CHDO Requirements: Board, Staff, and Certification Process

To meet the CHDO requirements under the federal HOME Investment Partnerships Program, a nonprofit must be a tax-exempt 501(c)(3) or 501(c)(4) organized under state or local law, have a housing mission written into its charter, seat a governing board that gives real voice to low-income residents while capping government influence, employ paid staff with housing development experience, show at least one year of service to the community it plans to work in, and run its books to federal financial-management standards. Certification is granted by the local Participating Jurisdiction, meaning the city or county that receives HOME funds — there is no national certification. Meeting the standard unlocks a guaranteed slice of federal housing money: every Participating Jurisdiction must reserve at least 15 percent of its HOME allocation for projects owned, developed, or sponsored by Community Housing Development Organizations.¹

Legal Status and Mission

A CHDO must be organized under state or local law and hold tax-exempt status under Section 501(c)(3) or 501(c)(4) of the Internal Revenue Code.² A subordinate under a parent nonprofit’s group exemption letter qualifies, and so does a wholly owned entity that is disregarded for federal tax purposes as long as the owner organization holds the required exemption.³ The articles of incorporation or bylaws have to state a mission of providing decent, affordable housing for low- and moderate-income people.

No earnings can benefit any individual member, founder, or contributor, and the organization cannot be controlled by anyone seeking to profit from it. A for-profit company can sponsor or help create a CHDO, but with limits: the sponsoring for-profit cannot be a builder, developer, or real estate management firm whose main business is housing; it cannot appoint more than one-third of the board; and its officers and employees cannot also serve as officers or employees of the CHDO.⁴

Government entities cannot qualify. A nonprofit created by a local government can meet the definition, but the government cannot appoint more than one-third of the board, and government officers or employees cannot serve as the CHDO’s officers or employees.² Faith-based organizations are eligible on the same basis as any other nonprofit, provided they meet the structural and governance rules.

Board Composition

Two ceilings and one floor shape the board. At least one-third of members must come from low-income neighborhoods, be low-income beneficiaries of HUD programs, or be representatives chosen by low-income community organizations.² “Low-income” tracks HUD income limits, which are published annually and vary by metropolitan area and family size. The selection process for these seats has to be documented, so keep records that show how each low-income representative was chosen and how the connection to the service area was verified.

No more than one-third of board members can be public officials or employees of the Participating Jurisdiction that provides the HOME funding.² The remaining seats can be filled based on professional expertise or community ties.

Conflict-of-interest rules under 24 CFR 92.356 reach beyond the board. Anyone involved in HOME-funded activities — employees, agents, consultants, officers, and elected or appointed officials of the Participating Jurisdiction or CHDO — is barred from obtaining a financial benefit from those activities. The restriction extends to immediate family, including spouses, parents, children, siblings, grandparents, grandchildren, and in-laws, and it lasts through the person’s tenure and for one year afterward.⁵

Paid Staff and Community Experience

A CHDO must have paid employees with housing development experience who will work directly on HOME-assisted projects.² This is the requirement organizations most commonly stumble over. HUD’s line is clear: staff means paid employees responsible for day-to-day operations, full-time or part-time. Volunteers, board members, and consultants do not count.⁶ A consultant can be brought in for a specific, time-limited task, but the CHDO’s own employees must independently demonstrate experience with projects of comparable size and complexity.

The organization also needs at least one year of experience serving the community where the HOME-funded housing will be located.² A brand-new organization cannot qualify, even if its staff have years of development experience elsewhere. The track record has to belong to the entity in the neighborhood it now proposes to serve.

Financial Management

Accounting practices have to conform to 2 CFR 200.302, which requires tracking expenditures by federal award, maintaining source documentation for all transactions, comparing spending against budgets, and following written procedures for determining whether costs are allowable.⁷ Organizations that spend $1 million or more in federal awards during a fiscal year must undergo a single audit.⁸ Before you apply, make sure the books actually meet these standards, not just that a policy binder exists on the shelf.

