CITY OF CHINO
Home Improvement Program
Program Policy
Development Services Department
Housing Division
13220 Central Avenue
Chino, CA 91710
Phone: (909) 334-3272
Website: www.cityofchino.org
April 2025
CITY OF CHINO HOME IMPROVEMENT PROGRAM POLICY
TABLE OF CONTENTS
TABLE OF CONTENTS
I. BACKGROUND .............................................................................................................. 1 II. PROGRAM OBJECTIVES ............................................................................................... 1 III. APPROVAL OF PROGRAM AGREEMENTS .................................................................. 1 IV. HOME IMPROVEMENT PROGRAMS ............................................................................. 1 V. ELIGIBILITY CRITERIA .................................................................................................. 4 A. Homeowner Eligibility Requirements .................................................................. 4 B. Property Eligibility Requirements ........................................................................ 4 VI. ELIGIBLE AND INELIGIBLE IMPROVEMENTS ............................................................. 6 A. General Requirements .......................................................................................... 6 B. Priority Improvements .......................................................................................... 6 C. Eligible Improvements .......................................................................................... 7 VII. EMERGENCY 5-YEAR FORGIVABLE LOAN PROGRAM REQUIREMENTS . .............. 9 VIII. ELIGIBLE/INELIGIBLE COSTS ...................................................................................... 9 A. Eligible Costs ........................................................................................................ 9 B. Ineligible Costs ...................................................................................................... 9 IX. PROCUREMENT PROCEDURES AND REQUIREMENTS ............................................. 9 X. TERMS AND CONDITIONS OF PROGRAM ASSISTANCE ........................................... 9 A. Maintenance/Occupancy Requirements .............................................................. 9 B. Hazard Insurance ................................................................................................. 10 C. Nondiscrimination ................................................................................................10 D. Compliance with Program Policies and Procedures .........................................10 XI. PROGRAM AMENDMENT PROCEDURES ................................................................... 10
CITY OF CHINO HOME IMPROVEMENT PROGRAM POLICY
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I. BACKGROUND
The City of Chino administers home improvement programs to preserve and enhance the City’s housing stock and residential neighborhoods. Funding for the programs comes from various federal, state, and local funding sources including the U.S. Department of Housing and Urban Development (HUD), California Housing and Community Development (HCD) department, and the City’s Affordable Housing Fund.
The City’s Home Improvement Program provides financial assistance to eligible homeowners in the City of Chino whose primary residences are in need of repair .
Assistance is provided in the form of deferred and forgivable loans, which may be in a senior or subordinate lien position. The origination and servicing of these program loans is administered by the City.
II. PROGRAM OBJECTIVES
The primary goals and objectives of the Home Improvement Program are to:
A. Preserve and enhance the City’s existing housing stock; and B. Provide safe, properly maintained housing for persons /families of very low, to low- income.
III. APPROVAL OF PROGRAM AGREEMENTS
In adopting this Program Policy, and consistent with the provisions of Chapter 2.08.070 of the Chino Municipal Code, the City Council authorizes the City Manager to prepare and execute Program documents, including but not limited to loan agreements, as needed to implement the Home Improvement Program and achieve the stated objectives.
IV. HOME IMPROVEMENT PROGRAMS
The Home Improvement Program offers a variety of financing programs designed to assist very low and low-income homeowners with making needed repairs and improvements to their homes. Eligible homeowners may receive assistance under multiple programs.
Participation in the City’s Home Improvement Programs is subject to the requirements of this Policy.
Funding: Loan amounts are at the discretion of the City, depending upon an assessment conducted by city inspect ors for health and safety issues and other code violations.
Programs are subject to the availability of funding and, in some cases, funding source maximum loan guidelines.
Location: Citywide
Fees: None
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1. Emergency 5-Year Forgivable Loan Program - Single Family/Mobile Homes (maximum $15,000)
Target Income Group: Households with incomes ≤ 80% of the San Bernardino County median family income ( adjusted
for household size)
Security: Deed of Trust / Promissory Note
Loan Rate and Term: 0% interest - 5- year forgivable loan under the condition that the borrower remains in the home for
a minimum of 5 years from the date of loan
agreement execution. Loan becomes due and
payable should the property be sold, or a transfer of
ownership occurs before the close of the 5-year
term.
Special Requirements: Emergency repairs as deemed eligible per the City or State building inspectors include unsafe/
unhealthy living conditions such as no hot water, gas
leaks, lack of heating source, structural deficiencies, sewage back-ups, major water leaks , or hazardous
electrical wiring.
Availability: Once every five years.
2. Healthy Homes Grant Program - Single Family/Mobile Homes Target Income Group: Households with incomes ≤ 80% of the San Bernardino County median family income ( adjusted
for household size)
Security: None*
Availability: Once every five years. Exceptions are made at the discretion of the city to address immediate health or
safety risks.
Special Requirements: Senior citizens 62 years of age or older, or disabled persons regardless of age.
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3. Low Interest Deferred Payment Loan Program - Single Family Homes Target Income Group: Households with incomes ≤ 80% of the San Bernardino County median family income ( adjusted
for household size)
Security: Deed of Trust / Promissory Note
Loan Rate and Term: 3% simple interest / ten (10) years or the amount of time remaining on the primary mortgage, whichever
is greater with a condition that the home cannot be
sold or transfer ownership for a minimum of 5 years
from the loan agreement date. Additional 5- year
deferrals are available at the discretion of the City if 1) the primary homeowner is 62 years of age or
older; or 2) the household’s income is at or below
80% of the San Bernardino C ounty median family
income adjusted for family size.
Note: In some cases, different interest rates and/or
loan terms may apply depending on the regulations
established by the funding agency.
Availability: Once every ten (10) years.
However, the principal balance of all outstanding
Home Improvement Program loans may not exceed
the maximum approved loan amount.
4. Low Interest Deferred Payment or Forgivable Loan Program - CalHome- Mobile Homes
Target Income Group: Households with incomes ≤ 80% of the San Bernardino County median family income (adjusted
for household size)
Security: HCD Lien / Promissory Note
Funding Source: State of California CalHome Program
Loan Terms: For mobile homes, the Program offers 0% interest for a 20-year term, with the principal to be forgiven
annually at a rate of 10% per year starting in the 11th year that the home is continuously occupied by the
borrower.
