Agenda - Planning Commission - 09/04/2014

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Last revised July 24, 2014 lender. When the Federal Housing Administration was established in 1934, it was intended to stimulate the housing industry. By providing insurance to lenders, the idea was that more people would be able to qualify for mortgages, and therefore, purchase a home. FHA loans are generally given to people who otherwise would be unable to qualify for a conventional home mortgage loan. Federal Mortgage Interest Deduction A common itemized deduction that allows homeowners to deduct the interest they pay on any loan used to build, purchase or make improvements upon their residence. The mortgage interest deduction can also be taken on loans for second homes and vacation residences with certain limitations. The amount of deductible mortgage interest is reported each year by the mortgage company on Form 1098. This deduction is offered as an incentive for homeowners. Financial Intermediaries Notable for providing higher risk loans such as predevelopment, construction, bridge, or gap loans, financial intermediaries such as the Local Initiatives Support Corporation (LISC) and Enterprise Community Partners play a unique role in affordable and mixed -income development. Because of their unique combination of mission -orientation and financial strength they are often able to provide financing at more favorable rates than private lenders and may be willing to make loans the private sector would be reticent to originate regardless of rate considerations (that is, early in the development process where the rate of project fall -out is much higher). Fiscal Tools Policies concerned with government revenues (such as taxes or fees) and expenditures. Fiscal tools are one means that local communities can use to enable and support housing development, preservation, and other housing activities, and may involve direct financing support in the form of loans or grants, abatement or exemption from property taxes, waiver of local fees, or other means. These tools may also be effectively combined with local control adjustments or incentives such as relaxed parking requirements or provision of a density bonus to provide a compelling proposition to potential developers. Floor Area Ratio (FAR) The total square feet of a building divided by the total square feet of the lot the building is located on. FAR is used by local governments in zoning codes. Higher FARs tend to indicate more urban (dense) construction. Buildings of varying numbers of stories can have the same FAR, because the FAR counts the total floor area of a building, not just the building's footprint. On a 4,000 square -foot lot, a 1,000 square -foot, one-story building would have the same FAR (0.25) as a two-story building where each floor was 500 square feet. Funding Gaps A major part of financing affordable housing is covering funding gaps. A funding gap, simply put, is the difference between the cost a developer pays to produce the housing and the available, "secured" financial resources to help pay for costs. Funding gaps are usually discussed as of three primary types: • Affordability Gap: occurs when the monthly mortgage payment is higher than a household can afford to pay at the targeted income level. • Multifamily Underwriting Gap: occurs when the financing sources secured for an affordable or mixed -income project are less than the total development cost, or TDC • Value Gap: occurs when the cost to construct an affordable unit is greater than the purchase price that the local market will bear 2040 HOUSING POLICY PLAN I METROPOLITAN COUNCIL DRAFT RELEASED FOR PUBLIC COMMENT Appendices I Page 85