What Certified CHDOs Get

The financial reason to pursue certification is the set-aside. Every Participating Jurisdiction must reserve at least 15 percent of its HOME allocation exclusively for housing owned, developed, or sponsored by CHDOs, and it has 24 months from HUD’s execution of the HOME agreement to commit those funds to specific CHDO projects. Missed deadlines can lead HUD to reduce the jurisdiction’s allocation, so local governments are motivated to certify qualified organizations and get money out the door.¹

On top of project money, a Participating Jurisdiction can spend up to 5 percent of its annual HOME allocation on CHDO operating expenses — salaries, wages, benefits, training, rent, utilities, insurance, equipment, and supplies. This comes from a separate pot and does not reduce the 15 percent project set-aside. The CHDO cannot draw operating funds when it is acting as a subrecipient or contractor rather than as the developer, owner, or sponsor of a project.⁹

Pre-development assistance is available in two forms. Site control and technical assistance loans cover the cost of establishing whether a specific project is feasible. Seed money loans cover pre-construction expenses for an approved activity. Both are available for rental and homebuyer projects where the CHDO is the owner, sponsor, or developer.¹⁰

Activities That Count Toward the Set-Aside

To use CHDO set-aside funds, the organization must act as owner, developer, or sponsor of an eligible project. Eligible activity types are new construction of rental housing; acquisition and rehabilitation of rental housing; new construction of homebuyer housing; acquisition and rehabilitation of homebuyer housing; and direct financial assistance to purchasers of housing the CHDO developed with HOME funds. Set-aside funds cannot be used for tenant-based rental assistance or for standalone downpayment assistance programs disconnected from a CHDO development project.¹¹

A CHDO can also work through a wholly owned subsidiary or through a limited partnership where the CHDO or its subsidiary is the managing general partner. If the partnership agreement lets the CHDO be removed as managing general partner, the agreement must require cause for removal and replacement by another CHDO.¹² This structure is common in Low-Income Housing Tax Credit deals.

How Certification Works

Applications go to the local Participating Jurisdiction. Each one runs its own process. Some certify project by project, vetting the CHDO each time it applies for new funding. Others require annual recertification.

Expect to submit:

Articles of incorporation and bylaws showing the affordable housing mission language
The IRS determination letter proving 501(c)(3) or 501(c)(4) status
A board roster with verification that at least one-third of members represent low-income residents, often backed by signed affidavits or income documentation
Staff resumes or employment contracts showing paid employees with housing development experience
Evidence of at least one year of service in the target community
Financial management documentation showing systems that meet 2 CFR 200.302
A service area description or map defining geographic scope

Review can take several weeks. Officials verify tax status, analyze board composition, and sometimes visit the office. Most jurisdictions publish a certification checklist; work through it before submitting rather than after.

Staying Certified

Certification is not a one-time achievement. A CHDO must continue meeting every qualification for as long as it holds the designation and manages HOME-funded projects. If the organization fails to fulfill its obligations or violates the terms of its written agreement, the Participating Jurisdiction can terminate the contract, which revokes all grant funds awarded under that agreement and ends eligibility for further compensation on the project.¹³

Short of termination, jurisdictions have intermediate tools: probation that suspends eligibility for new CHDO, HOME, CDBG, or other local funding awards; withholding developer fees until performance improves; reducing developer fees as a financial penalty; and invoking a substitute developer clause that assigns the project to a backup developer named in the original agreement.¹³ Those consequences live in the written agreement between the CHDO and the Participating Jurisdiction, so read it closely before signing and negotiate terms that give the organization room to recover from ordinary project setbacks.

1
eCFR. 24 CFR 92.300 – Set-Aside for Community Housing Development Organizations
2
eCFR. 24 CFR Part 92 – HOME Investment Partnerships Program – Section 92.2 Definitions
3
eCFR. 24 CFR 92.2 – Definitions
4
GovInfo. 24 CFR 92.2 – Community Housing Development Organization Definition
5
eCFR. 24 CFR 92.356 – Conflict of Interest
6
HUD Exchange. Assessing CHDO Development Capacity
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eCFR. 2 CFR 200.302 – Financial Management
8
eCFR. 2 CFR Part 200 Subpart F – Audit Requirements
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eCFR. 24 CFR 92.208 – Eligible Community Housing Development Organization Operating Expense and Capacity Building Costs
10
HUD Exchange. HOME IDIS Training Manual for PJs – CHDO Loan Activities
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HUD Exchange. What Types of Activities Qualify to Use CHDO Set-Aside Funds
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eCFR. 24 CFR 92.300 – Set-Aside for Community Housing Development Organizations
13
HUD Exchange. CHDO Toolbox for HOME PJs