Note: In some cases, different loan limits, interest
rates and/or loan terms may apply depending on the
regulations established by the funding agency.
Availability: Once every 20 years. However, the principal balance of all outstanding Home Improvement
Program loans may not exceed the loan amount.
CITY OF CHINO HOME IMPROVEMENT PROGRAM POLICY
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V. ELIGIBILITY CRITERIA
A. Homeowner Eligibility Requirements
1. Household Income and Size
To be eligible for assistance under the Home Improvement Program, applicants must have annual household incomes at or below 80 percent of the San Bernardino County median family income as published by HUD and HCD and adjusted for household size, and calculated us ing the definitions and methodology specified in 24 CFR Part 5.
2. Liquid Assets
Total household liquid assets may not exceed $50,000. Household liquid assets include checking, savings, and money market accounts, stocks, bonds, and other forms of capital investments. For checking accounts, the average balance over the most recent 6 months shall be used. Retirement accounts are not counted as liquid assets if they are not accessible to the applicant without retiring or terminating employment.
If one or more applicants is sixty-two years of age or older, and the gross household income (not adjusted for business losses) is less than or equal to 30% of the San Bernardino County median income adjusted for family size, the liquid asset limitation shall be $100,000.
3. Ownership of Real Property Other Than Primary Residence Ownership of residential property other than the household’s primary residence is prohibited.
B. Property Eligibility Requirements
Following determination of homeowner eligibility pursuant to the requirements of Section V.A., the owner must demonstrate property eligibility. To be eligible to receive Program assistance, the real property in question must meet each of the requirements set forth below:
1. Location and Type of Property
The property must be a single- family residence (e.g., condominium, townhouse, detached single-family home, or mobile home) located within the city limits of the City of Chino.
2. Condition
The property must be in need of the following type of repairs: 1) protection of the structural integrity of the property ; 2) correct existing local and/or state code violations; 3) correct existing nonconforming local and/or state code
CITY OF CHINO HOME IMPROVEMENT PROGRAM POLICY
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requirements; 4) correct existing nonconforming development standards ; 5) refurbishment of exterior and/or interior improvements; or 6) aid for the mobility of the physically disabled and/or elderly. Once the preceding repairs have been addressed, then, 7) promote neighborhood improvements and 8) energy efficiency improvements. All repairs must qualify as eligible improvements as defined in Section V of this Program Policy.
3. Ownership and Owner-Occupancy Requirements
Owner-Occupancy: All title information will be verified using title reports and information available on the County of San Bernardino Tax Assessor website Annual audits will be conducted to verify and certify th at the housing unit continues to be owner-occupied. These occupancy requirements are incorporated in the original Deed of Trust and Promissory Note and are described in greater depth in the City’s Loan Servicing Plan.
4. Maximum After Rehabilitation Property Value and Data Source The estimated value of the property, after rehabilitation, may not exceed ninety - five percent (95%) of the median purchase price for single- family homes in the City. In the event that CalHome Program funds are used to finance the improvements, the after-rehabilitation value of the home assisted with a CalHome Program loan cannot exceed 100 percent of the current median sales price of a single-family home or mobile home in the county where it is located. Housing Division staff will utilize comparable sales data sources, including but not limited to data available from sources such as the California Association of Realtors, Chicago Title, and/or other recent and reliable real estate data to determine the estimated After-Rehab Value of the property. Each approved loan application file will include at least three (3) comparable sale prices of properties located in the immediate neighborhood (within about 1 mile of the subject property) of homes sold within the last 6 months (within 1 year of the CalHome Assistance date).
5. Equity
The total indebtedness or amount of credit (whichever is greater) of all recorded liens, including the City’s Home Improvement Program loan(s) , may not exceed ninety-five percent (95%) of the fair market value of the home after rehabilitation.
The total indebtedness or amount of credit (whichever is greater) of all recorded liens of the home assisted with CalHome funds, including the City’s Home Improvement Program loan(s), may not exceed one hundred and five percent (105%) of the after-rehabilitation value.
6. Hazard Insurance
All properties must be insured with an all -risk property insurance policy in an amount equal to the full replacement value of all structures located on the property. Furthermore, all properties located within the 100- year floodplain that receive assistance under the Low -Interest Loan Program must maintain flood insurance in the amount of the value of the improvements for the term of the loan.
CITY OF CHINO HOME IMPROVEMENT PROGRAM POLICY
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If a property in need of repair does not have a current all-risk property insurance policy and is unable to secure such a policy due to the presence of one or more building code violations, the Housing Manager, at his/her discretion, may waive this insurance requirement provided that the required all -risk property insurance coverage is secured immediately following the rehabilitation project.
7. Property Tax/Income Tax Delinquency or Liens
All property tax bills and assessments must be current, and the property title must be free and clear of any recorded property tax or income tax liens.
8. Outstanding Judgments and Obligations
All outstanding mortgages recorded against the subject property must be paid current. Furthermore, there cannot be any outstanding (e.g., non-current or unpaid) liens recorded against the title of the property to be rehabilitated.
9. Front and Back End Ratios
Loans may be approved based on back and front-end debt to income ratios at the discretion of the City or funding agency to determine the borrowers’ repayment ability.
VI. ELIGIBLE AND INELIGIBLE IMPROVEMENTS
A. General Requirements
The City of Chino Home Improvement Program is designed to provide for the repair and/or replacement of damaged, deteriorated properties.
The following requirements apply:
1. All rehabilitation work must be completed by qualified, licensed, and insured contractors selected per Program procedures.
2. All eligible improvements must be affixed to the property.
3. Improvements requiring the replacement of materials must be of equal to or like quality based on labor or cost-effectiveness.
4. E ligible improvements are subject to procurement through a competitive bid process to ensure fair material and labor costs.
B. Priority Improvements
1. Repairs to alleviate conditions that present a risk to the health and/or safety of the property’s occupants or surrounding properties.
2. Correction of municipal code violations.
CITY OF CHINO HOME IMPROVEMENT PROGRAM POLICY
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C. Eligible Improvements
1. Abatement of Code Violations: Demolition, construction, rehabilitation, and/or replacements needed to abate violations.
