AMI: Area Median Income in Relation to HUD 223(f) Loans
Area Median Income , or AMI, is a statistic calculated by HUD that estimates the median annual income of households in a certain area. If you're a multifamily investor interested in using a HUD 223(f) loan to acquire or refinance an affordable property-- or you want to take advantage of
HUD 223(f) Loans and Area Median Income (AMI)
Area Median Income, or AMI, is a statistic calculated by HUD that estimates the median annual income of households in a certain area. If you're a multifamily investor interested in using a HUD 223(f) loan to acquire or refinance an affordable property-- or you want to take advantage of LIHTC credits or the HUD Section 8 program, it's essential to know the AMI for the area in which your property is located. Doing so will help you calculate the maximum amount of rent that you can charge tenants, allowing you to make accurate financial projections regarding your potential investment.
Area Median Income and Low-Income Housing Tax Credits
Low-Income Housing Tax Credits, or LIHTCs, are one of the major financial incentives used to induce investors to create and maintain affordable properties. LIHTCs come in two varieties, 4% LIHTC credits and 9% LIHTC credits. Both types permit investors in low-income properties to claim a tax credit on their federal income taxes over a 10-year period. Since 9% LIHTC credits are usually only allotted for new construction properties, or properties undergoing substantial rehabilitation, HUD 223(f) borrowers typically only take advantage of 4% credits.
The LIHTC program usually requires investors to set aside at least 40% of the units in a development for tenants earning no more than 60% of AMI, (the 40/60 test). Or, alternatively, they must set aside at least 20% of the project units for tenants earning no more than 50% of the AMI (the 20/50 test).
Area Median Income and HUD's Section 8 Program
The HUD Section 8 program, which pays rental assistance subsidies to landlords, is another program used to encourage investors to keep their properties affordable. In many cases, maximum rents under the Section 8 program are based on a certain percentage of AMI. In other cases, they might be based on fair market rents (FMRs), another statistic calculated by HUD to help guide rent prices for affordable properties. While Section 8 landlords do enjoy getting payments from the government, the Section 8 program does require a significant amount of documentation and regular inspections. As a result, it might not right be for everyone.
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Related Questions
What is the Area Median Income (AMI) and how does it relate to HUD 223(f) loans?
Area Median Income (AMI) is a statistic calculated by HUD that estimates the median annual income of households in a certain area. It is used to calculate the maximum amount of rent that can be charged for a property when using a HUD 223(f) loan. This helps investors make accurate financial projections regarding their potential investment. Additionally, the HUD Section 8 program, which pays rental assistance subsidies to landlords, is another program used to encourage investors to keep their properties affordable. In many cases, maximum rents under the Section 8 program are based on a certain percentage of AMI. HUD releases a new set of statistics each year, so it is important to make sure you're using the most recent statistics when attempting to calculate the potential rent limits on a multifamily property.
What are the eligibility requirements for HUD 223(f) loans based on AMI?
HUD 223(f) loans require investors to set aside at least 40% of the units in a development for tenants earning no more than 60% of AMI, (the 40/60 test). Or, alternatively, they must set aside at least 20% of the project units for tenants earning no more than 50% of the AMI (the 20/50 test).
For more information, please visit https://www.huduser.gov/portal/datasets/il.html and /terms-qualifications-and-guidelines.
How does the AMI affect the amount of a HUD 223(f) loan?
The Area Median Income (AMI) affects the amount of a HUD 223(f) loan in two ways. First, the maximum loan amount is determined by the AMI of the area in which the property is located. HUD uses the AMI to calculate the maximum amount of rent that can be charged to tenants, which in turn helps investors make accurate financial projections regarding their potential investment. Second, the HUD Section 8 program, which pays rental assistance subsidies to landlords, is another program used to encourage investors to keep their properties affordable. In many cases, maximum rents under the Section 8 program are based on a certain percentage of AMI.
For more information on the terms of HUD 223(f) loans, please see the following sources:
- https://www.huduser.gov/portal/datasets/il.html
- /loan-facts
- /hud-223f-lihtc-pilot-program
- /hud-223f-faqs/hud-section-8
- https://www.huduser.gov/portal/datasets/fmr/fmrs/FY2019_code/select_Geography.odn
- https://www.multifamily.loans/apartment-finance-blog/hud-mip-mortgage-insurance-premiums-explained/
What are the advantages of HUD 223(f) loans for properties located in areas with high AMI?
HUD 223(f) loans offer many advantages for properties located in areas with high AMI (Area Median Income). These include:
- High leverage - Up to 85% LTV for market-rate properties, 87% LTV for affordable properties, and 90% LTV for properties using rental assistance.
- Low interest rates - Fixed for the life of the loan, including a mortgage insurance premium (MIP).
- Lenient DSCR requirements - 1.18x for market-rate properties, 1.15x for affordable properties, and 1.11x for rental assistance properties.
- Longer amortization periods - 35 years versus 30 years, offering lower monthly payments than other loans.
- Non-recourse and fully assumable loans.
- No geographic restrictions - Available for multifamily properties in all 50 states in the U.S. and several U.S. territories.
- Funds available for repairs and improvements.
- Supplemental financing available.
- No financial capacity requirements.
- No population requirements.
For more information on the benefits of HUD 223(f) loans, please visit www.hud.loans/hud-loans-blog/hud-223f-benefits and www.hud223f.loans/hud-223f-faqs/hud-223f-pros-and-cons.
How can I find out the AMI for a specific area?
You can find the AMI for a specific area by looking at the statistics published by HUD. HUD releases the AMI for areas across the USA every year, and provides a chart listing the AMI for all major cities and urban areas throughout the U.S. You can find this chart here. Additionally, HUD also provides a dataset of income limits for families within a specified region, which can be found here.