Affordable Housing Resources of Nashville, Tennessee, is participating in a Voucher Homeownership Program that allows Section 8 recipients to use monthly income vouchers toward purchasing a home.

Affordable Housing Resources is the affiliation of two nonprofits: The Resource Foundation Inc., founded in 1988, and Affordable Housing of Nashville Inc., founded in 1989. Both came from a 1988 United Way needs assessment, which identified affordable housing as Nashville’s largest unmet need. The affiliation, which began in 1992, was completed in 1997. During this time, the organization shifted from a citywide resource to focusing on a few neighborhoods.
 
AHR’s primary programs include home-ownership counseling; mortgage prequalifying; down-payment and closing-cost loans; and single-family home development. It works with very-low-income customers through a lease-to-purchase program. Other services include crime-watch awareness; community days; youth job programs; and youth academic testing programs. AHR focuses on several neighborhoods in Nashville where housing costs are moderate (the median home sales price is $80,000).
 
During the 1990s, Congress enacted legislation to expand home-ownership opportunities for very-low-income households by allowing Section 8 rental assistance to be used, under certain conditions, in purchasing a home. Public housing authorities (PHAs) administering Section 8 assistance may assist qualified applicants in meeting home-ownership expenses. The program is an asset-building strategy, created to build greater household stability and heightened self-esteem in lower-income households.

Program Operation.  The Section 8 rental-assistance program is tenant-based and pays landlords the difference between what a household can afford and the rental amount. The Section 8 voucher amount is the difference between 30 percent of a household’s income and its total housing payment.

NeighborWorks Organizations’ Role.  Local NeighborWorks organizations play an important role in this program by providing pre- and post-purchase counseling and education, as well as mortgages through their revolving loan funds. The flexibility of NeighborWorks organizations allows rates and terms to be tailored to meet each buyer’s needs. AHR credits being a NeighborWorks HomeOwnership Center as key to mak-ing this program work smoothly.

Target Households.  Targeted households are Family Self-Sufficiency (FSS) program participants who have at least $3,000 in escrow or three years at the same job, and income enough to cover the first mortgage. AHR conducts outreach to FSS participants who fit the eligibility requirements, inviting them to an orientation and describing the program.

Counseling and Education.  After the orientation, participants arrange personal interviews with AHR staff to review their finances and determine buyer readiness. Participants then enroll in AHR’s nine-hour homebuyers’ education course. AHR also offers a financial fitness course for those who need additional time to improve their credit histories.

The Loan.  AHR provides program participants with pre- and postpurchase counseling and education, plus a gap-filling, second mortgage using its revolving loan fund. A local conventional lender makes the first mortgages, with the loan principal, interest, taxes and insurance based on 30 percent of the family’s income. The voucher is not used in calculating the mortgage underwriting; only the family’s income is counted.
 
The difference between the purchase price and the first mortgage (an amount the participant can afford without Section 8 assistance) determines the size of the second mortgage. The second mortgages held by AHR carry a normal mortgage rate for up to 10 years, and average 25 to 30 percent of the purchase price. The Section 8 voucher amount is paid directly to AHR, making it “invisible” to the traditional lender and the family.
 
AHR’s revolving loan fund is capitalized with grants from NeighborWorks America and other sources, as well as investments from Fannie Mae and a local lending institution.

• The Voucher Homeownership Program is allowing AHR to help very-low-income households build assets and increase household stability. Twenty-three new homeowners have been created thus far, and 20 additional households are ready to close.
   
• This program has allowed AHR to enhance its relationship with the local PHA, as well as build better relations with several local NeighborWorks organizations. In addition, new partnerships were fostered with Fannie Mae and several real-estate companies.
   
• AHR’s Voucher Homeownership Program also has created new funding opportunities with Fannie Mae, AmSouth Bank and NeighborWorks America, as well as individual and local business donors.

• AHR is fortunate to have run programs with the local PHA in the past, resulting in an easily created, close working relationship now. The PHA is very committed, and the FSS program is well run and of high quality; all of these factors are essential to the success of the program. A strong relationship with the Section 8 administrator is vital, including clear lines of communication.
   
• AHR has not experienced a big adjustment between Section 8 and other low- to moderate-income buyers. Rather, it has found that mainstreaming customers into existing programs sufficiently prepares buyers for home ownership. Buyers participate in AHR’s FastTrak homebuyer-education course. Those with excessive credit issues take part in AHR’s longer-term financial fitness program.
   
• Participants need to understand the potential risks of this program. Buyers may lose access to affordable rental housing, plus their voucher amount may change over time — although their first mortgage amount will not. Homeowners normally experience increased costs and responsibilities, such as property upkeep and maintenance, taxes and insurance.
   
• Since most mortgages require some buyer equity, the amount of cash necessary will have to be estimated (based on 1 percent of the sales price) and a plan developed to help customers accumulate it. If an FSS program is involved, escrows can help. Other programs, such as individual development accounts (IDAs), can also provide savings assistance.
   
• It is very important for program participants to purchase a home in reasonably good condition. The PHA should perform a housing-quality standards inspection, and an outside professional should conduct a separate inspection. Purchasing a house in decent condition greatly increases the probability of long-term success as a homeowner.
   
• Consider other funding sources to increase the program’s effectiveness, such as IDAs, reduced-interest mortgage programs (e.g., Rural Development loans) and down-payment and closing-cost grants and loans. Also, explore secondary-market opportunities.

Agency interview with: E.D. Latimer