2. Accessibility Modifications: Ramps, railings, grab bars, and accessible shower enclosures; the modification of doorways, hallways, and countertop elevations; and other adaptive measures.
3. Cabinetry/Counters: Repair, refurbish or replace deteriorated materials based on cost effectiveness.
4. Deadbolt locks: Deadbolts to be installed on entry doors.
5. Demolition of Unpermitted , Deteriorated and/or Unsafe Improvements:
Includes fencing, accessory structures such as detached sheds, patio covers, laundry rooms, and workshops, and unpermitted garage conversions.
6. Doors/Windows: Repair and/or replace damaged windows with energy efficient options.
7. Driveways/Walkways: Driveways and walkways may only be replaced with broom-finished concrete. The use of decorative stone is not permitted.
8. Drywall/Lath and Plaster : Repair, replacement , and finishing of damaged drywall/lath and plaster necessary to match the original finish.
9. Electrical: Repair and/or upgrade of electrical system including service panels, wiring, outlets, and switches.
10. Energy conservation : Weather stripping, water heater blankets, radiant barrier, and attic insulation.
11. Fencing/Block Walls: Repair or replacement of existing wood fencing or block walls. Chain link fences may be replaced using wood or vinyl materials. Property lines will be assessed.
12. Flooring: Replacement of damaged or deteriorated flooring.
13. Garage Doors: Repair or replacement of garage doors, including the replacement of inoperable garage door openers and broken springs.
14. Hazard/Flood Insurance: Payment for the first year of hazard insurance if the property is not deemed ineligible by the insurance company due to risk.
15. HVAC Systems and related testing: Installation and testing of HVAC system to repair or replace inoperative system components.
16. Kitchen Appliances: Repair or replacement of damaged or inoperable stoves, ovens, and dishwashers with energy efficient appliances.
CITY OF CHINO HOME IMPROVEMENT PROGRAM POLICY
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17. Landscaping: Provide landscaping for deteriorated yards which will include installation of automated irrigation system s to help sustain Municipal Code requirements.
18. Overgrown/Dead Vegetation: Trimming and/or the removal of overgrown or dead vegetation and that with a root system that is resulting in structural damage.
19. Painting (exterior): Exterior painting to improve conditions is eligible.
20. Painting (interior): Complete painting of the interior of the home is eligible.
21. Termite/Pest Control: Eradication of insect infestations and necessary repairs to correct damage caused by such.
22. Plastering, siding, and stucco: Repairs including patching, filling or localized replacement to damaged plaster, stucco or siding.
23. Plumbing/Sewer Pipes and Fixtures: Repair or replacement of leaking or damaged water/sewer pipes and related fixtures.
24. Property Clean-up: Removal of trash and debris located within public view or deemed a fire hazard. May also include the removal of excessive debris/trash from the inside to assist a resident that is physically incapable of doing so themselves.
25. Rain Gutters: Repair or replacement of failing rain gutters.
26. Roofing: Complete repair or replacement of deteriorated or damaged roofing using materials of like quality, with the exception of wood shake in which case tile may be used.
27. Room Additions: Room additions/expansions to mitigate overcrowded conditions.
28. Seismic Retrofitting (mobile homes only): Repair, modification, replacement, or installation of earthquake straps and/or other seismic retrofitting devices.
29. Smoke Detectors and Carbon Monoxide Detector : Installation of s moke detectors and carbon monoxide detectors to comply with local and State code requirements.
30. Structural Repairs/Modifications: Structural repairs/modifications to correct existing structural deficiencies and to provide accessibility.
31. Wallpaper/Wall Tile : Repair or replacement of damaged wallpaper and/ or missing ceramic tiles.
32. Water Heaters: Repair or replacement of inoperable water heaters including safety and energy efficient measures per building code.
CITY OF CHINO HOME IMPROVEMENT PROGRAM POLICY
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VII. Emergency 5-Year Forgivable Loan Program Requirements: Eligible repairs under the Emergency Loan Program include repairs that correct unsafe/unhealthy living conditions such as no hot water, gas leaks, lack of heating, structural deficiencies, sewage back- ups, major water leaks or hazardous electrical wiring. Ineligible improvements include the repair or replacement of any interior or exterior home furnishings or accessories not permanently affixed to the housing stock. Exceptions can be made at the discretion of the City’s Housing Division.
VIII. ELIGIBLE/INELIGIBLE COSTS
A. Eligible Costs
1. Labor and materials.
2. Building permits.
3. Professional service f ees including credit reports, property appraisals, title reports, recording fees and lead/asbestos testing and abatement.
4. Relocation/housing expenses when deemed necessary due to substandard conditions, pest extermination or hazardous materials abatement.
5. Replacement of appliances as deemed necessary for health, safety, and energy efficiency.
B. Ineligible Costs
1. Purchase, installation or repair of interior or exterior home furnishings.
2. Compensation/reimbursement of owner’s personal labor or purchase of materials, or any labor not performed by the licensed contractor.
IX. PROCUREMENT PROCEDURES AND REQUIREMENTS
The City is not party to the construction contract(s) between participating homeowners and their contractors. However, the City ensures that all financing provided is used in a cost-effective manner by overseeing the procurement process through competitive pricing, bid selection and final bid approvals/selection of a licensed and insured contractor.
X. TERMS AND CONDITIONS OF PROGRAM ASSISTANCE
A. Maintenance/Occupancy Requirements
Assisted properties shall be maintained in compliance with all City of Chino Municipal Codes, ordinances, and laws, remain owner -occupied, and maintain occupancy limitations.
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B. Hazard Insurance
Loan recipients must maintain an all-risk property insurance policy naming the City of Chino as an additionally insured/loss payee.
C. Nondiscrimination
There shall be no discrimination against or segregation of any person or group of persons, on account of race, color, creed, religion, sex, marital status, national origin, or ancestry, in the selection of contractors or subcontractors to complete the rehabilitation work financed with Program assistance, or in the sale, leasing, transfer, use, occupancy, tenure, or enjoyment of assisted properties.
