Click on the following links to go directly to the FAQs for these housing programs:
- The LIHTC Program The HOME Program
- The RAD Program The Uniform Relocation Act
- The Section 236/Section 8 Programs The Housing Trust Fund
Question: I am an experienced real estate developer but new to affordable housing. How do I determine if my state agency is likely to allocate LIHTC for the type of project I am planning?
Answer: The IRS requires every LIHTC allocating agency to issue an annual Qualified Allocation Plan (QAP). In its QAP, an agency describes the process a developer must follow to apply for an LIHTC allocation that year. They also detail how they will rank or score the applications they receive to prioritize their pool of LIHTC towards projects they view as most needed in their jurisdiction. The agency describes how a developer can receive points in the scoring process based on their experience in real estate in general and in affordable housing specifically. Anyone wanting to be successful in affordable housing needs to familiarize themselves with their state’s QAP each year.
Question: My firm is planning to acquire and resyndicate an older LIHTC project. We are concerned that several of the current residents now have income that exceeds the income limit for their household size. Do we need to force those residents out and rent their units to eligible residents in order for this property to continue as a 100% LIHTC project?
Answer: No, the IRS does not want your residents to be forced from their homes when you resyndicate. In the 2009 version of the 8823 Audit Guide, the IRS said that any resident who qualified for the LIHTC program during a project’s original compliance and/or extended use period is considered to be still qualified at resyndication. The owner must be able to demonstrate, however, that each resident was certified eligible for the program. The state agency, and the LIHTC investor, will want to see the resident’s original TIC and all supporting documentation to confirm their eligibility. If the resident’s original TIC is missing or insufficient, the owner can use one of their annual recertification’s TIC and documentation to demonstrate the household’s ability to produce a tax credit at resyndication. If their is no TIC found in the resident’s file that is sufficient to show their eligibility, the owner must qualify the resident again for the LIHTC program.
Keep in mind that this policy only applies if the project is still in its original extended use period. If the project is in its post-year 15 period, and it either did not have an extended use period or it is beyond year 30, the owner must re-qualify all the residents for their units to produce a new credit stream.
Question: I am renovating an older market-rate property using low income housing tax credits. There are residents living at the project. I will need to relocate them in stages for about two months at a time to complete construction in their units. I purchased the project in 2015 and will place the rehab into service in 2016. In what months can my residents to produce in LIHTC in 2016.
Answer: Because you bought your project in 2015 and are placing the rehab into service in 2016, so long as you have qualified your residents, they can begin to produce credits for you in January 2016. However, your units cannot produce a credit for you the two months they are out of service. As an example, if you qualify a resident by January 31, 2016, they can begin to produce a credit for you in January. If their unit is out of service for its rehab during May and June, their unit will not produce a credit for you for those two months. This resident could produce a credit for you January – April and July – December 2016. Remember that during the first year of a building’s credit period, you must determine its applicable fraction on a monthly basis. You will need to track each resident’s relocation activities so you can confirm for the CPAs involved your building’s monthly applicable fraction.
Question: I am preparing to place a 3-building new construction project into service. I am concerned that we may need to use different income limits for the buildings because two buildings will be PIS in 2016 but the third won’t be ready until 2017. Is there anything I can do to insure we can use the same income limits for all 3 buildings?
Answer: As long as all three buildings are included in the same project, you can use the same income limit. Remember that for the LIHTC program, an owner defines what buildings are in the same project when they answer the question on Line 8b of each buildings 8609 form. If your owner does not plan to link these buildings as in the same project on all three 8609 forms, you may be required to use a different income limit for the third building. Then it will depend on when you place that building into service in 2017 as compared to when HUD issues the new income limits for 2017.
Question: We are resyndicating a project originally PIS in 2000. We have been using the HERA-special income limits to qualify new applicants and to calculate our maximum LIHTC rent. Since we originally PIS prior to 2009, can we continue to use the HERA-special limits after we resyndicate?
Answer: No you may not. You will need to begin using the income limits in effect for when you place your new set of credits into service, You will probably have both acquisition and rehab LIHTC and your income limits will be based on when you place your acquisition credits into service. That should be the date of resyndication. It could be that your income limits will go down which would mean that your maximum rent will also go do. If that is the case, you will need to implement a rent decrease at your project and make sure you do so before the first month you plan for your project to begin producing LIHTC again. If you are a developer, don’t forget to utilize the new lower rent levels when you prepare the pro forma for your project.
