A community home improvement program (CHIP) loan is a type of low-interest mortgage loan that allows low-income to moderate-income homeowners to improve or repair single-family homes. By design, the loan does not place a heavy burden on the borrower. The interest rates on CHIP loans are among the most competitive of all residential mortgage loans, and lenders base the interest rate charged on the income of the applicant. Additionally, fees typically associated with other types of mortgage loans do not apply to CHIP loans, and CHIP loans offer fixed monthly payments that do not adjust.
CHIP Loan vs. Grant
Mortgage loans made through CHIP allow qualified private homeowners to rehabilitate their primary residence. A private owner rehabilitation loan typically covers 85 percent of the cost of the rehabilitation, and CHIP allows for loan forgiveness over a five-year period. Down payment assistance loans for rehabilitation are also forgiven up to 85 percent over a 10-year period. A grant, on the other hand, is money given under CHIP for rehabilitation. Homeowners do not need to pay back funds received through CHIP grants. Additionally, the CHIP typically provides labor free of charge for the homeowner.
What Is the Loan Amount?
When you apply for the CHIP loan, the amount of money you will receive depends on the amount of work required to rehabilitate the property and bring it up to local and state codes. Before receiving CHIP funds, the homeowner must agree to a property inspection by a qualified home inspector who can address all safety and health issues and current code violations. The homes that receive funds under CHIP, must complete all required rehabilitation and meet all local and state code requirements. If the property rehabilitation will cost more than the CHIP maximum, CHIP will classify the house as a walk-away.
The maximum loan amount under CHIP is $30,000 for single-family residential homes. If the total cost of the rehabilitation exceeds this amount, CHIP will consider the house a walk-away. When a CHIP loan cannot fully cover the cost of the rehabilitation, you must use your own funds to cover repairs that exceed the loan maximum. CHIP will only provide funds, in this case, if you can prove that you have the capacity to pay for the repair costs that exceed the maximum CHIP loan.
Who Is Eligible?
To receive a CHIP loan, you must own the property and permanently reside at the address of the single-family home that needs rehabilitation. To be eligible to receive funds for the rehabilitation of your home, your total household’s annual income can not exceed 80 percent of the average median income for your area. For the home repair and emergency housing assistance program, annual household income must not exceed 50 percent of the average median income for the area. Your location and the number of family members in your household determine the income that can qualify for CHIP assistance.
- "Principles of Real Estate Finance"; Charles Long; 2010