Financing for affordable housing communities can get tricky. It oftentimes requires a combination of debt and equity sources and a complex analysis of available financing tools. Love Funding has done it all. Our team has extensive experience underwriting HUD-insured loans involving tax-exempt bonds, low-income housing tax credits (LIHTCs), historic tax credits, new market tax credits, Section 8 rental contracts and various government programs for subordinated loans or grants. Here our experts answer some of the most common affordable housing finance questions:
No. The subsidy must be attached to the unit and not the tenant.
Contact the project’s Account Executive for more information. The process involves submitting a contract renewal application. In most cases, borrowers utilize the services of an attorney to put the application together.
Contact the project’s Account Executive for more information. This involves an application process similar to the HAP renewal. It will also require the commissioning of a Rent Comparability Study (RCS) to set the requested mark-up-to-market rents, which will be reviewed by HUD.
DID YOU
KNOW?
Between 2005 and 2015, the number of rental units costing less than $800 per month declined while the number costing over $2,000 per month jumped by 1.5 million.
Per HUD Guidelines, underwriters are to use the lower of market rents or Section 8 contract rents. Because Section 8 contract rents are subject to periodic review and potential reductions, this practice is considered risk averse. One exception is the option to underwrite a B-piece with the gap between the market rents and the amount of the Section 8 rents that are above market can create additional loan proceeds.
The property’s affordable status:
- Broadly Affordable Transactions (0.25 MIP): Projects with 90% or greater of the units covered by either a Section 8 Project Based contract or affordability use restriction under the Low Income Housing Tax Credit Program with achievable and underwritten tax credit rents at least 10% below comparable market rents. Either scenario requires a recorded regulatory agreement in effect for at least 15 years after final endorsement of Note.
- Affordable* Transactions (0.35 MIP): Projects with between 10% to 90% of all units covered by either a Section 8 Project Based contract or affordability use restriction under the Low Income Housing Tax Credit Program. Either scenario requires a recorded regulatory agreement in effect for at least 15 years after final endorsement of Note.
*HUD’s definition of Affordable has been broadened to include properties with inclusionary zoning, density bonus set-asides and other local affordability restrictions meeting the required tests.
| BENCHMARKS FOR EQUITY INSTALLMENTS | MINIMUM EQUITY INSTALLMENT |
|---|---|
| 223(f): On or before closing 221(d)(4): Initial endorsement |
20% of Total Equity |
| 223(f): At 65% completion of repairs 221(d)(4): Construction completion |
37.5% of Net Equity |
| 223(f): 100% completion of repairs 221(d)(4): Final endorsement |
62.5% of Equity |
DID YOU
KNOW?
Nationwide, there were only 35 affordable and available units for every 100 extremely low-income households and 55 units for every 100 very low-income households in 2015.
Equity investors may fund all or part of the required equity pay-ins, with the exception of the first 20% payment, with equity bridge loans subject to certain requirements. However, Investors may not substitute any grant or loan funds, other than funds in the form of Equity Bridge Loans for equity payments.
| NEW CONSTRUCTION / SUB REHAB | |
|---|---|
| Section 8 HAP Contract (90% +), and Section 241(a) loans | 1.11x |
| Affordable (20% at 50% of AMI, or 40% at 60% of AMI, or less than 90% Section 8 HAP Contract) | 1.15x |
| Market Rate | 1.176x |
| REFINANCE/ACQUISITIONS | |
|---|---|
| Section 223(a)(7) loans with 90% + units covered by Section 8 HAP Contract | 1.05x |
| Section 8 HAP Contract (90% +), and Refinances of Section 202 direct loans, and Section 223(a)(7) loans (except as specified above) |
1.11x |
| Affordable (20% at 50% of AMI, or 40% at 60% of AMI, or less than 90% Section 8 HAP Contract) | 1.15x |
| Market Rate | 1.176x |
| NEW CONSTRUCTION / SUB REHAB (LTC) | |
|---|---|
| Section 8 HAP Contract (90% +), and Section 241(a) loans | 90% |
| Affordable (20% at 50% of AMI, or 40% at 60% of AMI, or less than 90% Section 8 HAP Contract) | 87% |
| Market Rate | 85% |
| REFINANCE/ACQUISITIONS (LTV) | |
|---|---|
| Section 8 HAP Contract (90% +), and Refinances of Section 202 direct loans | 90% |
| Affordable (20% at 50% of AMI, or 40% at 60% of AMI, or less than 90% Section 8 HAP Contract) | 87% |
| Market Rate | 85% |
Source: Joint Center for Housing Studies of Harvard. (2017). The State of the Nation’s Housing 2017.
