Remember that income limits are based on the median, not the average, income in the area. In short, you start with every household lined up from the poorest to the richest, and then you count 'em off from both ends until you find the household exactly in the middle. Or you can find the actual answer here. That's the median income.
Then they figure the various income percentages of that median household, adjusted for household size, area, etc. Then they tinker with it some more. But that's the basic idea of how they find the income limits under which people can qualify for various housing programs. HUD's 2011 Briefing Material states that "There are currently several legislated income limit standards (e.g., 30%, 50%, 60%, 65%, 80%, 95%, 100%, 115%, 125%) that were intended to have progressive relationships." The briefing material goes into a complicated explanation of the different standards, how the numbers are calculated and adjusted, etc.
When housing programs are discussed, those are the terminology used.
- Low Income (LI) means no more than 80% of Area Median Income (AMI).
- Very Low Income (VLI) means no more than 50% of AMI
- Extremely Low Income (ELI) is no more than 30% of AMI
Here's a long list of what the various income limits are for housing-related programs, not just HUD's. From Page 13-16 of the briefing material. As you can see from the descriptions below, the housing assistance does not necessarily go to those who need it the most, people with the lowest income.
Income Limit Applications
A. Department of Housing and Urban Development
Public Housing: Very low-income or low-income standards
All Section 8 Programs: Very low-income or low-income standards
Indian Housing (1996 Act): "Low-Income" is defined as the greater of 80% of the median family income for the Indian area or of the U.S. national median family income
Section 202 Elderly and Section 811 Handicapped programs: Very low-income or low-income standards
Section 235 (Homeownership program): “95 percent” of area median income, or higher cost based income limits
Section 236 (Rental program): Low-income standard
Section 221(d)(3) (BMIR)(Below Market Interest Rate) rental program: “95 percent” of area median income, defined as 95/80ths of low-income definition
Community Planning and Development programs: Very low-income or low-income standards for current
programs under management
HOME Investment Partnerships Act of 1990: “60 percent of median” and “65 percent of median” are used as income targeting and qualification requirements; both limits are tied to Section 8 income limit determinations
National Homeownership Trust Act of 1990: “95 percent” of median is referenced as the eligibility Standard, with a “115 percent” of median standard for high cost areas
Low-Income Housing Preservation and Resident Homeownership Act of 1990: Affordability of units for current occupant of “moderate income” affects terms under which mortgage may be prepaid; “moderate income” is defined as 80-95 percent of median, with “80 percent” defined as the Section 8 low-income standard
B. Rural Housing and Community Development Service
Rental and ownership assistance programs: Assistance based on HUD Section 8 very low-income or low-income standards, or income limits tied to these standards
C. Treasury Programs
Multifamily Tax Subsidy Projects: Current standard is Section 8 very low-income standard or 120% of that definition (i.e., the “60%” of median standard) for projects determining income eligibility and rents who haven’t used income limits prior to FY 2011. Income Limits for projects using income limits in FY 2010 or before will no longer be Section 8 Income Limits. A separate income limits publication will be produced for this program.
Tax-exempt Mortgage Revenue Bonds for homeownership financing: Generally set at 115% of area median income, with “115%” defined as 230% of the Section 8 very low income standard
“Difficult Development Area” Designation (Low-Income Housing Tax Credit): Areas with the worst housing cost problems as measured by the FMR to 60% of median family income ratio; this designation is awarded to 20 percent of the metro and non-metro areas (using HUD area definitions) with the most severe problems and is recalculated annually; such areas receive special additional tax benefits under this program
“Qualified Census Tract” (Low-Income Housing Tax Credit Program Definition): Areas, as defined by the Census and designated by HUD, where 50% of all households have incomes less than 60 percent of the area median family income, adjusted for household size, or the poverty rate is 25% or higher; such areas receive special additional tax benefits under this program; this calculation is based on 2000 Census data and income limit policies and area definitions in effect as the date estimates are prepared
“Qualified Census Tract” (Mortgage Revenue Bond Program): Areas, as defined by the Census, where 70% of all families have incomes less that 80 percent of the state median family income, based on 2000 Census data
D. Federal Deposit Insurance Corporation
Disposition of Multifamily Housing to Non-profit and Public Agencies: Not less than 35 percent of all dwelling units must be made available for occupancy and be affordable for low income families, and at least 20 percent must be made available for occupancy and be affordable for very low income families. An “affordable rent” is defined as the rent that would be paid by a family paying 30 percent of income for rent whose income is “65 percent of median”. This 65 percent figure is defined in relation to the very low-income standard (i.e., normally as 65/50ths of the standard)
Disposition of Single Family Housing: For rentals, priority is given to non-profits and public agencies that make the dwellings affordable to low income households. Households who intend to occupy a dwelling as their primary residence whose adjusted income does not exceed 115 percent of area median income, as determined by the Secretary of HUD, are given a purchase priority for the first 3 months a property is for sale.
E. Federal Housing Finance Board
Rental program funding Priorities: Very low-income, “60 percent of median” (defined as 120% of very low-income), and low-income standards used
Homeownership funding priorities: 115 percent and 140 percent of median family income limits are used
F. Government Sponsored Enterprises (GSE’s)
Income-based Housing Goals of Freddie Mac and Fannie Mae: Goals for percentages of loans are established for households with incomes at or below specified percentages of the HUD-published median family income for metropolitan and nonmetropolitan areas, as detailed in 12 CFR, Part 1252. The area definitions used relate to OMB metropolitan area definitions and the median family income estimates for the nonmetropolitan portions of each state.
G. Other Federal Banking Regulatory Provisions
Targeting of loan funds to low-income households and areas: Varies by agency
H. Uniform Relocation Act
Reimbursement to households forced to relocate from their residence by Federal agency: Extent of replacement housing assistance dependent on qualifying as Low-income, as defined by HUD; Act applies to all Federal agencies that initiate action that forces households to relocate from their residence
I. Department of Veterans Affairs
Eligibility for disability income support payments to veterans: Eligibility for non-service related income support payments is restricted to families with incomes below the HUD low-income standard
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