Question: How large a developer fee can my organization earn for serving as the developer for an LIHTC project?
Answer: The IRS does not state exactly how large a fee you can earn but your state allocating agency probably does. In their QAP, an HFA will usually state a maximum developer fee they will approve as a percentage of the project’s total development costs that can be included in eligible basis. Keep in mind that exactly what you will need to do to earn your developer fee will be described in the partnership agreement with your LIHTC investor. It will describe for what tasks you can earn a fee and how and when you can take your fee. Typically, the developer fee is the final cost paid out of the development budget, and it is not uncommon for part of the fee to go unpaid and be deferred for payment during the compliance period.
Question: We are finishing construction and about to place a 1-building LIHTC project into service. We anticipate receiving our certificate of occupancy on August 4th. If we rent some of the units to qualified residents by the end of August, can we begin taking credits on those units in August?
Answer: No you may not. Most HFAs tie the placed in service date for new construction to the date of the certificate of occupancy. Additionally, a unit must be in service a full calendar month before it can begin to produce a credit. If you place your building in service August 4th, you will not be able to claim credits for any of the units until September, and then only for those units occupied by qualified residents by September 30th.
Question: What is the Two-Thirds Rule?
Answer: It is always an owner’s goal to rent all of a building’s LIHTC units to qualified residents before the end of the first year of its credit period, if not before. This is because of the Two-Thirds Rule. Any unit not rented to a qualified resident until after the close of year 1 of the credit period produces no credit for year 1. Additionally, once it is occupied by an LIHTC-resident, it generates an annual credit equal to two-thirds what the owner could expect if it was properly qualified during year one. As an example, a unit that would produce an annual credit of $12,000 if qualified by the end of year one of the credit period will generate a credit of only $8,000 if not occupied by an LIHTC-resident until year 2.
Question: How do I find out how my local or state government is planning to utilize the HOME funds they receive from the federal government?
Answer: A unit of government that receives a block grant of HOME funds is referred to as a Participating Jurisdiction (PJ). Every PJ must develop a Consolidated Plan in which they describe how they will prioritize the use of their HOME monies, as well as other funding sources such as their community development block grant funds. They must update their Consolidated Plan every five years. On an annual basis, they must issue an Action Plan in which they provide more specifics on their process for allocating HOME funds that year. Anyone who plans to utilize HOME funds to create or rehab affordable housing must familiarize themselves with their PJ’s Consolidated Plan. Keep in mind that it is possible that you could be awarded HOME funds for your project through either your state or city/county PJ.
Question: Can I receive more than the maximum HOME rent when I rent to a resident with a housing choice voucher as is allowed in the LIHTC Program?
Answer: Unfortunately, the answer is NO. When you rent a HOME unit to a resident with a rental voucher, the amount you receive in rent from the resident plus the assistance payment you receive from the housing authority cannot exceed the maximum HOME rent for the particular unit. There is an exception allowed for HOME units covered by a Section 8 project-based contract or project-based voucher. When you rent a low HOME unit to a resident who receives rental assistance through a federal or state project-based subsidy contract, the total revenue you receive for the unit is governed by the rules for the housing assistance program.
Question: I am developing an LIHTC project utilizing HOME funds. Can I plan on using the utility allowance calculated using the schedule for the low voucher program?
Answer: No, you may not. That is allowed in the LIHTC program but not for HOME. Under the 2013 final rule, a PJ must develop a separate utility allowance schedule for each HOME-assisted rental project and update it annually. They ay either use the HUD utility allowance model or data obtained from the local utility providers. A PJ may not use the utility allowance schedule from the local voucher program.
Question: If we receive an award of HOME funds, how quickly must we complete our project?
Answer: Under the 2013 HOME final rule, a developer must complete their project within 4 years of receiving their commitment of HOME funds. HUD requires the PJ to repay the money they invested in a project to their trust account if the developer does not meet this deadline. To insure compliance, HUD requires that all signatures on documents committing HOME funds be dated.
Question: I manage an LIHTC project with HOME funds. Can I hold my HOME income limits hamrless the same way I can with my LIHTC limits?
Answer: No you may not. Once you begin using a set of LIHTC limits to qualify your applicants and calculate maximum rent, you are never required to use a lower set of numbers. This cannot be said for the HOME program. If HUD issues a new set of income limits for HOME for your area that are lower than those you currently use, you must begin using the new, lower limits to qualify applicants for the HOME program. The same is true for your HOME maximum rents.
