In the current economy, the price of rent, especially in big cities, continues to rise. This has led to an increased need for affordable housing. Most people with low-income jobs experience difficulty when trying to get an affordable apartment. Luckily, there are apartment complexes and communities available that provide affordable housing for low-income families. Affordable housing is available mainly due to subsidies by both local and federal government agencies.
Apartments that are available for reduced or subsidized rental rates are referred to as income-restricted apartments. These apartments have income caps that are used to determine the eligibility of tenants. The income caps are placed to enable low-income families to find affordable housing. Below are 7 things you need to know before renting an income restricted apartment.
Table of Contents
1. Property eligibility
Income restricted apartments are generally privately-owned developments designed for low-income renters. These properties are funded by local and national governments as well as nonprofit agencies. This housing program is part of the U.S. Department of Housing and Urban Development’s (UHD) initiative for affordable housing. For properties to be eligible for this program, there are certain requirements that need to be met.
Many properties are eligible for this program. However, there is a wide variety of properties competing for credits and government compensation. However, there is a limited number of credits available since they are allocated depending on the population of the state. This makes the competition for credits to be very tight.
For a property to qualify for the Low-Income Housing Tax Credit (LIHTC), the property must meet one of the following conditions:
First, at least 20% of the rental units should be rented by tenants earning 50% or less of the median gross income of the area. This is also based on the size of the household. Second, 40% or more of the rental units should be rented to tenants earning 60% or less of the median gross income of the area based on the size of the household. Finally, no apartment units should be rented to tenants making 80% or more of the median gross income of the area.
The properties that qualify for this program should continue to meet one of the criteria listed above for a period of at least 15 years. If a property does not meet the above requirements in a given year, the value of the tax credit will be recaptured by the local or the national government.
2. Criteria for tenant eligibility
As most landlords and property managers usually do, the landlord of an income restricted property has to make sure that you can afford to pay the rent continuously. However, since these apartments are subsidized by the government or by a nonprofit organization, your landlord will also have to verify your income to ensure that your income matches the requirements of an income-restricted apartment.
Most income restricted property landlords will screen their tenants to determine whether or not they are eligible to stay in their apartments. The screening process is done to ensure that you meet all the requirements to rent the apartment.
When applying for the apartment, there is no need of signing a special lease. Landlords are not required to give their low-income tenants a special lease. However, your lease may include an addendum containing clauses specific to the low-income housing program. For instance, your lease may require you to cooperate with your landlord who is supposed to rectify and verify your income annually for each year you are a tenant in the property. Also, your lease may contain a clause stating that if your landlord learns that you knowingly falsified or gave incomplete information about your income during the application process, they could terminate your lease.
You will also be required to submit a credit report which will be reviewed. It is important to ensure that you have a good credit report since your application may be rejected if you have a poor credit report. Your rental history with previous landlords will also be checked. If your relationship with your previous landlords was terrible, you may become ineligible. In addition, your criminal records will also be checked. This is to help to minimize the risk of renting a unit to a possible criminal. If you have a criminal record, a history of alcohol and drug abuse, and violence, you may also be rejected as a qualifying tenant.
The number of people in your household could also affect your eligibility for a low-income apartment but indirectly. As previously mentioned, the total income in your household should be less than the area median gross income (AMGI). This total income is based on the size of your household.
3. Income restricted apartments aren’t public housing
Income-restricted apartments should not be confused with public housing. These apartments are owned by private landlords. With public housing, the government owns the building you are living in or the building is run by a government housing authority. The government, therefore, is your landlord. In some cases, a private company could manage the property but a government-run housing authority still owns the property. The rent of a public housing apartment is usually calculated based on the annual income of the resident. The rent is income-based, meaning that the rent you pay for your apartment differs from what your neighbor living in an identical apartment pays. Most public housing residents pay 30% of their adjusted gross income.
4. Income restricted apartments often look like more expensive apartments
Income restricted apartments are apartments available at a price lower than the market value for low-income individuals. In most cases, you may not even be able to differentiate a market value apartment from an income restricted apartment. These apartments are basically similar both inside and outside. These apartments are actually more common than many people realize. Most rental companies may even offer an income-restricted apartment and a market value apartment side by side. This means that the person living next to your market rate apartment could be living in an income-restricted apartment. If you are looking for a tax credit apartment, you just have to know where to look for one and ask.
