All inclusionary programs must screen applicants against the program eligibility criteria. Some programs limit only buyer income, while others have additional limitations or preferences such as asset limits, being a first-time homebuyer, or employment within the jurisdiction.
Homebuyers must not only meet the jurisdiction’s requirements, they must also qualify for a mortgage. Some jurisdictions impose their own underwriting requirements to ensure that buyers don’t borrow more than they could comfortably repay.
Regardless of what is included in the program eligibility or preferences, it is important that the requirements are clear, easily accessible to the public, and consistently applied across all applicants. Best practices for applicant screening include publishing the criteria and process for review, notifying applicant’s in writing of their eligibility determination, and providing for an appeals process.
Inclusionary rental units are most often filled through a lottery. A similar process is often used to randomly select potential buyers for high-demand inclusionary homeownership units. However, it is somewhat more common for homebuyer applicants to be screened in the order that applications are received, with homes offered to the first applicant who meets eligibility criteria and qualifies for financing.
Staffing Homebuyer Screening
While most communities leave tenant screening to rental property managers, cities tend to be more directly involved in homebuyer eligibility screening.
It is not uncommon for city staff to review homebuyer applications and certify eligibility. In these communities, developers market homes and forward completed applications to the city staff to review. Developers can only proceed with the sales process once an applicant has been certified. While this approach requires significantly more city staff capacity, it can help prevent more problems down the road.
In addition, because developers generally don’t remain involved once the homes are sold, it’s helpful if inclusionary programs have a direct monitoring relationship with homebuyers (where they can continue to rely on property managers to directly interact with inclusionary tenants). Having the city staff involved in buyer screening establishes this direct relationship from the outset and makes it easier for program staff to ensure that buyers are receiving accurate information about the program restrictions
One way to manage a large applicant pool is to hold a lottery. Programs will often publish an application to collect limited information to screen out obviously in-eligible applicants, and then hold a lottery to sort those applicants before they ask for detailed information and begin a thorough screening process. This reduces the screening burden on staff while at the same time reduces the amount of work applicants need to do if they are not going to be considered for a unit in the end because of a lack of availability.
The growing trend of inclusionary housing programs has meant that local governments are increasingly creating preferences for local residents or employees in their applicant selection criteria. But these types of preferences can violate fair housing laws, even when that is not the intent of the policy.
In order to ensure there is no discriminatory impact of such a policy and to reduce other legal challenges around freedom of movement, jurisdictions should consider the following guidelines:
- Residency preferences should not include a duration of residency (i.e. a minimum of X months or years)
- Residency preferences should be as broad as possible, such as extending beyond the jurisdiction
- Residency preferences should include alternatives such as “live and/or work” requirements, rather than just a residency requirement
Fair housing will likely be an issue with residency preferences if the jurisdiction is more white than its surrounding region. In those instances, city’s might consider expanding the residency preference outside the jurisdiction and use a partial preference approach, in which a percentage of the units are set aside for local residents, and the balance of units are available to anyone.* Because of the high potential for local preferences to lead to fair housing violations, it is essential that jurisdictions consult an attorney with fair housing experience before adopting a local preference.