6. Eligibility Requirements for Nonprofit Organizations and State and Local Government Agencies

Introduction

This topic contains information on eligibility requirements for nonprofit organizations and state and local government agencies to obtain an FHAinsured mortgage, including

•	the general policy on the eligibility of nonprofit organizations

•	the percentage of financing available

•	the Homeownership Center (HOC) and Direct Endorsement (DE) lender responsibilities for determining eligibility

•	the requirements for nonprofit approval by the Department for Housing and Urban Development (HUD)

•	nonprofit organizations not meeting HUD approval requirements, and

•	eligibility of state and local government agencies.

Change Date

May 10, 2009

4155.1 4.A.6.a General Policy on the Eligibility of Nonprofit Organizations

Nonprofit organizations are eligible to purchase rental properties with FHAinsured mortgages, provided that they

•	intend to sell or lease the property to low- or moderate-income individuals (generally defined as income not exceeding 115 percent of the applicable median income), and

•	meet the requirements for HUD approval listed in HUD 4155.1 4.A.6.d.

Nonprofit organizations may only obtain FHA-insured fixed rate mortgages. Only an existing FHA-insured mortgage is eligible for refinancing and may never result in equity withdrawal.

4155.1 4.A.6.b Percentage of Financing Available

Nonprofit organizations are eligible for the same percentage of financing available on owner-occupied principal residences.

Reference: For more information on the percentage of financing available, see HUD 4155.1 2.A.

4155.1 4.A.6.c HOC and DE Lender Responsibilities for Determining Eligibility and Verifying HUD Approval

The appropriate HOC is responsible for determining a nonprofit organization's eligibility to participate in FHA programs.

The DE lender is responsible for determining

•	the organization's financial capacity for repayment, and

•	that the organization, at the time of underwriting, is approved by HUD as a participating nonprofit organization, as described in HUD 4155.1 4.A.6.d.

Note: Lenders can verify nonprofit approval status by visiting the HUD Web site at www.hud.gov.

4155.1 4.A.6.d Requirements for Nonprofit Approval by HUD

In order to qualify to purchase properties with FHA-insured mortgages and to obtain the same percentage of financing available to owner-occupants, HUD must approve the nonprofit organization. In order to receive HUD approval, the nonprofit organization must

•	be of the type described in Section 501(c)(3) as exempt from taxation under Section 501(a) of the Internal Revenue Code of 1986

•	have a voluntary board, and no part of the net earnings of the organization or funds from the transaction may benefit any board member, founder, contributor, or individual, and

•	have two years' experience as a provider of housing for low- and moderate-income persons.

4155.1 4.A.6.e Nonprofit Organizations Not Meeting HUD Approval Requirements

A nonprofit organization not meeting any of the requirements listed in HUD 4155.1 4.A.6.d, including religious and charitable organizations, may only purchase properties backed by FHA mortgage insurance under the conditions described for other investors in HUD 4155.1 4.A.6.b.

Note: Questions concerning a nonprofit organization's approval should be directed to the appropriate HOC.

Reference: For detailed instructions on qualifying nonprofit organizations as borrowers, including documentation requirements, see Mortgagee Letter (ML) 2002-01.

4155.1 4.A.6.f Eligibility of State and Local Government Agencies

State and local government agencies involved in the provision of housing may obtain FHA-insured financing provided that the agency provides evidence from its legal counsel that

•	the agency has the legal authority to become the borrower

•	the particular state or local government is not in bankruptcy, and

•	there is no legal prohibition that would prevent the lender from obtaining a deficiency judgment (if permitted by state law for other types of borrowers) on FHA's behalf in the event of foreclosure or deed-in-lieu of foreclosure.

Loan applications from entities meeting the above requirements may be processed under the DE program without prior approval from the appropriate HOC.

Note: FHA does not require credit reports, financial statements, bank statements, or CAIVRS/LDP/GSA checks.