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.