HUD/FHA Non-Profit Program
Frequently Asked Questions

Information by State  Print version   Related Information Qualified Non-profit agencies may also be able to participate in HUD's Housing Counseling Program. Find out more...

Q: How do I become a Non-profit approved to participate in HUD/FHA programs?

A: In order to begin the process of becoming HUD-approved, you need the application package (Mortgagee Letter 00-08 and 02-01) on our Web page, complete and provide to your appropriate HOC to obtain FHA insurance with the same percentage of financing available to owner-occupants (203b,203k ), secondary financing (DAPs) and/or the HUD Homes Program.

Q: What is the FHA Non-profit Roster?

A: The FHA Non-profit roster is the list of FHA Single Family Housing approved Non-profit agencies. HUD published Nonprofit Organization Participation in Certain FHA Single Family Activities; Placement and Removal Procedures on 06/06/02. This federal register notice provides additional information on the approval procedure.

Q: What HUD/FHA programs require approval for non-profits to participate?

A: There are three types of approval that can be obtained by a non-profit organization. They are:

1) Approval to purchase HUD Homes at a discount. HUD/FHA allows non-profit organization to bid on and purchase HUD Homes at a discount. This allows the non-profit to pass on this savings, providing affordable housing opportunities for low-income or first time homebuyers. 2) Approval to finance FHA-insured mortgages at the same terms and conditions as an owner-occupant. This allows non-profits to purchase properties with lower down payment requirements, allowing them to fully leverage their funds. 3) Approval to provide secondary financing to borrowers originating FHA-insured mortgages. This allows organizations to provide closing cost or down payment assistance to borrowers in accordance with FHA guidelines. Gifts do not require approval by the HOC.

Q: How long does my HUD/FHA approval last?

A: Unless revoked by the HOC, each non-profit organization approved by the Department is subject to re-certification every two years. This re-certification should be requested by the organization within 30 days of the expiration of their previous approval. (See Mortgagee Letter 2000-08 and 2002-01)

Q: How does a Non Profit determine it's recertification date?

A: On the approval letter issued by the HUD Homeownership Center the approval date is typically in the upper left corner. Starting with that date, add two years, and that will be you agencies recertification date. For example, if your agency was approved on January 16, 2002, your recertification date would be January 16, 2004.

Q: Where do I send the documentation for my re-certification?

A: Send your documents to the Homeownership Center that serves your state. A directory is on the web.

Q: If my non-profit organization is approved in one state, do I have to resubmit a complete application package if I want to become active in another?

A: In order to expand your operations into another state you need only provide a copy of your current approval letter, a notification of any changes made in your application since its approval and an affordable housing plan (see Attachment 1 of the nonprofit application for a sample format) for the new zip codes/geographic area in which you intend to become active. This also applies if you want to participate in another Homeownership Center jurisdiction. However, a copy of your application noting any changes you may have made since approved by another HOC would also be needed. Send your documents to the Homeownership Center that serves the state you are applying for approval in. A directory is on the web.


Important: Include copies of any letters from the Homeownership Center where your organization has been previously/currently approved. You must clearly designate the geographic area where your organization plans to do business (e.g., State, cities, counties). If applying to participate in the HUD Homes Direct Sale Program you must provide zip codes.

Q: Once my organization is approved, how do I find out which HUD Homes are available to purchase with my non-profit discount?

A: In order to determine what properties are available in your city or state, go to HUD's web page. Once there, click on the appropriate city or state and view the listings under non-profit sales. This site is updated regularly with available properties.

Q: Once my organization is approved, who do I contact about obtaining HUD/FHA financing at the same terms and conditions as an owner-occupant?

A: Your non-profit organization will have to apply for FHA-insured financing through an FHA-approved lender. A list of lenders in your area can be found online.

Q: What is the most important HUD document to read?

A: Mortgagee Letter 2000-08 has all the information non-profit agencies need to get started. Recently HUD published two new mortgagee letters 2001-30 and 2002-01. Both of these mortgagee letters contain important information for non profit agencies. An index of Non Profit Mortgagee Letters can also be found online.

Q: Where can I obtain a list of approved non-profit agencies participating in HUD single family programs?

A: Each homeownership center maintains an approved list. You can find them on the Internet.

Q: What is Net Development?

A: Net Development Cost is a calculation applied to HUD properties sold at a discount of 10 percent or more. It applies to government entities and qualified nonprofit organizations that have been pre-approved by HUD to purchase HUD Homes. Non-profit organizations and government entities must pass on the discount received from HUD to increase homeownership opportunities for low- and moderate-income families and individuals. Appendix A of Mortgagee Letter 2001-30 provides a detailed list of the costs allowed in the Net Development Cost calculation.

