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Make Covington Home

Neighborhood Stabilization Program





The Neighborhood Stabilization (NSP) Homebuyer Assistance Program is administered
by the City of Covington’s Community Development Department as a recipient of funds
from the Kentucky Department for Local Government. The purpose of the program is to
reduce the number of foreclosed, vacant, or abandoned properties and increase the
number of homeowners in the City of Covington. Under this program, households which
meet income, credit, and other requirements may obtain loans to assist with purchasing a
City owned NSP home to live in as an owner occupant. The loans can be used for down
payment, closing costs and principal reduction. The loan may be forgiven on a pro rata
basis or amortized depending on the eligibility of the household. The loan term is
determined by the amount of the NSP assistance.
The City will create a pool of eligible, bona fide buyers that will be given the first
opportunity to purchase NSP homes. To be considered an eligible, bona fide buyer, all
applicants must: complete an NSP Homebuyer Assistance Program loan application;
provide income and asset information to determine eligibility; provide all required
supporting documentation; have a credit score of at least 620; have completed a HUD
approved homebuyer education course; and have been pre-approved or be in the
process of being pre-approved with a lender to obtain first mortgage financing.
Applications will be processed on a first come, first served basis as funding permits.
1. Borrower Qualifications:
a. Income: To qualify for the NSP Homebuyer Assistance Program, the borrower(s)
household income must be at or below 120% of the Area Median Income as
determined by the U.S. Department of Housing and Urban Development. The
borrower’s annual household income must not exceed these income limits. The
City uses the Part 5 Income Definition. Income inclusions and exclusions and
asset inclusions and exclusions are attached as Attachments 1, 2 and 3.
U.S. Department of Housing and Urban Development income limits for Covington,
adjusted for household size, effective December 1, 2011, are listed below:
2012 HUD Income Guidelines
Persons in
50% of
Area Median Income
80% of
Area Median Income
Maximum Income for
120% of Area Median
1 $25,000 $39,950 $59,900
2 $28,550 $45,650 $68,450
3 $32,100 $51,350 $77,000
4 $35,650 $57,050 $85,550
5 $38,550 $61,650 $92,400
6 $41,400 $66,200 $99,250
7 $44,250 $70,750 $106,100
8 $47,100 $75,350 $112,950
b. Credit: Credit history and documentation which indicates substantial evidence of
borrower’s willingness to pay will be reviewed. Reports from a Credit Bureau will
be obtained for all borrowers. A minimum credit score of 620 will be required.
For borrowers with no credit score, a non-traditional credit history may be
c. Education: All applicants must complete 8 hours of homeownership counseling
with a HUD approved agency and present a certificate of completion prior to loan
d. Loan Underwriting: The City will use debt to income ratios to determine the
amount of NSP assistance provided. Borrower(s) will be required to contribute a
portion of their monthly income to the total monthly cost of the home. The
borrower(s) contribution will be applied to the principal and interest on the primary
mortgage, any private mortgage insurance, real estate taxes, and hazard
Borrower Income
Front End
Back End
50% or less
of area median income
20 – 24.99% 41%
Above 50% to 120%
of area median income
25 – 29.99% 41%
The back end ratio for all borrowers will be capped at 41% or at lender
requirements if they are more stringent. Back end ratios that exceed 41% will be
reviewed on a case by case basis if the borrower(s) are approved by the first
mortgage lender at a higher percent. The interest rate on the first mortgage
cannot be higher than 2.5% above the average 30 year conventional loan rate as
published by Freddie Mac in the Weekly Primary Mortgage Market Survey. To be
eligible for the City funding, borrowers may not use mortgage financing involving
balloon payment loans, adjustable rate mortgages, or other loans that are
determined to be subprime.
e. Liquid Assets Limitation: Applicant’s liquid assets in excess of $20,000 or 20%
of the purchase price will be required to be used in the purchase transaction.
Some exceptions may be made for borrowers at or near retirement age or based
on the nature or source of funds. Minimum applicant contribution of liquid assets
will be based on the City’s NSP Liquid Assets Limitation Policy.
f. Good Standing: Pursuant to Commissioners’ Ordinance O-11-06, applicants
and affiliated persons and/or entities for this program must not have made or filed
pending adverse claims against the City in the form of settlement demands and/or
lawsuits; nor shall they be delinquent in their obligations to pay loans, fines, liens,
or other obligations owed to the City of Covington (“the City”). No person or entity
will be denied federal public or assisted housing agency benefits or programs
administered by the City as a result of this policy.
