Once the property manager has identified an income-eligible occupant for a unit, it must determine what rent it will charge for the unit.
Generally, the rent structure for the property is established during the financial feasibility and sustainability phase of the project (see Chapter 2). For sound financial operations, the property manager needs to strive to achieve the underwritten rents in order to keep the property’s revenue within the projections. However, in day-to-day management, there may need to be some flexibility with rents of specific units to enable the manager to keep units occupied.
In order to exercise sound judgment when establishing rents and ensuring compliance with the affordability restrictions of both the HOME Program and the LIHTC program, the property manager needs to understand how to use each program’s rent limits and related utility allowances and which rent limits apply to each unit type (HOME-assisted, LIHTC-assisted, and HOME- and LIHTC-assisted).
HOME and LIHTC Rent Limits
Within a given property, there are a number of rent limits that might apply to different units:
- HOME-assisted units must use either High HOME rent limits or the Low HOME rent limits (for at least 20 percent of the units in projects with five or more HOME-assisted units).
- LIHTC units must use rents based on 30 percent of either 50 percent or 60 percent of AMI, depending on the use restrictions imposed on the project.
Chapter 2 reviews the bases of these HOME and LIHTC rent limits and discusses how to use utility allowances.
Combining the Two Rules
The rent limit that applies to a specific unit is based on the unit type. If a unit carries the designation of both programs, it must meet the more restrictive of the two rent limit requirements. Exhibit 4-2 specifies the rent limits that are imposed for each unit type.
Exhibit 4-2: Applicable Rent Limits, by Unit Type
HUD updates and issues the HOME income and rent limits on an annual basis. The HUD-issued rent limits are adjusted for different localities and for each bedroom-size unit from zero (efficiency) to six bedrooms. For LIHTC, state credit agencies compute the rent limits based on the HUD-issued income limits for the jurisdiction.
The property manager must deduct any tenant-paid utility allowance (using the applicable utility allowance) from the rent limits of each program in order to determine the maximum rent that can be charged for the unit.
Further, the rent structure must be approved by the PJ (and documented in the written agreement) and rents may not be increased without the PJ’s permission.
Project-Based and Tenant-Based Rental Assistance
Both the LIHTC and HOME Programs make certain exceptions to the rent limits for units with project-based rental assistance where tenants pay no more than 30 percent of their income for rent and tenant-paid utilities.
The following rent limit rules apply to units with a project-based rental subsidy:
For a unit that is HOME-assisted only:
- High HOME Rent unit with project-based assistance. The lesser of the project-based rent or the High HOME Rent may be charged when the tenant household is low-income, but not very low-income, or if the tenant pays more than 30 percent of its income towards rent.
- Low HOME Rent unit with project-based assistance. The project-based rent may be charged (even if it is higher than the Low HOME Rent) for any unit that meets three conditions:
- Receives state or Federal project-based rental assistance
- Is occupied by a very low-income tenant
- Tenant household pays no more than 30 percent of its adjusted monthly income toward rent.
For an LIHTC-assisted unit, the rent for each unit is established so that tenant monthly housing costs, including a utility allowance, do not exceed the applicable LIHTC rent limit. The LIHTC Program restricts only the portion of the rent paid by the tenant, not the total rent. As a result, rental assistance programs can be used to raise the total rent above the LIHTC rent limit. The maximum rent cannot exceed the greater of the LIHTC rent limit or the rent limit established by the rental assistance program. When there is rental assistance, the tenant portion cannot exceed the LIHTC rent limit, less the utility allowance.
For a unit that is both HOME-and LIHTC-assisted, the following rent limits apply:
- High HOME Rent Unit. The most restrictive rent of the three programs applies to the unit. That means the rent limit is established at the lesser of:
- The High HOME Rent
- The LIHTC rent
- The project-based rental assistance program rent.
- Low HOME Rent Unit. The rent cannot exceed the project-based rental assistance program rent limit.
Note that neither program makes an exception to its rent limits when a unit is occupied by a tenant that has a tenant-based rental subsidy, since this subsidy is portable with the tenant.
It is important to note that both HOME and LIHTC have floor rents that prevent rent limits over time from falling below initially approved rent limits, and these may need to be taken into account when determining applicable rent limits annually over the compliance period.
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