D. Compliance with Program Policies and Procedures
Program participants shall comply with all Program requirements and procedures as outlined in these Policies and Procedures, as required by the Housing Division staff, and as outlined in Grant and Loan agreements.
XI. PROGRAM AMENDMENT PROCEDURES
All amendments to the City of Chino Home Improvement Program Policy must be approved by the City of Chino City Council.
EXHIBIT A - Annual Income as Defined in 24 CFR Part 5
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 1 Chapter Three – Calculating Annual (Gross) Income
Annual Income as Defined
in 24 CFR Part 5
The annual income definition found at
24 CFR Part 5 is used by a variety of
federal programs including Section 8, public
housing and the Low-Income Housing Tax
Credit Program. Annual income is used to
determine program eligibility and, in some
programs, the level of assistance the
household will receive. This definition was
formerly commonly referred to as the
Section 8 definition.
The Part 5 definition of annual income is the
gross amount of income of all adult
household members that is anticipated to be
received during the coming 12-month
period. Each of the italicized phrases in this
definition is key to understanding the
requirements for calculating annual income:
• Gross Amount. For those types of
income counted, gross amounts (before
any deductions have been taken) are
used;
• Income of All Adult Household
Members. The Part 5 definition of annual
income contains income “inclusions” –
types of income to be counted – and
“exclusions” – types of income that are not
considered (see Appendices B and C for
income and assets that are to be included
and excluded); and,
• Anticipated to be Received. The Part 5
annual income is used to determine
eligibility and the amount of federal
assistance a household can receive. A
Grantee must, therefore, use a
household’s expected ability to pay, rather
than past earnings, when estimating
housing assistance needs.
Who’s Income to Count
Knowing whose income to count is as
important as knowing which income to count.
Under the Part 5 definition of annual income,
Special consideration is given to income earned
by the following groups of people:
• Minors. Earned income of minors is not
counted. However, unearned income
attributable to a minor (e.g., child support,
TANF payments and other benefits paid on
behalf of a minor) is included.
This chart summarizes whose income to
count under Part 5:
Persons
Counted in
Household Size
for the
Purposes of
Eligibility
Calculation
Employment
Income
Other
Income
(Including
income from
Assets)
• Head of
Household
• Spouse
• Co-Head of
Household
• Other Adult
• Dependents
o Child
18 or under
o Full-time
Student
over 18
Nonmembers
Not counted
• Foster Adult
• Foster Child
18 or under
• Live-in Aide
Yes
Yes
Yes
Yes
No
See Note
No
No
No
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
NOTE: Only count the first $480 of earned
income of a full-time student (enrolled for 12 or
more units) older than 18 who is a dependent.
Full time student status must be verified and
documented in the file.
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 2 • Foster Children and Adults. These
persons are not included in the household
member count (see Exhibit 2.4). Also,
since the foster children/adults are not
counted as household members, the
income received to care for these
individuals is not included in the
household income.
• Live-In Aides. If a household includes a
paid live-in aide (whether paid by the
household or a social service program),
the income of the live-in aide, regardless
of the source, is not counted. Except
under unusual circumstances, a related
person does not qualify as a live-in aide.
• Persons with Disabilities. During the
annual recertification of a household’s
income, Grantees are required to exclude
from annual income certain increases in
the income of a disabled member of
qualified families residing in HOME-
assisted housing or receiving HOME
tenant-based rental assistance. This will
be discussed in detail in Chapter Four.
• Temporarily Absent Household
Members. The income of temporarily
absent household members is counted in
the Part 5 definition of annual income –
regardless of the amount the absent
member contributes to the household. For
example, a construction worker employed
at a temporary job on the other side of the
state earns $600 per week. He keeps $200
per week for expenses and sends $400 per
week home to his family. The entire amount
($600 per week) is counted in the family’s
income.
• Adult Students Living Away from Home. If
the adult student is counted as a member of
the household in determining the household
size (to compare to the HUD income limits),
the first $480 of the student’s income must be
counted in the household’s income. Note,
however, that the $480 limit does not apply to
a student who is the head of household or
spouse (their full income must be counted).
To count the adult student as a household
member, the adult student would need to be
verified as a dependent, usually on the
parent’s tax return. Additionally, student
status must be verified with documentation in
the file.
• Permanently Absent Household Members.
If a household member is permanently
absent from the household (e.g., a spouse
who is in a nursing home), the head of
household has the choice of either counting
that person as a member of the household,
and including income attributable to that
person as household income, or specifying
that the person is no longer a member of the
household.
Exhibit 3.1 – Declaration of “No Income”
Declaration of “No Income” Issue: Husband, wife and 2 children apply for assistance. The wife is not on any tax returns, no verifiable income or any other sort of paper trail to use as documentation. What alternative documentation is required to prove she is without any income to contribute?
Recommendation: Both adults must sign a 3rd party release of information form before proceeding. To verify the Applicant’s zero-income claim request several of the following:
Verification of social security benefits or printout of the record Verification of unemployment benefits
Verification of non-filing for federal income tax
Verification of assets on deposit (same bank as spouse) Credit report
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 3 NOTE: Unless specifically identified above
as a temporary or permanent absent
household member, Grantees must request
HCD assistance in determining if a unique
household situation should be considered
permanent or temporary.
Types of Income to Count
A comprehensive list of income that is
included and excluded from calculations of
annual income under Part 5 is provided in
the Appendix B. This list comes directly from
the federal regulations at 24 CFR 5.609.
HUD updates this list when changes are
made by Congress. HCD will update our list
as the new list becomes available.
In general, income exclusions fall into the
following categories:
• Benefits that should not be counted as
income;
• Income of certain household members
that should not be counted, including
earned income of minors and income
attributable to foster children and live-in
aides; and,
• Amounts that are counted as assets
rather than income, such as lump-sum
lottery winnings.
Income from Self-Employment
The net income from operation of a business
or profession including self-employment
income is used to calculate annual income.
Net income is the gross income less business
expenses, interest on loans and depreciation
computed on a straight-line basis. Important
considerations when calculating net income
include:
• In addition to net income, any salaries
or other amounts distributed to family
members from the business, and cash
or assets withdrawn by family members
must be counted, except when the
withdrawal is a reimbursement of cash
or assets invested in the business.
