Income Targeting

Both the HOME and LIHTC programs have specific tenant income targeting requirements that affect initial and continued occupancy throughout the affordability period. Income targeting is the process of designating units by the income of their occupants. These requirements apply to the HOME-assisted and LIHTC-assisted units of a property.

This chapter uses the term “property manager” to refer to the person or entity that is carrying out property management tasks for the project. It applies equally to property management staff, contracted property management entities, and owners that carry out property management functions for the property.

Note that both programs also have rent restrictions to ensure that these income-eligible tenants can afford the rents of the assisted housing. Section 4.3 of this chapter discusses these rent restrictions.

Income targeting requirements may be determined up-front during the underwriting process, but the implementation of the income targeting requirements begins during the project’s lease-up phase. Property managers must be familiar with the income targeting requirements imposed by the underwriting process, as well as the specific income limits that are imposed by the regulations of the two funding sources. For a particular project, the income targeting will be specified in the HOME written agreement and the LIHTC Use Agreement.

Income targeting may vary from project to project. However, overall, the following minimum income targeting requirements apply to the HOME Program:

  • Low-income occupancy. All HOME-assisted units must be occupied by low-income households, whose annual gross incomes do not exceed 80 percent of area median income (AMI).
  • Program Rule. The program rule requires that, at initial occupancy, 90 percent of the households served across all of the PJ’s rental programs, must have annual gross incomes that are at or below 60 percent of AMI. For each project, the PJ needs to determine how this rule applies. Many PJs restrict initial occupancy of High HOME Rent units to tenants that have annual gross incomes that do not exceed 60 percenlit of AMI.
  • Project Rule. The project rule requires that, at initial occupancy and throughout the period of affordability, in projects with five or more HOME-assisted units, 20 percent of the households that occupy HOME-assisted units must be very low-income (that is, have annual gross incomes that are at or below 50 percent of AMI). The units that the very low-income households occupy are called Low HOME Rent units.
  • LIHTC has a minimum set-aside requirement that one of the following must be met:

  • 40 percent of units must be affordable to households whose annual gross incomes are at or below 60 percent of AMI.
  • 20 percent of the units must be affordable to households whose annual gross incomes are at or below 50 percent of AMI.

These income targets are the LIHTC minimums for the program. The state allocating agency may impose additional income targeting in its Qualified Allocation Plan (QAP), and, developers can propose deeper targeting in the application process as well. The income targeting chosen must be met at initial occupancy and throughout the LIHTC compliance period.

On an annual basis, HUD updates and issues the HOME and LIHTC income limits. The HOME income limits are issued for both low-income and very low-income households.

Combining the Two Rules at Initial Occupancy

For any property that is funded by both HOME and LIHTC, there may be some combination of units in the property that carry a variety of designations (HOME-assisted, LIHTC-assisted, or both HOME- and LIHTC-assisted). For each unit type, the income targeting rule that applies to that unit type must be met. If a unit carries the designation of both programs, it must meet the more restrictive of the two income limit requirements. Exhibit 4-1 specifies the income limits that are imposed for each unit type.

Consider a unit that is designated as both an LIHTC unit and a Low HOME Rent unit:

  • The tax credit income limit for the project requires that tax credit units be occupied by tenants with incomes at or below 60 percent of AMI.
  • The HOME income limit for a Low HOME Rent unit restricts occupancy to tenants with incomes at or below 50 percent of AMI.

For this unit to meet the requirements of both programs, it must be occupied by a household that has an income at or below 50 percent of AMI because it is the lesser of the two income limits.

Exhibit 4-1: Applicable Income Limits, by Unit Type

Exhibit 4-1: Applicable Income Limits, by Unit Type

The written agreement and deed restriction should clearly specify the tenant income requirements at initial occupancy and over the period of affordability.

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