Question: We are anticipating applying for HOME funds to help finance a project for which we are also applying for low income housing tax credits. How quickly we will need to lease-up our HOME units?
Answer: Under the 2013 HOME final rule, an owner must rent all HOME units within 18 months of project completion or the PJ must pay repay HUD the HOME funds associated with the never-leased units. Additionally, if any of your HOME units remain vacant 6 months after project completion, you must report to the PJ on your marketing efforts and they may require you to enhance your efforts
Keep in mind that since your project will have LIHTC, you will also have lease-up goals tied to the credit delivery schedule in your partnership agreement. You will need to plan and implement your lease-up so that you comply with your HOME deadline while also delivering your credits on time so that you receive the anticipated equity contribution from your LIHTC investor.
Question: I know how to calculate the maximum rent allowed in the LIHTC program. How do I calculate my maximum HOME rents?
Answer: You do not need to. Every year HUD issues the income limits and maximum allowable rents for the HOME program about a month after they issue the LIHTC income limits. You can find the rents for your area at HOME Rents. Remember to differentiate between the maximum rents for your high HOME units versus for those designated as low HOME. Do not forget to subtract out the utility allowance approved by your PJ to determine the maximum amount you can actually charge your residents.
Question: My housing authority is converting two or our public housing developments to project-based Section 8 through the RAD program. The residents will need to relocate during the rehabilitation period and we are eager to get them moved to alternative housing as quickly as possible. We are currently waiting on our closing and official conversion date. Can we go ahead and begin to relocate our residents so we can get ahead of our planned relocation schedule?
Answer: No. The general answer is you may not begin to relocate your residents prior to conversion. HUD does not want owners to begin to make such changes until the conversion to project-based Section 8 is official. There is always concern that the deal could fall through and conversion never happens. Should you want to begin relocation early, contact your RAD Transaction Manager at HUD about what you may be able to do to receive their approval to relocate residents prior to conversion.
Question: We are using low income housing tax credits in the financial structure for a development after it goes through its RAD conversion. Our PHA is new to the LIHTC program and are confused about how we merge LIHTC requirements into the overall redevelopment and management of our project. The project will have both acquisition and rehab LIHTC. How do we identify the date of acquisition?
Answer: The date of acquisition for credit purposes should be the date of the RAD conversion. HUD wants all closings, any change of ownership, etc.. to occur on that date. They do not want only some of the planned closings to occur under the risk that they do not all happen and you end with a deal that is only half done. You are smart to ask about your date of acquisition. Knowing that date is key for LIHTC purposes for complying with the terms of your carryover allocation, planning on when you can begin your rehabilitation activities, and knowing when your units can potentially begin producing their credit stream.
Question: I understand that owners of RAP/Rent Supplement projects now have the option of converting to either a project-based voucher (PBV) or a project-based Section 8 contract (PBRA). How can I know which option is best financially for my project? How can I know how much rent I will be able to charge now and in the future with a PBV versus a PBRA?
Answer: You need to review the information on RAP/Rent Supplement projects converting in the current RAD Notice. It describes how the initial rents will be set under a PBV or PBRA and how an owner will be allowed to adjust their rents going forward under each form of long-term Section 8. The RAD Notice is long. The section on RAP/Rent Supplement projects begins on page 164. Keep in mind that you can elect to convert to PBRA only if you are doing a pro-active conversion. If you are planning for a retroactive RAD conversion, you can only convert to a PBV,
Question: We are converting one of our public housing developments to PBRA through RAD. Can I assume that the PBRA occupancy rules are the same as they are in public housing?
Answer: No, I would not do that. While there are many similarities, there are some significant differences between the regulations that govern occupancy in the public housing program and those for project-based Section 8. The occupancy requirements for PBRA are found in the 4350.3 HUD Handbook.
When converting a project through RAD, you are also required to continue some public housing provisions not typically applies in PBRA. The goal is to minimize any significant detrimental changes for the existing residents. For example, you must continue to honor the public housing income disregard for any resident receiving it at conversion. You must honor all FSS agreements. Most importantly, all existing residents must be allowed to live in the converted project even if they would ordinarily not qualify for the project-based Section 8 program. You can read more about this in the current RAD Notice.
Question: I am renovating a property using acquisition and rehabilitation tax credits. The residents will need to relocate for about four months each while we complete the construction in their units. Am I required to apply the provisions of the URA?