• Principal payments on loans, interest
on loans for business expansion or
capital improvements, other expenses for
business expansion or outlays for capital
improvements must not be deducted when
calculating net income.
• If the net income from a business is
negative, it must be counted as zero
income. A negative amount must not be
used to offset other family income.
No Income or Not Enough Income
Careful assessment is required when an
applicant states that they have no income or the
stated income is not enough to cover household
expenses. It is important to note if the household
expenses are paid and current or if they remain
unpaid. This is a clear indicator of whether there
truly is no or not enough income. Third-party
verifications should be required including:
verification of social security benefits or printout
of the record, verification of unemployment
benefits, notarized statement of non-filing for
federal income tax, verification of assets on
deposit and a review of checking account
statements that may show frequent deposits that
may mean income.
An assessment of all information available will
allow the Grantee to make an informed decision
to either accept or deny the application for
assistance. Refer to Exhibit 3.1 on the previous
page for an example.
Welfare Rent as Income
Welfare assistance is counted as income. Most
Grantees will use the actual gross amount of
welfare assistance the household receives. In
certain “as-paid” localities, however, a special
calculation is required. In an as-paid jurisdiction,
welfare assistance for housing costs is
established separately from the rest of the
welfare assistance and may be adjusted based
on the actual cost of the household’s housing.
Grantees in as-paid jurisdictions must count as
income the amount of general assistance a
household receives, plus the maximum amount of
housing assistance the household could receive
(rather than the amount the household is actually
receiving).
Sample Formats for Identifying and
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 4 Computing Part 5 Annual Income
Sample formats for computing annual
income using the Part 5 annual income
definition is included in the Appendices.
Exhibits 3.2 through 3.5 provide examples
and exercises that demonstrate how the Part
5 annual income definition is applied to
individual household circumstances.
Answers to the exercises are provided in
each exhibit. These exhibits do not include
income from assets, which is addressed
below. Examples and exercises concerning
asset calculation follow that discussion.
Treatment of Assets
Some assistance programs require that
families “spend down” assets before they can
participate. There is no asset limitation for
participation in the HOME or CDBG
Programs. Income from assets is, however,
recognized as part of annual income under
the Part 5 definition. To comply with the
Part 5 rules regarding assets, Grantees must
know: (1) what to include as assets; (2) how
to compute the market and cash value of
those assets; and, (3) how to determine the
income from the asset to be included in
annual income.
What to Include as an Asset
In general terms, an asset is a cash or non-
cash item that can be converted to cash. A
summary of items that are and are not to be
considered assets are included in the
Appendix C. (Note: It is the income earned –
e.g., interest on a savings accounts – not the
value of the asset – that is counted in annual
income. Six months of the most current,
consecutive checking account statements and
one month of the most current savings
account statement is the minimum
requirement to document these assets. All
pages of these statements must be included.
Exhibits 3.6 through 3.8 provide examples
and exercises that demonstrate how income
from assets is calculated. Market Value and
Cash Value Assets have both a market value
and a cash value. The market value of an
asset is simply its dollar value on the open
market. For example, the market value of a share
of stock is the price quoted on the stock
exchange on a particular day. A property’s
market value is the amount it would sell for on the
open market. This may be determined by
comparing the property with similar, recently sold
properties.
An asset’s cash value is the market value less
reasonable expenses required to convert the
asset to cash, including:
• Penalties or Fees for Converting Financial
Holdings. Any penalties, fees or transaction
charges levied when an asset is converted to
cash are deducted from the market value to
determine its cash value (e.g., penalties
charged for premature withdrawal of a
certificate of deposit, the transaction fee for
converting mutual funds to cash or broker fees
for converting stocks to cash); and/or,
• Costs for Selling Real Property. Settlement
costs, real estate transaction fees, payment of
mortgages/liens against the property and any
legal fees associated with the sale of real
property are deducted from the market value
to determine equity in real estate.
Under the rules of Part 5, only the cash value
(rather than the market value) of an item is
counted as an asset. If more than one person
owns an asset, Grantees must prorate the asset
according to the applicant’s percentage of
ownership. If no percentage is specified or
provided by state or local law, Grantees must
prorate the asset evenly among all owners. If an
asset is not effectively owned by an individual, it
is not counted as an asset.
Actual Income from Assets
Assets can generate income and, for the
purpose of determining an applicant’s income,
the actual income generated by the asset (e.g.,
interest on a savings or checking account) is
what counts, not the value of the asset. The
income is counted even if the household elects
not to receive it. For example, if an applicant
elects to reinvest the interest or dividends from
an asset, it is still counted as income.
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 5 As with other types of income, the income
included in annual income calculation is the
income that is anticipated to be received from
the asset during the coming 12 months.
Several methods may be used to
approximate the anticipated income from the
asset. For example, to obtain the anticipated
interest on a savings account, the current
account balance can be multiplied by the
current interest rate applicable to the
account. Alternatively, if the value of the
account is not anticipated to change in the
near future and the interest rate has been
stable, a copy of the IRS 1099 form showing
past interest earned can be used.
Many Grantees are surprised to learn that
checking account balances (as well as
savings account balances) are considered
an asset. This rule is not intended to count
monthly income as an asset; rather, it is
recognition that some households keep
assets in their checking accounts. To avoid
counting monthly income as an asset,
Grantees must use the average monthly
balance over a six-month period as the cash
value of the checking account.
Assets Owned Jointly
If assets are owned by more than one person,
prorate the assets according to the
percentage of ownership. If no percentage is
specified or provided by a state or local law,
prorate the assets evenly among all owners.
If an asset is not effectively owned by an
individual, do not count it as an asset. An
asset is not effectively owned when the asset
is held in an individual’s name, but: (a) the
asset and any income it earns accrue to the
benefit of someone else who is not a member
of the family; and, (b) that other person is
responsible for income taxes incurred on
income generated by the assets.
Determining which individuals have
ownership of an asset requires collecting as
much information as is available and making
the best judgment possible based on that
information. In some instances, but not all,
knowing whose social security number is
connected with the asset may help in identifying
ownership.