2. Property Qualifications:
a. Only City NSP properties are eligible.
b. Location: All properties are located in the City of Covington. See attached
property listing.
c. Purchase Price: The purchase price of the property will be equal to the
appraised value as determined by an appraiser procured by the City of Covington.
In addition, the maximum purchase price must be considered affordable to the
buyer. For households who earn 80% or less of the area median income, the
purchase price cannot exceed $150,000. The purchase price for households
between 80% and 120% of the area median income cannot exceed $237,000.
d. Principal Residence: Participants must occupy the property as their permanent
principal place of residence within 60 days from the date of purchase. The home
must be, and remain for the term of the loan agreement, the principal residence of
the borrower.
e. Ownership Status: The borrower must have fee simple title to the property.
f. Property Standards: All properties will meet the International Property
Maintenance Code and all local building codes.
g. Homes built prior to 1978 will be inspected in order to detect the presence of
defective or deteriorated paint surfaces. The City will abate all lead paint hazards.
h. Zoning: The home must be in compliance with applicable zoning regulations.
i. Federal Regulations: For activities funded through the Federal NSP Program,
loans are subject to requirements outlined in the Housing and Economic
Recovery Act, 2008 (“HERA”), the American Reinvestment and Recovery Act of
2009 (“Recovery Act”), and other requirements as determined by the U.S.
Department of Housing and Urban Development and the Kentucky Department
for Local Government.
a. Standard Loan Terms:
Loan Amount: The loan amount will be based on the minimum amount of
funding required to cover 50% of the lender required down
payment, up to 100% of the closing costs, and the principal
reduction required to make the purchase affordable. Total loan
amount will be capped at 50% of the purchase price. Total
loan amount may be up to 100% of the purchase price for
households served under the following targeted categories:
Veteran/Active Military; Person with physical disability; Person
with mental disability; Homeless.
Borrower will be responsible for the prepaid items.
Sales Price: Maximum sale price is $150,000 for households at or below
80% of Area Median Income.
Maximum sale price is $237,000 for households at or below
120% of Area Median Income.
Interest Rate: 0%
Monthly Payment: The NSP loan may be deferred or amortizing based on the
eligibility of the borrower(s).
Deferred Loan: The NSP loan payments may be deferred for borrower(s) who
are contributing the minimum portion of their income to the
monthly homeownership expense (20-24.99% for borrowers at
or below 50% of median income, 25-29.99% for borrowers
between 50% and 120% of area median income).
The loan is forgiven pro rata based on the amount of
assistance provided (affordability period) as long as the buyer
occupies the home for the minimum period.
Amortized Loan: The NSP loan will be amortized if the borrower(s) are
contributing less than the minimum requirements. The term of
the amortized loan will be based on the amount of assistance
provided (affordability period).
Borrower(s) may receive NSP assistance that is partly
amortized and partly deferred based on the minimum borrower
contribution requirements.
Loan Recapture: The City will recapture any remaining loan principal in full upon
sale, transfer, or vacating of the property by the property
Affordability Period: The affordability period (term of loan) will be determined based
on the amount of NSP assistance provided to the borrower.
The term of the loan (affordability period) will be determined as outlined below:
V. Conflict of Interest:
A conflict of interest exists if an applicant is an employee, agent, consultant, officer
elected or appointed official to the City of Covington, and if the applicant:
 Exercises or has exercised any functions or responsibilities with respect to funds
for this program, or
 Participates in the decision making process related to funds for this program, or
 Is in a position to gain inside information with regard to program activities.
If a conflict of interest exists, the applicant may not obtain assistance under this program.
If there is any doubt of the conflict of interest, a written waiver may be obtained from the
City of Covington.
NSP Assistance
Less than $15,000 5 years
$15,000 – $40,000 10 years
More than $40,000 15 years
VI. Program Changes
The Kentucky Department for Local Government, the recipient of NSP funds from the
Department of Housing and Urban Development, reserves the right to change or modify any
local program requirements.
