Rent Rules Under Final HOME Rule

Rent Rules Under Final HOME Rule

The final HOME rule changes the HOME Program rent determination rules. One change permits the use of a PHA utility allowance for HOME units. The second and more significant change allows owners to collect more than the HOME rent for tenants who receive project-based rental assistance - even if the resident lives in a High HOME unit. The rules for establishing rent for a HOME unit are as follows: High HOME Rent Limits: The rent must not exceed the lesser of the fair market rent for comparable units in the area or 30% of the adjusted income of a family whose annual income equals 65% of the median income for the area. Low HOME Rent Limits: In rental projects with five or more HOME-assisted units, at least 20% of the units must be occupied by very low-income families. The rent for these units must not exceed 30% of the annual income of a family whose income equals 50% of the median income for the area, or the rent contribution of the family must not be more than 30% of the family s adjusted income. Alternatively, if the unit is LIHTC, the rent must not exceed the gross rent for rent-restricted residential units as determined under 26 U.S.C. 42(g)(2). SRO Projects: The rent limit for SRO units with both sanitary and food preparation facilities is the zero-bedroom fair market rent. The limit for units with only one or neither of these facilities is 75% of the zero-bedroom fair market rent. Utility Allowances: The participating jurisdiction must establish maximum monthly allowances for utilities and services (excluding telephone, cable, and broadband) and update them annually. The utility allowance can be based on the HUD Utility Schedule Model, the local public housing authority s utility allowance, or another HUD-approved method. Note the change from the prior HOME rule, which did not permit using the PHA allowance. Review and Approval of Rents: The participating jurisdiction must review and approve rents proposed by the owner to ensure they do not exceed the rent limits minus the utility allowances. Subsequent Rents During the Period of Affordability: The HOME rent limits are recalculated periodically, and the participating jurisdiction must provide project owners with updated rent limits. Owners must annually provide information on rents and occupancy of HOME-assisted units to demonstrate compliance. Adjustment of HOME Rent Limits for an Existing Project: HUD may adjust the HOME rent limits for a project if necessary to support the continued financial viability of the project. Relation of Tenant Income to Rent: Each tenant's income must be determined initially and annually during the affordability period. However, the participating jurisdiction may permit an owner of small-scale housing to re-examine each tenant s annual income every three years instead of annually. The tenant s income will determine the rent that may be charged. Over-Income Tenants: If a tenant s income increases above the low-income (80%) limit, the tenant must pay a rent equal to the lesser amount payable under State or local law or 30% of the family s adjusted income. A tenant may pay more than the maximum HOME rent in the following situations: If the tenant participates in a rental assistance program and contributes no more than 30% of their monthly adjusted income or 10% toward rent, the maximum rent due from the tenant is their contribution under that program. Unlike the prior rule, this now applies even to High-HOME units. If a tenant's income increases above the low-income (80%) limit, the tenant must pay a rent amount equal to the lesser of the amount payable under State or local law or 30% of the family's adjusted income. For tenants in HOME-assisted units subject to rent restrictions under section 42 of the Internal Revenue Code (LIHTC units), the rent must comply with those restrictions. For floating HOME units, the rent must not exceed the fair market rent for comparable, unassisted units in the neighborhood. These revised rent rules go into effect for HOME projects on February 5, 2025.