Owners should be aware that there are many
situations in which a social security number
connected with an asset does not indicate
ownership and other situations where there is
ownership without connection to a social security
number.
Determining who has contributed to an asset or
who is paying taxes on the asset may assist in
identifying ownership.
Two Unique Rules
For most assets, calculating cash value and the
income from the assets is straightforward. Special
rules have, however, been established to address
two circumstances: (1) situations in which the
assets produce little or no income; and, (2) assets
that are disposed of for less than fair market
value.
When an Asset Produces Little or No
Income
This rule assumes that a household with assets
has an increased payment ability, even if its
assets do not currently produce income. (For
example, a household that owns land that is not
rented or otherwise used to produce income.)
Rather than require the household to dispose of
the property, the rule requires that an “imputed”
income be calculated based on a Passbook Rate
that is applied to the cash value of all assets.
This rule only applies if the total cash value of
all assets is more than $5,000. The following
examples illustrate how imputed income from
assets calculation is applied:
NOTE: When calculating income from
assets, State HCD policy is to use 2% as
the passbook rate.
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 6 Example 1: The Cayhill family has $6,000
(average balance over six months) in a non-
interest-bearing checking account. The
Grantee would include in annual income an
amount based on the current Passbook
Rate. The calculation would be: $6,000 x .02
= $120.
Example 2: The Hernandez family has
$3,000 (average balance over six months) in
a non-interest -bearing checking account and
$5,500 in an interest -bearing savings
account. The family reports and the PJ verify
$150 interest on the savings account. The PJ
would count the greater of the actual income
from assets or the imputed income based on
the Passbook Rate, as shown below:
Imputed income ($8,500 x .02) = $170
Actual income $150
Included in annual income $170
Example 3: The Smiths have $600
(average balance over six months) in a
non-interest -bearing checking account.
No income from assets would be counted
because the family has no actual income
from assets and the total amount of all
assets is less than $5,000.
When Assets are Disposed of at
Less than Fair Market Value
Applicants who dispose of assets for less
than fair market value (i.e., value on the
open market in an “arm’s length
transaction”) have, in essence, voluntarily
reduced their ability to afford housing. The
Part 5 rules require, therefore, that any
asset disposed of for less than fair market
value during the two years preceding the
income determination be counted as if the
household still owned the asset.
The amount to be included as an asset is the
difference between the cash value of the
asset and the amount that was actually
received (if any) in the disposition of the
asset. Consider the following examples.
Example 1: Mr. Jones cashed in stock to give a
granddaughter funds for college in August 2009.
The stock had a market value of $4,500 and a
broker fee of $500 was charged for the
transaction.
Market value $4,500
Less broker’s fee $500
Cash value to be considered $4,000
The $4,000 in assets would be counted for any
income determination conducted until
August, 2011 (looking forward two years from
the time of disposal).
If Mr. Jones has no other assets, no income from
assets would be included in annual income
because the cash value of the asset is less than
$5,000. If other assets brought total assets to
more than $5,000, however, the imputed income
calculation described previously would be
required.
Example 2: Mrs. Dutch “sold” a piece of
property to a family member for $30,000 on
July 1, 2008. The home was valued at $75,000
and had no loans against it.
Market value $75,000
Less settlement costs $3,000
Less sales price $30,000
Cash value to be considered $42,000
The $42,000 would be counted as an asset for
any income determination conducted until
July 1, 2010. The $42,000 would be combined
with the cash value of other assets (if any) and
an imputed income calculation would be
required.
Each applicant must certify whether an asset
has been disposed of for less than fair market
value. Assets disposed of for less than fair
market value as a result of foreclosure or
bankruptcy are not included in this calculation.
In the case of a disposition as part of a
separation or divorce settlement, the disposition
will not be considered to be less than fair market
value if the applicant receives (or received)
important consideration not measurable in dollar
terms.
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 7 Exhibit 3.2 – Calculating Part 5 Annual
Income – Example
Family Members Position in Family Age Income Sources
George Jefferson Head 53 Works full-time at $7.25/hour. Also receives $400/month from the government as a result of a
settlement in the Agent Orange product liability
litigation.
Eloise Jefferson Spouse 48 Works 18 hours/week at a bank at $7.50/hour. Also receives $50/month from her mother to help with
expenses.
Lionel Jefferson Son 19 Full-time student at City College where he has a part-time, 15-hour/week job in the student bookstore
at $6.00/hour for the 46 weeks when classes are in
session.
Under the Federal Programs, the Income Limit for a family of three in the jurisdiction is $23,900. Are the Jefferson’s eligible for CDBG/HOME assistance? Assume for this example that the Jefferson’s have no assets.
ANTICIPATED ANNUAL INCOME
Family a. Wages/ b. Benefits/ c. Public d. Other e. Asset
Members Salaries Pensions Assistance Income Income
George $15,080 Enter the
greater of Eloise $7,020 $600
lines 4 or 5 Lionel $480
from above
in e.
6. Totals a. $22,580 b. c. d. $600 e. N/A
7. Enter total of items from 6a. through 6e. This is Annual Income ............................ 7. $23,180
This family is eligible for assistance because its total income of $23,180 is below the Low -Income Limit.
Explanation
George: George’s earnings from work count as income, but his income from the Agent Orange Settlement Fund ($ 4,800/year) does not (see Appendix B ). Thus, George’s income is $7.25/hour x 40 hours/week x 52 weeks/year, or $15,080.
Eloise: Eloise’s income from wages of $7.50/hour x 18 hours/week x 52 weeks, or $7,020. In addition, her regular gift income of $50/month or $600/year counts as income. (The gift income is counted as “other income.”)
Lionel: Because Lionel is a full-time student and is not the head of household or spouse, only the first $480 of his earnings counts toward the family income.
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 8
Exhibit 3.3 – Calculating Part 5 Annual Income – Exercise 1
Family Members Position in Family Age Income Sources
Blanche Deverou Head 55 Works 6 hours/night, 4 nights/week at $5.00/hour as a waitress; also earns an average of $55/night in
tips.
Rose Nylen Friend 58 Earns $6.50/hour as a full-time aide in a hospital.
