Do net development cost guidelines apply to all HUD Homes purchased at a discount by a nonprofit?

The Net Development Costs (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 HUD Homes purchased through the Dollar Home Sales to Local Governments; Asset Control Areas (ACA); and Good Neighbor Next Door (GNND) programs.
 
The NDC 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 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.
 
A list of costs allowed in calculating the NDC can be found in Handbook 4000.1 I.B.4.c.iii.(D)(1).
 
A list of costs NOT allowed in calculating the NDC can be found in Handbook 4000.1 I.B.4.c.iii.(D)(2).
 
Handbook 4000.1 is available at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh
 
The  FHA-Approved Nonprofits web page is available at https://www.hud.gov/program_offices/housing/sfh/np  

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-01259