5. How to find an income-restricted apartment
To find an income-restricted apartment, you have to start with the Public Housing Authority in your local area. This government institution maintains the local housing program overseen by the U.S. Department of HUD. The HUD sets the standards for low-income housing. This standard is set based on the median income of your area. The local Public Housing Authority will then take your application for an income-restricted apartment and provide you with a list of eligible apartments available for rent. Your caseworker will help you get the best housing options based on the urgency of your situation, your income, and the size of your family. However, it should be noted that most of these apartments have waitlists.
6. How rent is determined
The rent rates of an income-restricted apartment are calculated differently when compared to the rent rates of an income-based apartment. With income-restricted housing, the monthly rent is based on the location and the percentage income of the area. The rental market rates are also taken into account as well as the actual size of the apartment. The rent of an income-restricted apartment is not allowed to exceed the market value of apartments in the area. The rents, however, can be fluctuated and adjusted.
The rent in a tax credit apartment is usually based on the number of bedrooms and the size of the apartment. The rent is usually calculated under the assumption that each bedroom accommodates 1.5 occupants, or only one occupant if the apartment is a studio. For instance, the rent of a two-bedroom apartment would be based on the three occupants in the apartment.
The amount of rent paid is subsidized by the government to allow the low-income tenant to pay. The difference between the market value of the apartment and the quoted rental rent is paid by the government to compensate the landlord.
With income-based housing, on the other hand, the rent of the apartment is not based on the market value of the property but on the income of the residents. The monthly rent of the apartment is determined by the U.S. Department of Housing and Urban Development (HUD), by calculating 30% of the adjusted gross income of the tenant. The difference is then paid by the government to compensate the landlord.
7. Common misconceptions
Most people usually have negative thoughts when thinking of income restricted apartments. Most people fail to understand that these projects are aimed to help individuals with low income to have a home. Income restricted apartments allow low-income families to thrive financially in an area where the cost of living is beyond their means.
It is therefore important to change your perception when it comes to income restricted apartments especially if you are looking for cheaper rentals.
Common misconceptions regarding income-restricted apartments include:
1. Income restricted apartments are in bad areas
A lot of people usually assume that income restricted apartments are located in areas that are aesthetically unpleasing with high crime rates. In reality, however, some income restricted apartments are exceptionally nice and are located in safe areas and are available for renters with low incomes. In fact, most income restricted apartments are located in the same building or close to non-restricted apartments. Differentiating them from market rate apartments could even be impossible.
2. People want to leave income restricted apartments
Income restricted apartments are often assumed to be unpleasant that would be chosen as a last resort and that people can’t wait to move out of the apartments. This couldn’t be farther from the truth. The negative connotations that are associated with income restricted apartments make most people unable to notice that more people are actually trying to move into the apartments instead of moving out.
Income restricted apartments are actually very attractive. They allow families with low-incomes to have some wiggle room financially after paying their rent. In actual sense, the families living in these apartments are reluctant to move out since the apartments allow them to thrive financially. They get to have a roof over their heads and are still left with money to live and handle other financial responsibilities.
3. The demographic is primarily people of color
Another common misconception is that income restricted apartments are primarily occupied by people of color. Although African Americans make up the largest percentage of people who require rental assistance, Caucasian Americans come in at close second. These apartments are actually diverse with different types of people occupying them. The occupants of these apartments are there because of their financial situation.
The people living in these apartments include students, seniors, and families with children. These apartments aren’t built for a specific type of people. The main factor which is considered when applying for low-income apartments is not the color of your skin but the amount of money you make. They are for all people who have low incomes.
Income restricted apartments and other affordable housing programs can be a life-line for households with low income. However, you will have to go through an application process to determine your eligibility and possibly get on a waiting list before you are allocated an affordable housing unit. Income-restricted apartments are very convenient, especially in cities with high rent rates, as it can make housing very affordable. This improves the quality of life of low-income families. Before applying for an income restricted apartment, you first have to check the HUD guidelines to see if you are eligible. You should then contact your local PHA to apply. You should have your documents in order when applying and you should also be ready for a criminal background check. Also, you should avoid the misleading misconceptions associated with income-restricted apartments. They are actually safe spaces to live that provide low-income tenants with the opportunity to thrive financially.