Employer reports that her wages will increase to
$6.75/hour, 7 weeks from the effective date of this
calculation.
Dorothy Spornac Friend 61 Earns $60/day as a substitute teacher and works an average of 3 days/week for the 40 weeks school
is in session (she made $7,200 last year). Also
receives $40/month in Food Stamps.
Under the Federal Programs, the Income Limit for a household of three is $38,500. Assuming that these are the only sources of income, does the household qualify for assistance?
Complete the following table to calculate annual income (as defined in 24 CFR Part 5) for the household. Answers are found on the following page.
ANTICIPATED ANNUAL INCOME
Family a. Wages/ b. Benefits/ c. Public d. Other e. Asset
Members Salaries Pensions Assistance Income Income
Blanche Enter the
greater of
Rose
lines 4 or 5
Dorothy
from above
in e.
6. Totals a. b. c. d. e. N/A
7. Enter total of items from 6a. through 6e. This is Annual Income ............................ 7.
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 9
Exhibit 3.3 – Calculating Part 5 Annual Income – Exercise 1 (continued)
ANSWERS
ANTICIPATED ANNUAL INCOME
Family a. Wages/ b. Benefits/ c. Public d. Other e. Asset
Members Salaries Pensions Assistance Income Income
Blanche $17,680 Enter the
greater of
Rose $13,980
lines 4 or 5
Dorothy $7,200
from above
in e.
6. Totals a. $38,860 b. c. d. e. N/A
7. Enter total of items from 6a. through 6e. This is Annual Income ............................ 7. $38,860
The household is not eligible for assistance. Its income exceeds the Low-Income Limit by $360.
Explanation
Blanche: Blanche’s income must include both wages and tips. (The tips are included as wage/salary income.) Her wage income is $6,240 annually ($5.00/hour x 6 hours/night x 4 nights/week x 52 weeks/year) and her tip income is $11,440 annually ($55/night x 4 nights/week x 52 weeks/year).
Rose: Rose’s wage income must be calculated in two steps. For the first 6 weeks of the year, she earns $6.50/hour. Her income at this wage is $6.50/hour x 40 hours/week x 6 weeks = $1,560. For the next 46 weeks, her wage will be $6.75/hour. Her income at this wage is $6.75/hour x 40 hours/week x 46 weeks = $12,420.
Dorothy: Dorothy made $7,200 last year and there is no reason to expect that she will work more or less often in the coming year. Her income is, therefore, estimated at $7,200. Per the Income Exclusions (see Appendix B), the income she receives from Food Stamps is excluded from this calculation.
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 10
Exhibit 3.4 – Calculating Part 5 Annual Income – Exercise 2
Family Members Position in Family Age Income Sources
Murphy Brown Head 38 Earns $550 semi-monthly as a manager in the Housewares Department of the local Kmart and
receives $100/month in child support.
Eldon Bernakey Boyfriend 36 Earns $250/week as a part-time painting instructor at the local school for the 40 weeks/year when
school is in session. Attends evening classes at the
Art Institute, which he pays with a State Student
Incentive Grant of $3,500. Pays $50/month in
child support for his twins – when he can.
Avery Brown Son 3 No income.
Under the Federal Programs, the Income Limit for a family of three in the jurisdiction is $25,700. Is this household eligible for CDBG/HOME assistance?
ANSWERS
ANTICIPATED ANNUAL INCOME
Family a. Wages/ b. Benefits/ c. Public d. Other e. Asset Members Salaries Pensions Assistance Income Income
Murphy $13,200 $1,200 Enter the
greater of Eldon $10,000
lines 4 or 5
from above
in e.
6. Totals a. $23,200 b. c. d. $1,200 e. N/A
7. Enter total of items from 6a. through 6e. This is Annual Income ............................ 7. $24,400
This family is eligible for assistance. Its total income is $24,400, which is below the Low - Income Limit.
Explanation
Murphy: Murphy’s annual wage income is $550 semi-monthly x 24 periods/year, or $13,200. In addition, she receives $100/month x 12 months = $1,200/year. This is other income.
Eldon: Eldon’s wage income is based on 40 weeks of work: $250/week x 40 weeks/year, or $10,000 annually. His scholarship does not count as income. The child support Eldon pays cannot be deducted from his income.
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 11
Exhibit 3.5 – Calculating Part 5 Annual Income – Exercise 3
Family Members Position in Family Age Income Sources
Ricky Ricardo Head 80 Receives gross Social Security in the amount of $625/month, receives a pension from the local
musicians’ union in the amount of $25 every quarter
(3 months).
Lucy Ricardo Spouse 79 Receives gross Social Security in the amount of $120/month. Grossed $4,200 for giving voice
lessons last year, but paid business expenses of
$1,250 from this income for equipment and sound
proofing.
Ricky Ricardo II Child 45 Earns $330/week as an interpreter for a local nonprofit organization.
If the Low-Income Limit for a household of three is $30,000 and the Ricardo’s have no other source of income, do they qualify for assistance?
Complete the following table to calculate annual income (as defined in 24 CFR Part 5) for the household. Answers are found on the following page.
ANTICIPATED ANNUAL INCOME
Family a. Wages/ b. Benefits/ c. Public d. Other e. Asset
Members Salaries Pensions Assistance Income Income
Ricky Enter the
greater of
Lucy
lines 4 or 5
Ricky II
from above
in e.
6. Totals a. b. c. d. e. N/A
7. Enter total of items from 6a. through 6e. This is Annual Income ............................ 7.
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 12
Exhibit 3.5 – Calculating Part 5 Annual Income – Exercise 3 (continued)
ANSWERS
ANTICIPATED ANNUAL INCOME
Family a. Wages/ b. Benefits/ c. Public d. Other e. Asset
Members Salaries Pensions Assistance Income Income
Ricky $7,600 Enter the
greater of
Lucy $1,440 $2,950
lines 4 or 5
Ricky II $17,160
from above
in e.
6. Totals a. $17,160 b. $9,040 c. d. $2,950 e. N/A
7. Enter total of items from 6a. through 6e. This is Annual Income ............................ 7. $29,150
The household is eligible for assistance.