Q. Does the net development guidelines apply to all HUD Homes?

A: Net development guidelines apply to all Hud homes purchased at a discount. Appendix A of Mortgagee Letter 2001-30 provides a detailed list of the costs allowed in the Net Development Cost calculation. in addition, Mortgagee Letter 2002-01 also states: "With the issuance of this Mortgagee Letter, non-profit will be required to include in their annual reports information on all REO properties purchased at a discount - 10% or higher. These reports are due each February to the Homeownership Center Director and provide information about the nonprofit's program accomplishments over the past calendar year (See Mortgagee Letter 2000-08, Attachment 3). Previously, only nonprofits that purchased REO properties at a 30% discount were required to submit this annual report. Properties purchased under an Asset Control Area (ACA) agreement must be included in the report, but listed separately from other purchases."

Q. Does a non profit agency need to maintain an office?

A: To ensure that all approved nonprofits have adequate space for employees and records, FHA requires the submission of photographs and floor plans for the agency's facilities with the application and recertification packages. This new requirement is identical to the requirement for lenders seeking FHA approval. See Mortgagee Letter 2002-01 for more information on office requirements.

Q. What are the experience requirements a Non Profit must meet to obtain HUD approval?

A: Non-profit agencies must meet strict housing development experience requirements. The nonprofit must have a minimum of two consecutive years, within the last five years, of housing development experience. Housing development experience is defined as acquisition, rehabilitation, and sale to low-to-moderate income persons. Hiring of experienced personnel does not relieve the nonprofit of the experience requirement. Organizations that do not meet this experience requirement may be able to obtain limited approval if they have at least one full year of housing development experience and one year of other related housing provider experience. To be considered, the organization's "other related housing experience" must demonstrate that the organization has the financial and administrative capacity to purchase, rehabilitate and resell homes to low to moderate-income families. See Mortgagee Letter 2002-01 for more information on experience requirements.

Q. Can a non-profit hire a for-profit consultant or developer to run it's affordable housing program?

A: Nonprofit agencies must have the administrative capacity to develop and carry out their FHA approved homeownership plans in a timely and successful manner. Nonprofits that obtain consultant services to help implement their homeownership programs are not relieved from this requirement. The nonprofit's operations must be independent of the influence, control, or direction of the consultant or any other outside party, particularly those seeking to derive profit or gain from a proposed project (such as, but not limited to, landowners, real estate brokers, bankers, contractors, builders, or consultants). For a complete discussion of this topic please see Mortgagee Letter 2002-01.

Q. Does a non-profit seeking approval from HUD need to have a IRS 501 (c) (3) certificate?

A: Eligible nonprofits must have two years 501(c)(3) IRS tax-exempt status. Non-profit must submit to FHA their IRS letter of determination to prove their 501(c)(3) tax-exempt status. In addition, non-profits must certify compliance with IRS regulations that require nonprofits to notify the IRS of any substantial and material changes in the nonprofit's character, purpose, or methods of operation [IRS Reg. 1.501(a)-1(a)(2)601.201(h)(3)(ii)]. Finally, non-profits may not assume the name and employer identification number (EIN) of another dormant or defunct nonprofit. See Mortgagee Letter 2002-01 for more information on IRS 501 (c) (3) requirements.

Q: What are the reporting and record keeping requirements that a non-profit must meet?

A: In addition to the Annual Report required in Mortgagee Letter 2000-08, Mortgagee Letter 2002-01 has information on the reporting requirements, record keeping and quality control plans that non-profits must meet in order to remain in compliance. Non-profits also have to recertify every two years Mortgagee letters 2000-08 and 2002-01 also have information in recertification procedures.

Q: If A non-profit agency purchased no Hudhomes does it still need to file an annual report with HUD?

A: Yes, even if no HudHomes are purchased an annual report is still required. A simple letter format affirming that there was no activity will suffice. This is also known as a "negative report". See HUD mortgagee letter 2000-08 attachment 3.

Q: Does HUD provide training for Non Profit agencies?

A: HUD does provide periodic training for non-profit agencies. Visit HUD's Events and Training calendar for any upcoming training opportunities.

Q: Which HUD mortgagee letters are applicable to non profit activities?

A: HUD has posted an index on the Internet that lists all the applicable mortgagee letters. In addition, Mortgagee Letter 2001-30 Appendix D, lists all the applicable mortgagee letters non-profits need to be familiar with.

Q: How is a Low To Moderate Income buyer defined?

