Illustration. If the homeowner's purchase price is $10,000, the Incidental Costs are $500, the value added by improvements is $1,000, and the FHA appraised value at the time he acquires ownership is $17,000, the note computation would be as follows:
FHA appraised value | $17,000 | |
Homeowner's purchase price | $10,000 | |
Incidental costs | 500 | |
Improvements | 1,000 | 11,500 |
Initial note amount | 5,500 |
In this example, the amount of the note during the first year of residence is $5,500. In the second year, the amount of the note is $4,400, and in the third year, it is $3,300, etc. The note shall terminate at the end of the fifth year.
If the homeowner in this example resells his home during the first year for a sales price of $17,500, has resale costs of $1,600 (including a sales commission), and has added $1,500 value by further improvements, he would be required to pay the LHA $2,900 rather than the $5,500, as indicated in the following computations:
Resale price | $17,500 | |
Resale costs | $1,600 | |
Purchase price and Incidental costs | 10,500 | |
All improvements | 2,500 | 14,600 |
Payable to LHA | 2,900 |
24 C.F.R. §904.114