Explanation
Ricky: Ricky’s entire income is comprised of pensions and benefits. It equals $625/month x 12 months/year ($7,500) plus $25/quarter x 4 quarters/year ($100), or $7,600.
Lucy: Lucy’s benefits income is $120/month x 12 months/year, or $1,440. Her net income from her business was $4,200 - $1,250 or $2,950. (Her equipment and soundproofing expense is an allowable deduction because the business funds were reinvested in the business and did not represent expansion. Refer to Exhibit 3.1)
Ricky II: Ricky II’s income is wage income. The calculation is $330/week x 52 weeks/year = $17,160.
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 13
Exhibit 3.6 – Calculating Asset Income Under Part 5 – Example
Family Members Assets Asset Value
Juan Herrera Checking account $870 average 6-month balance with an interest rate of
2.7%.
Inheritance Received an inheritance of $30,000 that he used to buy a new car for $12,000, pay off his $3,000 credit card
bill and opened a mutual fund account (which has no
associated account costs) to invest the remaining
$15,000 at an annual interest rate of 5.3%.
The Federal Program’s Passbook Rate is
2%.
ASSETS
Family Current Cash Value Actual Income
Member Asset Description of Assets from Assets
Juan Herrera Checking account $870 $23
Same Mutual fund $15,000 $795
.................................
3. Net Cash Value of Assets 3. $15,870
4. Total Actual Income from Assets………………………………………………. 4. $818
5. If line 3 is greater than $5,000, multiply line by 2% (Passbook Rate) and 5. $317 enter results here; otherwise, leave blank.
The asset income to be used in the annual income calculation is $818 since the actual income generated by the assets is greater than the imputed income.
Explanation:
Checking account: The income from the checking account is calculated based on the 6-month balance and the interest rate ($870 x .027 = $23).
Inheritance: A car owned for personal use is not considered an asset. However, the mutual fund is an asset. $15,000 x .053 = $795.
Because the total cash value of the assets exceeds $5,000, the Federal Program’s Passbook Rate must be used to calculate the imputed income from all assets combined. In this case, $15,870 x .02 = $317. The actual income earned ($818) is greater, however, so that amount must be used in the calculation of annual income for this family.
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 14
Exhibit 3.7 – Calculating Asset Income Under Part 5 – Exercise 1
Position in
Family Members Family Age Family Assets Asset Value
Archie Bunker Head 72 Checking account $595 average 6-month balance in a non-interest-bearing account.
Edith Bunker Spouse 73 Savings account $2,695 at 3.1%
Federal Program’s Passbook rate is
2%.
Calculate the Bunkers’ asset income by completing the following chart. Answers are provided below.
ASSETS
Family Current Cash Value Actual Income
Member Asset Description of Assets from Assets
..................................
3. Net Cash Value of Assets 3.
...................................................................
4. Total Actual Income from Assets 4.
5. If line 3 is greater than $5,000, multiply line by ____ (Passbook Rate) and 5. enter results here; otherwise, leave blank.
Asset Income to be used in annual income calculation: $_____________
ANSWERS
ASSETS
Family Current Cash Value Actual Income
Member Asset Description of Assets from Assets
Archie Bunker Checking Account $595 $0
Edith Bunker Savings Account $2,695 $84
..................................
3. Net Cash Value of Assets 3. $3,290
...................................................................
4. Total Actual Income from Assets 4. $84
5. If line 3 is greater than $5,000, multiply line by ____ (Passbook Rate) and 5. $0 enter results here; otherwise, leave blank.
The Bunkers’ income from assets is $84.
Explanation
Use the actual income in this case, because the cash value of the Bunker’s total assets is less than $5,000.
The imputed income is only calculated for assets when the total cash value of all assets exceeds $5,000.
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 15
Exhibit 3.8 – Calculating Asset Income Under Part 5 – Exercise 2
Family Position in Age Family Assets Asset Value
Members Family
Fred Mertz Head 85 Rental property Small rental property that grosses $6,500/year (expenses to keep up the
property are $3,400/year). The property has
a fair market value of $69,000, but they have
a mortgage on the property in the amount of
$35,000. The average closing cost in a real
estate transaction is 8% in the area.
Ethel Mertz Spouse 81 Savings account Savings of $5,000 that earned $179 in interest during the past year.
Stock 100 shares of stock in “Why Buy it, Inc.” with
a face value of $4.25 per share, that has not
shown a dividend in years. The cost to sell
the stock would be about $76.
Federal Program’s Passbook
rate is 2%.
Calculate the Mertz’s asset income by completing the following chart. Answers are provided on the following page.
ASSETS
Family Current Cash Value Actual Income
Member Asset Description of Assets from Assets
....................
3. Net Cash Value of Assets 3.
. .... ... .... ... ... .... ... .... ... ....
4. Total Actual Income from Assets 4.
5. If line 3 is greater than $5,000, multiply line by ____ (Passbook Rate) and 5. enter results here; otherwise, leave blank.
Asset Income to be used in annual income calculation: $_____________
Chapter Three – Calculating Annual (Gross) Income
Income Calculation and Determination Guide for Federal Programs – Ch 3 - 16
Exhibit 3.8 – Calculating Asset Income Under Part 5 – Exercise 2 (continued)
ANSWERS
ASSETS
Family Current Cash Value Actual Income
Member Asset Description of Assets from Assets
Fred Mertz Rental Property $28,480 $3,100
Ethel Mertz Savings Account $5,000 $179
Same Stock $349
..................................
3. Net Cash Value of Assets 3. 33,829
...................................................................
4. Total Actual Income from Assets 4. $3,279
5. If line 3 is greater than $5,000, multiply line by 2% (Passbook Rate) and 5. $677 enter results here; otherwise, leave blank.
The asset income to be used in the annual income calculation is $3,279, since the actual income from assets is greater than the imputed income.
Explanation
Apartment Building The cash value of the property is:
Market value $69,000
Less mortgage 35,000
Less sales costs ($69,000 X .08) 5,520
Cash value $28,480
The income earned is the net income ($6,500 – $3,400) of $3,100.
Savings Account The information is provided.
Stock The cash value of the stock is the sales proceeds (100 shares x $4.25/share = $425) less the cost to sell ($76). It generates no dividend income.