
1. The process informs the board, committee and others exactly how Houston Habitat selects families. It
guides what is done, when it’s done, how it’s done, who does it and how it’s documented.
2. The process also guides Houston Habitat from start to finish in every aspect of homeowner selection.
This ensures that every family that enters the selection process is treated equally, and all Houston
Habitat policies, HFHI requirements and laws are followed.
Houston Habitat’s homeowner selection process guides the work of each step of homeowner selection:
1. Conducting information sessions for interested families.
2. Reviewing application from interested families to determine if they meet the selection criteria
3. Presenting to the Board Homeowner Service Committee qualified applicants for selection to program.
4. Communicating decisions to potential homeowners.
5. Conducting orientation and counseling sessions
5You can also read
