November 15, 2018 – Tennessee Housing Development Agency Executive Director Ralph M. Perrey joined Memphis Mayor Jim Strickland today to announce a new program designed to increase the availability of affordable housing.
The Appraisal Gap Program will provide nonprofit housing agencies with a grant of up to $20,000 to cover the gap between the organization’s actual cost to build or renovate a home in eligible areas and the appraised value of the residence.
The THDA Board of Directors voted in September to allocate $500,000 towards this pilot program. The program will offer nonprofits a maximum of $20,000 per unit to cover the shortfall caused when property values are lower than the actual cost of constructing or renovating a home.
THDA Executive Director Ralph M. Perrey said the Appraisal Gap Program will allow nonprofits to produce affordable housing where it is needed most.
“In many communities there is still a challenge for nonprofit developers because property values are lower than the actual cost of construction,” Perrey said. “This program will help these nonprofits absorb some of those costs as they attempt to stabilize communities where property values have been stagnate.”
Mayor Strickland welcomed the positive impact the program can have for local nonprofit organizations as they increase the city’s stock of affordable housing and revitalize neighborhoods in its core.
“We’re excited to be able to partner with the State on this new pilot program,” said Mayor Jim Strickland. “With this funding, we will be able to continue the work of building up neighborhoods in the core city and provide help to many in our community who need it most for sustainable, long-term housing.”
The Appraisal Gap Program will be available in Memphis, Chattanooga and Oak Ridge. These communities were selected because they are recovering from the 2008 housing crisis at a slower pace than other areas of Tennessee.
Since mortgage financing requires that lenders use the lesser of the sales price or appraised value when calculating the maximum loan amount, nonprofits are often left with a shortfall between the achievable sales price of a home and their building or renovation expenses. By covering those costs, nonprofit developers will be able to increase capacity to produce more affordable housing in distressed neighborhoods.
THDA research shows that property values in these three cities have not appreciated at a pace that matches the appraised value with the actual sales price of homes. Those property values — coupled with the of rising costs of land development, building materials and labor — are limiting nonprofit builders in their ability to renovate aged inventory for resale or construct new homes while covering their cost with the home’s sale at an affordable price.
The Appraisal Gap Program will provide those developers with up to $20,000 to offset the gap between the appraised value of the home and its purchase price. Homebuyers are not required to use a THDA Great Choice mortgage loan to purchase the home. The exact amount of each grant will be determined based on a case-by-case basis.
The $500,000 allocated by the THDA Board will be available to approved nonprofits for up to 24 months, or until program funds are exhausted. Grants will be awarded on a first-come, first-serve basis.
For more information on this and other programs, visit THDA.org.