For further information on the NSP Homebuyer Assistance Program, call or write:
City of Covington
Community Development Department
638 Madison Avenue
Covington, KY 41011
(859) 292-2163
TDD (800) 545-1833, ext. 931
Adopted: December 6, 2011 (O/R-298-11)
NSP Program Definitions
1. Applicant shall mean the person(s) who sign(s) the City NSP loan application.
2. Deferred Second Mortgage Loan shall mean a 0% interest loan by the City to
the applicant that must be repaid in a lump sum upon the sale, transfer, or
vacating of the property by the property owner. The loan becomes a grant if the
homeowner occupies the residence for the required affordability period, based on
the amount of NSP assistance provided.
3. Amortized Second Mortgage Loan shall mean a 0% interest loan by the City to
the applicant that must be repaid monthly. The term of the loan will be based on
the amount of assistance provided.
4. Owner-Occupant shall mean any person who is purchasing the property which
is the subject of the second mortgage loan.
5. Income is gross annual income of the applicant and all other people who are
expected to reside in the house which shall include wages, salaries, tips,
bonuses, commissions, dividends, interest and any other form of income
generally considered as gross income by the IRS and reported on the NSP
Homebuyer Assistance Program application. For purposes of the NSP
Homebuyer Assistance Program, current paycheck stubs and other forms of
current income shall be used for income qualifications. Copies of most recent tax
returns will be used for verification of information contained in the application, but
will not be used in determining income eligibility.
6. Income Limits
a. Very low income shall mean annual income which does not
exceed 50 percent of the median income for the area, as
determined by HUD with adjustments for smaller and larger
families, except that HUD may establish income ceilings higher or
lower than 50 percent of the median for the area on the basis of
HUD findings that such variations are necessary because of
prevailing levels of construction costs or fair market rents, or
unusually high or low family incomes.
b. Low income shall mean annual income which does not exceed 80
percent of the median income for the area, as determined by HUD
with adjustments for smaller and larger families, except that HUD
may establish income ceilings higher or lower than 80 percent of
the median for the area on the basis of HUD findings that such
variations are necessary because of prevailing levels of
construction costs or fair market rents, or unusually high or low
family incomes.
c. Middle Income shall mean annual income which does not exceed
120 percent of the median income for the area, as determined by
HUD with adjustments for smaller and larger families, except that
HUD may establish income ceilings higher or lower than 120
percent of the median for the area on the basis of HUD findings
that such variations are necessary because of prevailing levels of
construction costs or fair market rents, or unusually high or low
family incomes.
7. Lender shall mean any established lending institution or any organization or
company whose primary purpose is lending money.
8. Average 30 Year Conventional Loan Rate shall mean the current average 30
year mortgage rate as published by Freddie Mac (Federal Home Loan Mortgage
9. Subprime Loan shall mean a mortgage loan which carries an interest rate at
least 2-1/2 points more than the average 30 year conventional loan rate.
Typically, a subprime rate is offered to loan applicants who have below average
credit histories.
City of Covington
Attachment 1 – 24 CFR Part 5 Annual Income Inclusions
1. The full amount, before any payroll deductions, of wages and salaries, overtime pay,
commissions, fees, tips and bonuses, and other compensation for personal services.
2. The net income from the operation of a business or profession.
3. Interest, dividends, and other net income of any kind from real or personal property.
Where the family has net family assets in excess of $5,000, annual income shall include
the greater of the actual income derived from all net family assets or a percentage of the
value of such assets based on the current passbook savings rate, as determined by HUD.
4. The full amount of periodic amounts received from Social Security, annuities, insurance
policies, retirement funds, pensions, disability or death benefits, and other similar types of
periodic receipts, including a lump-sum amount or prospective monthly amounts for the
delayed start of a periodic amount (except for certain exclusions, listed in Attachment 2,
number 14).
5. Payments in lieu of earnings, such as unemployment and disability compensation, worker’s
compensation, and severance pay (except for certain exclusions, as listed in Attachment 2,
number 3).
6. Welfare Assistance. Welfare assistance payments made under the Temporary Assistance
for Needy Families (TANF) program are included in annual income:
• Qualify as assistance under the TANF program definition at 45 CFR 260.31; and
• Are otherwise excluded from the calculation of annual income per 24 CFR 5.609(c).
If the welfare assistance payment includes an amount specifically designated for shelter
and utilities that is subject to adjustment by the welfare assistance agency in accordance
with the actual cost of shelter and utilities, the amount of welfare assistance income to be
included as income shall consist of:
• the amount of the allowance or grant exclusive of the amount specifically designated
for shelter or utilities; plus
• the maximum amount that the welfare assistance agency could in fact allow the family
for shelter and utilities. If the family’s welfare assistance is reduced from the standard
of need by applying a percentage, the amount calculated under 24 CFR 5.609 shall
be the amount resulting from one application of the percentage.