Answer: Probably not. The URA kicks in when your residents will either be permanently displaced from their homes, and/or when they will be relocated from their units for more than a year. In your case, you anticipate they will be temporarily relocated for four months. Keep in mind that you will still be required to provide assistance to your residents such as paying their moving expenses both ways and in insuring they are not required to pay more rent out of pock during their relocation than they pay at your project.
In addition to knowing how long a resident will be relocated, to determine if an owner must apply the URA you must know what funding sources are currently supporting the project and that will be part of its financial structure going forward. You must apply the URA if your residents will be relocated more than a year and you utilize “federal dollars” at your project. The use of the LIHTC program does not trigger the URA. However, if you use HOME or CDBG funds, you must comply with the URA. And with HOME or CDBG funding, HUD requires that you assess if any of your residents are being economically displaced due to any planned rent increases, and you must also comply with Section 104(d) of the Housing and Community Development Act of 1974. The HUD Handbook 1378 provides owners guidance on complying with the URA and Section 104(d). Chapter One of the handbook includes a list of various housing programs that trigger the application of the URA.
Question: We are converting a public housing development to project-based Section 8 through the RAD program. We will need to relocate the residents to renovate their units. Do we need to apply the provisions of the URA?
Answer: Yes, but you need to do better than that. For example, the URA describes what an owner must do for a resident who is being permanently displaced. Under RAD, there is no permanent involuntary displacement. A resident can only be displaced on a permanent basis if they agree to it. If they do not, the owner must adjust their plans to insure the household will not be permanently displaced. HUD issued a special RAD Relocation Notice to provide guidance on an owner’s commitments when they relocate residents are part of a RAD conversion.
Question: Under the URA, what is a project’s ION?
Answer: ION stands for Initiation of Negotiations. The ION date serves as a milestone in determining a person’s eligibility for relocation assistance, including moving costs and a replacement housing payment. The ION date is the trigger for issuance of the Notice of Eligibility for Relocation Assistance or Notice of Nondisplacement under the URA. Before triggering the ION, an owner should plan to collect detailed information about each person’s income and replacement housing needs, and to Identify available comparable replacement housing resources in a sufficient number to meet the needs of the residents. An owner should develop a plan to address any shortage of replacement housing including housing of last resort measures.
In affordable housing, how the ION date is triggered is often described in the rules and regulations for the housing program that is being utilized that triggers the URA. For example, in the HOME program the ION date is triggered at the execution of the agreement covering the acquisition, rehabilitation, or demolition of the project. HUD provides a chart that describes what triggers the ION date in various programs in Appendix A of the 1378 Handbook.
Question: What is the difference between the GIN and the Notice of Relocation Eligibility?
Answer: GIN stands for General Information Notice. As soon as feasible, an owner required to apply the URA must provide their residents a GIN. In it the owner describes the owner’s general plan for the project and informs the residents that they may be displaced as a result. It also describes in general terms the assistance the residents will be eligible for if they are displaced as a result of the owner’s activities at the project.
The Notice of Relocation Eligibility provides much more specific information for each resident. Based on their income, household size and needs, a household’s Notice of Relocation Eligibility describes the rental assistance payment they will qualify for upon displacement. It also details the other specific services the owner will be providing them and exactly who their contact person will be through the relocation process. The need to issue the residents’ Notice of Relocation Eligibility is triggered by on the ION date. An owner should not trigger the ION until they have gathered and confirmed information on their residents sufficient for them to issue an accurate Notice of Relocation Eligibility for every household.
Question: Our organization owns several properties originally financed with Section 236 mortgage insurance. The mortgage for one of the projects has matured which I assumed would get us out from under our 236 restrictions. However, the original owner of the project went through something called the LIHPRHA program and I am told that extends our affordability restrictions for many more years. Is this true?
Answer: Yes, it is probably true. In the late 1980s and 1990s owners were given incentives through the LIHPRHA program in exchange for their commitment not to prepay their mortgages and opt out of the affordable housing portfolio. Some were allowed to establish some true market-rent units on their projects. Others were allowed to take increased annual distributions, while others were awarded project-based subsidy contracts through the Section 8 loan management set aside program. They signed a LIHPRHA Use Agreement in which they typically agreed to to an affordability period lasting 50 years. You will need to read your LIHPRHA Use Agreement to understand the terms under which you must continue to operate your project. You want to know that currently HUD is allowing owners to agree to some more advantageous terms than originally allowed in their agreements as part of an effort to encourage owners to refinance/renovate these projects. Confer with your HUD officials.