Understanding Security Deposits and Fees in HOME Rental Projects

The Final Rule for the HOME Investment Partnerships Program (HOME), effective February 5, 2025, establishes specific rules regarding security deposits and fees that property owners and managers must follow. These regulations are designed to protect tenants while maintaining fair housing practices. Below, we outline the key aspects of these guidelines. Security Deposits: Key Requirements Refundable Nature and LimitsSecurity deposits must be fully refundable and cannot exceed the equivalent of two months' rent. This ensures that tenants are not overburdened financially. Prohibition of Surety BondsThe use of surety bonds, security deposit insurance, or similar instruments is strictly prohibited, whether as a replacement for or in addition to a security deposit. This regulation is especially relevant as such services gain traction in the rental housing industry. Deductions and RefundsUpon tenancy termination, owners must: Provide an itemized list of charges, specifying amounts for each item deducted from the deposit. Promptly refund the remaining balance to the tenant after deducting any valid expenses. Permissible Fees HOME regulations allow property owners to charge specific fees, provided they align with the following parameters: Application FeesOwners may charge a reasonable application fee. The definition of "reasonable" is flexible, depending on factors such as location, financing sources, and the type of background checks performed. Customary Parking FeesParking fees are permissible if they are customary for rental housing projects in the area. Fees for Voluntary ServicesOptional services such as bus transportation or meals can be charged, but participation in these services must remain voluntary for tenants. Prohibited Fees To safeguard tenants, HOME regulations explicitly prohibit: Charges for surety bonds or similar instruments in place of or in addition to security deposits. Non-customary fees such as those for laundry room access or fees to inspect units. Fees for addressing deficiencies caused by normal wear and tear or unrelated to tenant activity. Intersection with Other Housing Programs Property managers must also account for overlapping program regulations, such as the Low-Income Housing Tax Credit (LIHTC) program. For instance: While parking fees may be allowed under HOME, they may not comply with LIHTC guidelines if the parking space is included in the project s eligible basis. Best Practices for Compliance Stay InformedManagers should familiarize themselves with HOME and other applicable program rules to avoid compliance issues. Transparent CommunicationClearly outline all fees and security deposit policies in lease agreements to ensure tenants are well-informed. Record-KeepingMaintain detailed records of all fees collected and refunds issued to provide transparency and support regulatory audits. Property owners and managers can foster trust with tenants by adhering to these guidelines while ensuring compliance with HOME program regulations.

Understanding Income Determination Methods in the HOME Program Final Regulation

Understanding Income Determination Methods in the HOME Program The new final HOME regulation maintains specific income targeting requirements that necessitate accurate income determination for participating families. This article outlines the various methods and requirements for determining annual income under the HOME program's final regulation, effective February 5, 2025. Federal and State Subsidized Housing Units For HOME-assisted rental units that receive Federal or State project-based rental subsidies, participating jurisdictions must defer to the existing income determination processes: The public housing agency's determination The owner's determination The rental subsidy provider's determination Tenant-Based Rental Assistance When families receive Federal tenant-based rental assistance (such as housing choice vouchers) and apply for or live in HOME-assisted rental units, participating jurisdictions can (but are not required to) accept the rental assistance provider's income determination. Standard Income Determination Methods Participating jurisdictions must follow specific procedures for calculating annual and adjusted income for all other cases. The process includes several key components: Documentation Requirements For tenants in HOME-assisted housing without HOME tenant-based rental assistance, jurisdictions can use any of these methods: Examining at least two months of source documents (wage statements, interest statements, unemployment compensation statements). This method must be used to determine initial income. This method is also required every sixth year of the affordability period if the affordability period is ten years or more. In intervening years, the following methods may be used: Obtaining a written statement from the family regarding income and family size, with a certification of accuracy Securing a written statement from a government program administrator that verifies the family's annual income and size Jurisdictions must examine at least two months of source documentation for homeowners receiving rehabilitation assistance, homebuyers, and recipients of HOME tenant-based rental assistance. Income Definitions Participating jurisdictions must choose one of two definitions when determining income eligibility: Annual income as defined in 5.609(a) and (b). This is the Section 8 definition of income and will be used by most PJs. Adjusted gross income as defined by IRS Form 1040 series Important note: Jurisdictions must maintain consistency by using only one definition per HOME-assisted program or rental housing project. Income Calculation Considerations Family Composition and Income Projection When calculating family income, jurisdictions must: Project the prevailing rate of income at the time of eligibility determination. Include income from all household members except live-in aides and foster children/adults. Exclude income derived from the HOME-assisted project. Allow families to certify net family assets below the threshold for imputing income ($51,600 in 2025). Timing Requirements Income determinations are valid for six months. If more than six months elapse between the initial determination and the provision of HOME assistance, family income must be reexamined. Note how this timeframe differs from most other programs, which limit the age of income verifications to 120 days. Adjusted Income Calculations Participating jurisdictions must calculate adjusted income in three specific scenarios: For families receiving tenant-based rental assistance For tenants living in Low HOME Rent units subject to particular provisions. For over-income tenants requiring rent recalculation Special Considerations Participating jurisdictions are not required to calculate adjusted income independently for units assisted by federal or state project-based rental subsidy programs. Instead, they should accept the determination made by the public housing agency, owner, or rental subsidy provider under that program's rules. This comprehensive framework ensures consistent and accurate income determination across HOME program participants while providing flexibility to accommodate various housing assistance scenarios. Special Requirements for Small-Scale Rental Housing A small-scale rental project is a rental housing project comprising no more than four units. This includes single and scattered projects, as long as the total number of units does not exceed four. The definition is intended to provide flexibility and reduce administrative burdens for smaller rental housing developments while ensuring compliance with HOME program requirements. For small-scale housing, the final rule provides exceptions to the requirement for annual re-examinations of tenant income. Instead of annual re-examinations, tenant income must be re-examined according to the following schedule: Initial income determination must be conducted using source documents or a written statement from a government administrator. Triennial income re-examinations: Tenant income must be re-examined every three years during the affordability period. Sixth-year re-examination: A complete income re-examination using source documents must be conducted every sixth year of the affordability period. Additional re-examinations for projects with longer affordability periods: Year 9: For projects with a period of affordability greater than 5 years. Year 12: For projects with a period of affordability greater than 10 years. Year 15: For projects with a period of affordability of 20 years. Year 18: For projects with a period of affordability of 20 years. These exceptions aim to reduce the administrative burden on participating jurisdictions and owners while ensuring compliance with HOME program requirements.

