HUD Project-Based Rental Assistance
The US Department of Housing and Urban Development (HUD), through its project-based rental assistance, contracts with owners of private multifamily housing to make units affordable to low income households. Project-based rental assistance is administered by HUD and fixed to a specific property.
Section 8 New Construction and Substantial Rehabilitation Program (S8 NC/SR)
This program, now known as Project-Based Section 8, was established in 1974. HUD entered into Housing Assistance Payments (HAP) contracts with private owners to serve low income tenants. Tenants pay 30% of their monthly adjusted income for rent and utilities and HUD pays the owner the difference between the contract rent and the tenant’s portion. New residents of Project-Based Section 8 units can have incomes of no more than 80% of area median income (AMI) and 40% must have incomes below 30% of AMI.
Project Rental Assistance Contract (PRAC/202 and PRAC/811)
The Section 202 Supportive Housing for the Elderly program provides capital and operating funds to nonprofit organizations that develop and operate housing for seniors with very low incomes, while the Section 811 Supportive Housing for Persons with Disabilities program provides funding for the development and operation of housing for low income people with significant and long-term disabilities. A component of each program is rental assistance in the form of PRACs which subsidize the operating expenses of these developments. Residents pay 30% of their adjusted income towards rent and the PRAC makes up the difference between rental income and operating expenses.
Section 202 Direct Loans
The Section 202 Program was established under the Housing Act of 1959 and is administered by HUD. This training provides preservation guidance on maturing Section 202 direct loans. The program has evolved over the years, but has either provided direct loans or capital advances from the federal government for the development of housing for low income seniors. From 1959 to 1990 the program provided below market-rate direct loans (usually at a 3% interest rate for up to 50 years) to nonprofit organizations. Between 1974 and 1990 these loans were subsidized further by Project-Based Section 8 contracts. In 1990, the funding transitioned from these below market-rate direct loans to capital advances.
HUD Insurance Programs
HUD’s Federal Housing Administration (FHA) provided mortgage subsidies to private owners of multifamily housing in order to reduce development costs. In return, HUD required assisted properties to agree to low income ‘use restrictions’ which restricted occupancy to households meeting the program’s income limits and restricted contract rents.
Section 221(d)(3) Below Market Interest Rate (BMIR)
This was a mortgage insurance program, created by the National Housing Act of 1961, which enabled nonprofit and for-profit developers to obtain FHA insured 3% BMIR mortgages from private lenders. Owners were required to make units available to low and moderate income families (with incomes at or below 80% of the area median income) at HUD-approved rents for the term of their 40-year mortgage. In some cases, for-profit developers can prepay the mortgage after 20 years. This program was replaced by the Section 236 program in 1968.
Section 236
This program was enacted in the Housing and Urban Development Act of 1968 and replaced the Section 221(d)(3) program. It combined FHA mortgage insurance on private loans with an interest reduction payment (IRP) to effectively lower the mortgage interest rate to 1%. Owners were required to make units available to low and moderate income families (with incomes at or below 80% of the area median income) at HUD-approved rents for the term of their 40-year mortgage. In some cases for-profit developers can prepay the mortgage after 20 years. In 1974 this program was replaced by the Section 8 New Construction and Substantial Rehabilitation program. Preservation Options for Section 236 Properties provides guidance on preservation options for properties with maturing Section 236 mortgages.
Other Nonsubsidized HUD Insured Properties
There are a number of other HUD financing programs that insure lenders against losses on multifamily rental properties, which do not have any income or affordability restrictions. These programs are only included in the National Housing Preservation Database if the property has another type of subsidy attached to it. These programs include Section 207, Section 221(d)(4), Section 223(f), Section 231, and Section 542.
State Housing Finance Agency Funded Section 236
Some properties were financed by state housing finance agencies using the interest reduction payment portion of the Section 236 program, without the FHA mortgage insurance. This happened in just eleven states.
Low Income Housing Tax Credit Program
The Low Income Housing Tax Credit Program (LIHTC) was created by the Tax Reform Act of 1986 to finance the construction, rehabilitation, and preservation of affordable housing for lower income households. The program is designed to encourage private individuals and corporations to invest in affordable housing by providing a tax credit over a 10-year period – a dollar-for-dollar reduction in federal taxes owed on other income. Although housing tax credits are federal, each state has an independent agency that decides how to allocate the state’s share of federal housing tax credits. When applying for tax credits a developer has two options: ensure that at least 20% of the units are rent-restricted and occupied by households with incomes at or below 50% of the area median income; or ensure that at least 40% of the units are rent-restricted and occupied by households with incomes at or below 60% of the area median income. This program is administered by the Treasury Department’s Internal Revenue Service (IRS).
HOME Rental Assistance
The HOME Rental Assistance Program was authorized in 1990 as part of the Cranston-Gonzalez National Affordable Housing Act. It is a federal block grant to participating jurisdictions, which use the funds to provide affordable housing to low and moderate income families. Participating jurisdictions use these funds for a variety of homeownership and rental activities. When used for rental activities, at least 90% of the units must be occupied by households with incomes at or below 60% of the area median income, and the remaining 10% can be occupied by households with incomes at or below 80% of the area median income. In rental properties with five or more HOME units, 20% of these units must be set aside for households with incomes at or below 50% of the area median income. This program is administered by HUD’s Office of Community Planning and Development.
Section 515 Rural Rental Housing Loans
The USDA Rural Development Housing and Community Facilities Programs Office (RD) began making subsidized mortgage loans through the Section 515 Rural Rental Housing Loan program in 1963. This direct loan program provides mortgages at a 1% interest rate to nonprofit and for-profit developers to build multifamily rural rental housing that is affordable to low income and moderate income families, elderly persons, and persons with disabilities. Loan terms are 30 years and are amortized over 50 years. Tenants pay basic rent or 30% of their adjusted income, whichever is greater.
Section 538 USDA Guaranteed Rural Rental Housing Program
The Section 538 USDA Guaranteed Rural Rental Housing Program was created by Congress in 1996. Under the Section 538 program, the USDA RD guarantees loans made by private lenders for the development of affordable rural rental housing. The tenants of these developments must have incomes at or below 115% of area median income at the time of initial occupancy.
Public Housing
Public Housing was established by the Housing Act of 1937, and is the federal government’s oldest subsidized rental housing program. HUD administers federal funds to local public housing agencies that manage and operate this government-owned housing. All public housing residents must have incomes at or below 80% of area median income and at least 40% of new admissions in any year must have incomes at or below 30% of area median income. Local public housing agencies can establish local preferences for certain populations, such as the elderly, persons with disabilities, veterans, full-time workers, domestic violence victims, or people who are homeless or at risk of being homeless. Rents for residents of public housing are restricted to the highest of 30% of their monthly adjusted income, 10% of their monthly gross income, their welfare shelter allowance, or a local public housing agency established minimum rent of up to $50.