Question: I am new to operating HUD-assisted projects. What is a budget-based rent increase? How do I find out how to do one?
Answer: Under a budget-based rent increase, an owner submits a budget to HUD for their approval. After approving the budget, HUD approves new rent levels for the project based on what is needed to fund the newly approved budget. You can find out how to prepare, submit and apply a budget based rent increase in Chapter 7 of the 4350.1 HUD Handbook.
Question: We own a Section 236 project that we took through decoupling several years back. We refinanced using tax-exempt bonds and low income housing tax credits. How do I determine how much rent I can charge each resident. It is a 100% LIHTC project and one-half of the units are covered by a project-based Section 8 contract.
Answer: For the residents covered by the rental subsidy contract, you calculate their TTP and tenant rent according to the rules of the Section 8 program. For the remaining units, you must comply with the maximum rent rules for both the Section 236 and the LIHTC programs. You may charge each resident no more than the lesser of their tenant rent calculated using the formulas required by the 236 program and the maximum LIHTC rent for their unit size.
Question: We are planning to acquire and rehabilitate a Section 236 project using tax-exempt bonds and 4% LIHTC, Do we need to ask HUD’s approval to prepay the insured mortgage?
Answer: It depends. In most cases, projects owned by for-profit developers prepay under what is referred to as Section 219. These owners are required to follow a process dictated by HUD to prepay but do not need HUD’s approval to do so. Projects owned by nonprofit developers prepay under Section 250. Generally, they do need HUD’s permission to prepay their mortgage. You can locate more information on preserving Section 236 properties at 236 PRESERVATION.
Question: Several years back we decoupled a Section 236 project and refinanced using tax-exempt bonds and 4% LIHTC. For LIHTC, we must use the income limit set at 60% of the AMI. However, the income limit for the Section 236 program is 80% of the AMI. Are we in jeopardy of being written up by HUD for no longer renting to new households with income between 60% and 80% of the AMI?
Answer: Potentially. I can be viewed as a violation of your 236 regulatory agreement and occupancy requirements that you no longer rent to households with income between 60& and 80% of the AMI. I have not seen any guidance from HUD that specifically addresses this issue and we are in uncharted territory. Around the country, I have seen various HUD offices and contract administrators handle this matter differently. Some do write up the owner if they find during an MOR that the owner is not renting to applicants in this band. Other offices do not address it at all because they understand that the owner’s are electing to do this to meet their new LIHTC requirements. I cannot say what your experience will be in your area.
Question: We are refinancing a property with a project-based Section 8 contract with LIHTC. The Section 8 income limit for this property is 80% of the AMI, and as a result, there are several existing residents with income that exceeds our LIHTC income limit. Can we refuse to renew their lease for this reason and rent their units to lIHTC-qualified households?
Answer: No, you may not. In January 2015 HUD made their position clear on this issue. In a Memorandum issued on January 12, 2015, they reminded the industry that residents in HUD-assisted properties can only be evicted for the causes outlined in their lease. These residents cannot be forced from their homes because their income exceeds the project’s new LIHTC income limit or if they do not comply with the LIHTC student rule. In the Memo, HUD did say that owners can offer residents financial incentives in exchange for their being willing to vacate their units. This negotiation must be voluntary and HUD warns owners against applying any undue pressure on this residents who maintain their right to occupy their units.
Question: I hear that the states have received their first grant through the federal Housing Trust Fund. How do I find out how my state agency plans to utilize their HTF monies?
Answer: Many of the state agencies are currently holding public hearings, issuing notices, etc… to solicit comments from the public on how they should prioritize the use of their HTF grant. They will be updating their Consolidated Plans to reflect their projected use of HTF monies. Go to your state agency’s website and sign up for their list service so you receive information on this and other topics as they are addressed in your area.
Question: I have been told that the HTF is very similar to the HOME program. Is this true?
Answer: There are similarities but also some significant differences between the HTF and HOME. Fortunately HUD created a chart comparing and contrasting the two programs. You can download this chart at HTF HOME Page.
Question: Is the HTF to be used to support housing for homeownership or affordable rental housing?
Answer: Both. States are to use their HTF grants to support the creation of homeownership opportunities and rental housing affordable for very-low and extremely low income households. You can find more information on the HTF at HTF HOME Page.