Robert Freedman is the former director of multimedia communications at NAR.
Section 8 Transformation: Turning Renters into Owners
Venerable rent subsidy program is proving adept at creating homeowners.
July 1, 2001
Since its creation in the 1970s, Section 8 has been a federal housing program few real estate professionals have needed to know about.
But now that practitioners are beginning to help buyers use their Sec. 8 subsidy to help them pay their mortgage, the rental assistance program may soon become as linked to homeownership as the mortgage interest deduction.
Well, that may be overstating it a bit. But it’s clear that Sec. 8 homeownership programs--unheard-of a few years ago--are poised to become a solid part of affordable sales, many of which wouldn’t have been possible before.
Under the concept, eligible households buy a house using their Sec. 8 rental assistance to help offset their monthly mortgage and escrow costs. The rental assistance amount is based on the gap between the fair market rent level for the unit (as determined by the U.S. Department of Housing and Urban Development) and 30 percent of the renter’s monthly income. Under the homeownership variant, that gap amount is applied to the assisted household’s monthly mortgage payment. Local programs differ, but recipients must complete homeownership counseling and meet minimum income requirements. In general, Sec. 8 is targeted to households earning up to 80 percent of the area’s median income.
“The program has a way to go, but the early successes are proof that the idea works,” says Terry Kresser, supervisor of the housing assistance payment program of the Syracuse (N.Y.) Housing Authority.
Kresser oversees one of the approximately dozen Sec. 8 homeownership demonstration programs around the country.
Nationally, dozens of Sec. 8 home sales transactions have closed, and that number could swell now that HUD has launched a permanent program to replace the demonstrations.
Final rules for the program (FR-4427-F-02) were issued last September. The rules let local agencies decide whether or not to offer a Sec. 8 homeownership program, and so far only a handful are doing so.
But practitioners say the program’s future looks bright given how helpful it can be.
“My client was looking for a house to buy before getting involved in the Sec. 8 program and wasn’t sure whether homeownership was feasible for her,” says David Beckett, CRB, sales associate, Prudential Realty Mart, Burlington, Vt. “If I’d been aware of how much the subsidy would mean to her in dollar terms, I could have reassured her much earlier that homeownership was possible.”
Beckett’s client, a restaurant employee with steady earned income, was shouldering a stiff rental burden when she decided to buy. With Beckett’s help, the client found a condo close to transportation and within walking distance of shopping.
Given the tight Burlington market, the sale required a lot of attention on Beckett’s part. Beckett made more than a half dozen trips to the unit, including two for inspections (one for the lender and one for the housing agency to evaluate the unit under Sec. 8 housing quality standards); accompanied the buyer through homeownership counseling; and guided her through the loan process and the price negotiations.
“This transaction has been fairly time-consuming, but it’s been a source of pride to me to help someone through a process like this,” he says.
Practitioners say one of the main challenges for the program has been the short supply of inventory. When competition for units is stiff, the practitioner’s guidance becomes key.
“We’ve got to compete with the rest of the world, so we try to make the transaction proceed smoothly,” says Larry Nelson, broker, Cornerstone Realty, Lakewood, Colo.
“The issue for the seller, as in any transaction, is price and ease of closing,” he says. “The advantage for the buyers is that the listing salesperson and the seller know they’re well-groomed buyers. They have been through counseling and have their financing ready.”
Nelson and his partner, Betty Maybin, have helped buyers using Sec. 8 as well as homebuyer assistance under a federal public housing program called HOPE 3.
Because of various issues, including federal home inspection requirements, Sec. 8 buyers can’t always get to closing as quickly as conventional buyers, and that can hurt in a multiple-bid situation. But that timing issue isn’t always a drawback.
“The sellers in our transaction were just incredible,” says Cindy Warfield-Sowalskie, a buyer specialist for the Nancy Jenkins team, Prudential Realty Mart, Burlington, Vt. “Even though they were under pressure themselves trying to close the deal on the house they were buying, they couldn’t have been more supportive.”
To make the deal happen, the sellers contributed $1,500 in cash to help the buyer pay closing costs and, without being asked, let the buyer have the washer and dryer and even the lawn mower.
“They just really cared about the buyer,” a young Vietnamese woman working two jobs and caring for a relative, says Warfield-Sowalskie. “It was one of the most touching transactions I’ve ever had.”
Want to learn more about Sec. 8 homeownership? Read the federal rule and other program information at www.hud.gov.
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Updated: June 14, 2019