Navigating the HOME Final Rule- Key Updates on Property Standards and Inspections

The U.S. Department of Housing and Urban Development (HUD) recently updated the HOME Investment Partnerships Program (HOME) Final Rule, emphasizing enhanced property standards and inspection requirements for participating jurisdictions (PJs). These updates aim to improve safety, accessibility, energy efficiency, and disaster resilience across affordable housing projects. New Construction Projects For new construction projects under the HOME program, the following standards are essential: Accessibility Compliance: Projects must comply with the design and construction requirements of 24 CFR part 8, Titles II and III of the Americans with Disabilities Act (ADA), and the Fair Housing Act. Energy Efficiency: Compliance with energy standards such as ASHRAE Standard 90.1-2019 for high-rise multifamily buildings and the 2021 International Energy Conservation Code for single-family and low-rise multifamily buildings is mandatory. Disaster Mitigation: New constructions must incorporate features that mitigate future disaster risks in alignment with state and local codes. Detailed Documentation: Construction contracts and documents must be sufficiently detailed to facilitate inspections. Broadband Infrastructure: Broadband installation is required for projects with more than four rental units unless it poses significant financial or logistical challenges. Detection Systems: Carbon monoxide and smoke detection systems must comply with HUD standards. Rehabilitation Projects Rehabilitation projects are subject to the following requirements: Code Compliance: All projects must meet applicable state and local codes or, in their absence, HUD s minimum property standards. Disaster Preparedness: Measures to mitigate future disaster impacts are mandatory. Inspection Documentation: As with new construction, detailed contracts and documents must support the inspection process. Detection Systems: Carbon monoxide and smoke detection systems are required, with allowances for battery-powered smoke alarms in specific cases. Green Building Standards: If the project's cost exceeds the maximum per-unit subsidy limit, it must meet green building standards. Acquisition of Existing Housing For existing housing acquisitions, specific standards apply: Recent Construction or Rehabilitation: Properties built or rehabilitated within 12 months before commitment must meet the respective standards. Safe and Sanitary Conditions: Homes intended for homeownership must be decent, safe, and sanitary, with inspections conducted no earlier than 90 days before commitment. Timely Compliance: Properties must meet standards at purchase or within six months of acquisition, which can be extended to 12 months if necessary. Combination Projects Combination projects that include rehabilitation and new construction must apply the respective standards to each component. Ongoing Property Condition Standards and Inspections To maintain compliance throughout the affordability period, ongoing requirements include: Code Adherence: Properties must meet state and local codes and HUD standards. Detection Systems: Carbon monoxide and smoke detection systems remain mandatory. Inspection Frequency:Initial and annual inspections for tenant-based rental assistance units.On-site inspections within 12 months of project completion and every three years thereafter. Increased inspection frequency for properties with health and safety deficiencies. Acceptance of Alternative Inspections: Inspections under other HUD programs or HUD-approved standards may be accepted. Inspection Procedures To ensure consistency and thoroughness, inspection procedures must include: Detailed Checklists: Inspection checklists and process descriptions. Training: Training and certification protocols for inspectors. Sampling Standards:At least four units must be inspected for projects with up to 20 HOME-assisted units.For projects with 21-130 units, 20% must be inspected. For larger projects, inspection sampling aligns with the NSPIRE methodology. Small-Scale Housing: Streamlined requirements for projects with 1-4 units to reduce administrative burdens. Conclusion The updated HOME Final Rule provides a robust framework to enhance the quality, safety, and sustainability of affordable housing projects. By adhering to these comprehensive standards and inspection protocols, participating jurisdictions can ensure that housing remains affordable, resilient, and livable for years to come.