7. Periodic and determinable allowances, such as alimony and child support payments, and
regular contributions or gifts received from organizations or from persons not residing in the
8. All regular pay, special pay, and allowances of a member of the Armed Forces (except as
provided in number 8 of Income Exclusions.
HUD Guidebook HUD-1780-CPD, Technical Guide for Determining Income and Allowances for the HOME Program,
Third Edition, January, 2005
Attachment 2 – 24 CFR Part 5 Annual Income Exclusions
1. Income from employment of children (including foster children) under the age of 18 years.
2. Payments received for the care of foster children or foster adults (usually persons with
disabilities, unrelated to the tenant family, who are unable to live alone).
3. Lump-sum additions to family assets, such as inheritances, insurance payments (including
payments under health and accident insurance and worker’s compensation), capital gains,
and settlement for personal or property losses (except as provided in Attachment 1, number
5 of Income Inclusions).
4. Amounts received by the family that are specifically for, or in reimbursement of, the cost of
medical expenses for any family member.
5. Income of a live-in aide (as defined in 24 CFR 5.403).
6. Certain increases in income of a disabled member of qualified families residing in HOMEassisted
housing or receiving HOME tenant-based rental assistance (24 CFR 5.671(a)).
7. The full amount of student financial assistance paid directly to the student or to the
educational institution.
8. The special pay to a family member serving in the Armed Forces who is exposed to hostile
9. (a) Amounts received under training programs funded by HUD.
(b) Amounts received by a person with a disability that are disregarded for a limited time for
purposes of Supplemental Security Income eligibility and benefits because they are set side
for use under a Plan to Attain Self-Sufficiency (PASS).
(c) Amounts received by a participant in other publicly assisted programs that are
specifically for, or in reimbursement of, out-of-pocket expenses incurred (special equipment,
clothing, transportation, childcare, etc.) and which are made solely to allow participation in a
specific program.
(d) Amounts received under a resident service stipend. A resident service stipend is a
modest amount (not to exceed $200 per month) received by a resident for performing a
service for the PHA or owner, on a part-time basis, that enhances the quality of life in the
development. Such services may include, but are not limited to, fire patrol, hall monitoring,
lawn maintenance, resident initiatives coordination, and serving as a member of the PHA’s
governing board. No resident may receive more than one such stipend during the same
period of time.
(e) Incremental earnings and benefits resulting to any family member from participation in
qualifying state or local employment training programs (including training not affiliated with a
local government) and training of a family member as resident management staff. Amounts
excluded by this provision must be received under employment training programs with
clearly defined goals and objectives, and are excluded only for the period during which the
family member participates in the employment training program.
10. Temporary, nonrecurring, or sporadic income (including gifts).
11. Reparation payments paid by a foreign government pursuant to claims filed under the laws
of that government by persons who were persecuted during the Nazi era.
12. Earnings in excess of $480 for each full-time student 18 years old or older (excluding the
head of household or spouse).
13. Adoption assistance payments in excess of $480 per adopted child.
14. Deferred periodic amounts from supplemental security income and social security benefits
that are received in a lump sum amount or in prospective monthly amounts.
15. Amounts received by the family in the form of refunds or rebates under state or local law for
property taxes paid on the dwelling unit.
16. Amounts paid by a state agency to a family with a member who has a developmental
disability and is living at home to offset the cost of services and equipment needed to keep
the developmentally disabled family member at home.
17. Amounts specifically excluded by any other Federal statute from consideration as income for
purposes of determining eligibility or benefits under a category of assistance programs that
includes assistance under any program to which the exclusions set forth in 24 CFR 5.609(c)
apply. A notice will be published in the Federal Register and distributed to housing owners
identifying the benefits that qualify for this exclusion.
Updates will be published and distributed when necessary. The following is a list of income
sources that qualify for that exclusion:
 The value of the allotment provided to an eligible household under the Food Stamp Act of
 Payments to volunteers under the Domestic Volunteer Service Act of 1973 (employment
through AmeriCorps, VISTA, Retired Senior Volunteer Program, Foster Grandparents
Program, youthful offender incarceration alternatives, senior companions);
 Payments received under the Alaskan Native Claims Settlement Act;
 Income derived from the disposition of funds to the Grand River Band of Ottawa Indians;
 Income derived from certain submarginal land of the United States that is held in trust for
certain Indian tribes;
 Payments or allowances made under the Department of Health and Human Services’ Low-
Income Home Energy Assistance Program;
 Payments received under the Maine Indian Claims Settlement Act of 1980 ( 25 U.S.C.
