Low-income mortgages: What to know about the LIHTC program

It’s no secret that housing is expensive. These days most Americans spend more than half of their income on housing. If you’re making less than is typical for your area, the cost of rent or a mortgage can feel like a burden.

The low-income housing tax credit (LIHTC) is a tax credit offered by the federal government to help make housing more affordable for low-income families.

What is the low-income housing tax credit?

The LIHTC was created as part of the Tax Reform Act of 1986. Its aim is to help create affordable housing in the United States by providing state and local agencies with funding to cover credits for the construction, rehabilitation, or acquisition of housing for lower-income households.

In short, the tax credit helps people who want to build or buy a home for the express purpose of making it available to people with low incomes. It is not necessarily a program that low-income people can use to buy a house, but one that helps landlords and developers invest in providing low-income housing.

Who can take advantage of the low-income housing tax credit program?

The low-income housing tax credit program is not aimed at individuals who are looking to rent a home, though those are the people it is ultimately intended to help. Instead, it is developers who wish to offer affordable housing who can take advantage of the program.

For example, a developer who wishes to construct or buy an apartment complex that will contain affordable housing can use the tax credit to help cover some of the costs. Typically, there will be a requirement that a percentage of the units in the property be reserved for people at or below a specific income level.

Eligible property types include:

• Single-family homes
• Multi-family homes
• Apartment complexes
• Townhouses
• Duplexes

How to qualify for the low-income housing tax credit as an owner or developer

In order to qualify for the LIHTC, you must meet a few requirements. The two main tests you must pass are the income test and the gross rent test. Properties must pass both tests for at least 15 years to qualify, though many state housing agencies extend this to 30 years.

Income tests

The income test looks at the percentage of the units in the property that are set aside for low-income residents. There are three ways to pass this test:

• At least 20% of the project’s units must be occupied by tenants making 50% or less of the area’s median income (AMI) after adjustment for family size.
• At least 40% of the project’s units must be occupied by tenants making 60% or less of the AMI after adjustment for family size.
• At least 40% of the project’s units must be occupied by tenants making 60% or less of the AMI after adjustment for family size, and none are occupied by tenants with income greater than 80% of the AMI.

If the property meets any of these requirements, it passes.

Gross rent tests

The gross rent test places a limitation on the rent that a property owner can charge. Rent must remain below 30% of either 50% or 60% of the AMI depending on the percentage of units designated for low-income in the property.

For example, if the area median income for a family of 3 is $50,000, that means that 50% of the AMI for a family of three is $25,000. To meet the gross rent test, the property cannot charge more than 30% of $25,000, or $7,500, in rent for the year.

Since states allocate the tax credit through qualified allocation plans, properties that house very low-income families or provide affordable housing for a longer amount of time will get priority.

Qualifications to live in a low-income housing tax credit property

If you want to live in an LIHTC property, you will need to meet the income requirements so that the developer can meet the requirements to qualify for the credit.

Typically, that means that you’ll need to make less than 50% or 60% of your area’s median income for your family size. You can qualify whether you’re applying for housing as an individual or with a partner or dependents so long as your family remains below the income maximum.

There is also no requirement that you be a citizen of the United States to qualify. These properties look primarily at your income when determining eligibility.

How do you apply to live in an LIHTC program property?

If you qualify for low-income housing, you’ll need to find a property you’d like to live in and apply for a unit.

Find an LIHTC property

Finding an LIHTC property is the first step in getting low-income housing. The Department of Housing and Urban Development has an online search tool that you can use to locate properties. You can also contact (888) 995-HOPE for access to housing counseling services.

Only properties that have available units or open waitlists will accept applications, so even if you’ve found a property you’re interested in, you may not be able to apply. There are third-party services that offer assistance with learning when applications open, so if you really want to live in a specific property, consider using one of these tools.

Obtain and complete the application

Once you’ve found a property that you want to live in, the next step is to fill out an application. You’ll usually have to provide the following information:

• Employment history
• Income
• Age
• Rental history
• Whether you’ve had previous evictions
• Criminal record
• Number of people in your household
• References to verify the accuracy of the information

Keep in mind that providing false information can lead to a rejection of your application. If you have a disability and struggle to fill out the application, accommodations to help apply are available.

Submit the application

Finally, once you’ve filled out the application, you’ll need to submit it. Be careful to follow all of the instructions provided when submitting your application. For example, some properties may only accept online applications and reject any in-person submissions.

Disqualifiers for the LIHTC program

Meeting the income requirements is one piece of the puzzle when it comes to qualifying for low-income housing. There are other factors that could disqualify you from getting low-income housing.

For example, if you have a poor credit history, primarily in the form of late payments, or a poor rental history that includes missed payments or evictions, the developer may deny your application.

Lying or providing false information on the application, especially falsifying income records, or having a criminal history could also disqualify you.

What to do after applying for an LIHTC program home

Once you’ve applied for a spot in an LIHTC, it’s normal to feel anxious while you wait for a response. Keep in mind that it can take time to process applications, and some properties may be slower or faster than others.

If you don’t get an acceptance, your next steps depend on whether you were placed on a waitlist or denied.

What to do if you’re put on a waitlist

Getting waitlisted after applying for low-income housing is quite common. Keep in mind that getting affordable housing is a process and that there are a limited number of units that see a high level of demand.

Write down your confirmation number and place it on the list, and keep the record in a safe place. Check on your status periodically to make sure you’re still on the waitlist and to see if your number comes up.

It’s also important to update your application if any of the details on it change. For example, if your income changes or you have another child, update your application as quickly as possible. It’s also not unusual for properties to reach out to applicants for additional information, so be sure to respond to those requests as quickly as possible.

What to do if your application is denied

If your application for affordable housing is denied, you still have options. Most programs offer an appeals process and instructions for appealing will be included in the denial letter.

Usually, you’ll need to schedule a hearing with the housing program so you can discuss your application and the reason for denial. After the hearing, your denial may be sustained, or it may be overturned, giving you access to an affordable unit or placing you on a waitlist.

The bottom line: The LIHTC program makes housing accessible

The LIHTC program aims to make housing accessible and more affordable by helping developers build, buy, or rehabilitate properties that they’ll later rent to low-income people and families.

If you’re in need of affordable housing, use the HUD website to search for options in your area. Once you’re ready to start looking to buy a home of your own, you can start your mortgage application with Rocket Mortgage^®.