A: A purchaser whose income does not exceed the defined percent of the median income, when adjusted for family size, for the area in which the property is located. (See Mortgagee Letter 2001-30 Appendix C). The land use restriction addendum requires that all resales of discounted HUD Homes by HUD approved non-profit agencies must be to persons at or below 115% of area median income limits, adjusted for family size. Non-profit agencies must address this requirement in their affordable housing plan. (See Mortgagee Letter 2000-08 and 2002-01)

Q: How can a non-profit Agency determine the income limits for a particular geographical area?

A: Income limits are posted on the web at the HUD User website.

Q: What is "Identity of Interest"?

A: Also known as "Conflict of Interest". It is a conflict of interest for a nonprofit to employ staff who also work for and receive financial benefits from a for-profit entity that is providing the nonprofit with services related to the nonprofit's affordable housing plan. Board members must serve on a voluntary basis, and may not be paid nor receive any compensation for any services they provide in the implementation of the non-profit's affordable housing program. FHA will collect information on the job responsibilities of all Board members to ensure that their occupational activities and obligations do not conflict with the work of the nonprofit. HUD strictly prohibits the sale or lease of properties with FHA financing and/or discounted HUD Homes to any of the nonprofit's officers, directors, elected or appointed officials, employees, or business associates, either during their tenure or for one year thereafter, or to any individual who is related by blood, marriage, or law to any of the above. (See Mortgagee Letter 2002-01 for a discussion of this and related identity of interest issues.)

Q: Is there a list of non-profit program definitions available?

A: See Mortgagee Letter 2001-30 Appendix C for a list of applicable definitions for non-profit programs.

Q: What kind of financial capacity issues should non-profit agencies be aware of?

A: Non-profit agencies must have the financial capacity to operate their homeownership programs. Non-profits will be required, if applicable, to submit documentation with their application or recertification package so that FHA may assess each organization's financial stability in terms of cash balances, assets and liabilities, annual expenses, and cash flow from operations. (See Mortgagee Letter 2002-01 for a discussion of this and related financial capacity issues.)

Q: Can a non-profit agency provide "gift funds" to a buyer?

A: Gifts to the eventual purchasers for down payment, financing or closing costs, and any other purchaser-related expenses associated with their purchase of the property are not allowable net development costs. Guidance on "gift funds" can be found in several places. HUD Handbook 4155.1REV-4, Change 1 Change 1, HUD's secondary financing webpage, and HUD Mortgagee Letters 1997-05, 2001-30,and 2002-02.

Q: Does HUD approve "gift programs" administered by charitable organizations?

A: HUD does not approve “gift programs" administered by charitable organizations and, thus, will not offer a formal approval of your program. Mortgage lenders are responsible for assuring that the gift to the homebuyer from the charitable organization meets the instructions described in HUD Handbook 4155.1REV-4, Change 1 Change 1 (e.g., no repayment implied, etc. ). Those charitable organizations that comply with existing regulations and policy guidelines are permitted to give cash gifts to eligible homebuyers and do not need prior FHA approval to do so.

Q: How can I learn more about secondary financing/down payment assistance programs.

A: HUD has long recognized the important role that nonprofit agencies may play in providing affordable housing opportunities. HUD's secondary financing webpage describes the approval process for secondary financing/downpayment assistance programs. Also see HUD mortgagee letter 1994-02.

Q: Why does my non-profit agencies approval letter have a limitation on it that restricts the number of HUD Homes we can buy and/or the number FHA Mortgages that we can have in force at any one time?

A: HUD may restrict the activities of non-profit agencies based upon the experience level of the non profit agency or on it's past performance in the program. See HUD mortgagee letters 1996-52, 2000-08 and 2002-02. Also see, HUD housing notice 1994-74 and HUD Handbook 4310.5, REV-2 Chapter 10 Section 20 Paragraphs 2 and 3.

Q: What is a "revitalization area"?

A: Revitalization areas are HUD-designated neighborhoods in need of economic and community development and where there is already a strong commitment by the local governments. HUD Homes selected for the direct sales program are in designated revitalization areas. See HUD's revitalization webpage for more information.

Q: What is the direct sales program?

A: Non-profit agencies may buy HUD Homes directly from HUD without using the services of a real estate broker. See, HUD housing notice 1994-74. Contact the HUD Management and Marketing contractor that serves your state for information on direct sales procedures.

Q. Can my non-profit agency qualify as a HUD approved Housing Counseling Agency?

A: Your non-profit agency may be also be able to qualify as a HUD approved Housing Counseling agency. To find out how, please visit HUD's housing counseling homepage or read our housing counseling FAQs.

Q. How can my non-profit agency get information on new FHA publications, training and grant opportunities?

A: Non-profit agencies can subscribe to the Single Family Housing email list. You will get frequent, training and event announcements, mortgagee letters, Grant programs, FHA mortgage limits and notices about your Single Family Non-profit business.

Return to NP Home