 The first $2,000 of per capita shares received from judgment funds awarded by the Indian
Claims Commission or the U.S. Claims Court and the interests of individual Indians in trust
or restricted lands, including the first $2,000 per year of income received by individual
Indians from funds derived from interests held in such trust or restricted lands;
 Amounts of scholarships funded under Title IV of the Higher Education Act of 1965,
including awards under the Federal work-study program or under the Bureau of Indian
Affairs student assistance programs;
 Payments received from programs funded under Title V of the Older Americans Act of 1985
(Green Thumb, Senior Aides, Older American Community Service Employment Program);
 Payments received on or after January 1, 1989, from the Agent Orange Settlement Fund or
any other fund established pursuant to the settlement in the In Re Agent Orange product
liability litigation, M.D.L. No. 381 (E.D.N.Y.);
 Earned income tax credit refund payments received on or after January 1, 1991, including
advanced earned income credit payments;
 The value of any child care provided or arranged (or any amount received as payment for
such care or reimbursement for costs incurred for such care) under the Child Care and
Development Block Grant Act of 1990;
 Payments received under programs funded in whole or in part under the Job Training
Partnership Act (employment and training programs for Native Americans and migrant and
seasonal farm workers, Job Corps, veterans employment programs, state job training
programs and career intern programs, AmeriCorps);
 Payments by the Indian Claims Commission to the Confederated Tribes and Bands of
Yakima Indian Nation or the Apache Tribe of Mescalero Reservation;
 Allowances, earnings, and payments to AmeriCorps participants under the National and
Community Service Act of 1990;
 Any allowance paid under the provisions of 38 U.S.C. 1805 to a child suffering from spina
bifida who is the child of a Vietnam veteran;
 Any amount of crime victim compensation (under the Victims of Crime Act) received through
crime victim assistance (or payment or reimbursement of the cost of such assistance) as
determined under the Victims of Crime Act because of the commission of crime against the
applicant under the Victims of Crime Act; and
 Allowances, earnings, and payments to individuals participating in programs under the
Workforce Investment Act of 1998.
HUD Guidebook HUD-1780-CPD, Technical Guide for Determining Income and Allowances for the HOME Program,
Third Edition, January, 2005
Part 5 Annual Income Net Family Asset Inclusions and Exclusions
1. Cash held in savings accounts, checking accounts, safe
deposit boxes, homes, etc. For savings accounts, use the
current balance. For checking accounts, use the average 6-
month balance. Assets held in foreign countries are considered
2. Cash value of revocable trusts available to the applicant.
3. Equity in rental property or other capital investments. Equity is
the estimated current market value of the asset less the unpaid
balance on all loans secured by the asset and all reasonable
costs (e.g., broker fees) that would be incurred in selling the
asset. Under HOME, equity in the family’s primary residence is
not considered in the calculation of assets for owner-occupied
rehabilitation projects.
4. Cash value of stocks, bonds, Treasury bills, certificates of
deposit, mutual funds, and money market accounts.
5. Individual retirement, 401(K), and Keogh accounts (even
though withdrawal would result in a penalty).
6. Retirement and pension funds.
7. Cash value of life insurance policies available to the individual
before death (e.g., surrender value of a whole life or universal
life policy).
8. Personal property held as an investment such as gems,
jewelry, coin collections, antique cars, etc.
9. Lump sum or one-time receipts, such as inheritances, capital
gains, lottery winnings, victim’s restitution, insurance settlements
and other amounts not intended as periodic payments.
10. Mortgages or deeds of trust held by an applicant.
1. Necessary personal property, except as noted
in number 8 of Inclusions, such as clothing,
furniture, cars, and vehicles specially equipped for
persons with disabilities.
2. Interest in Indian trust lands.
3. Assets not effectively owned by the applicant.
That is, when assets are held in an individual’s
name, but the assets and any income they earn
accrue to the benefit of someone else who is not
a member of the household and that other person
is responsible for income taxes incurred on
income generated by the asset.
4. Equity in cooperatives in which the family lives.
5. Assets not accessible to and that provide no
income for the applicant.