Money & Finance

10.28.2018 | 2 Minute Read | By A.D. Thompson

The current real estate climate is the stuff of dreams for landlords. It’s likely you’re seeing new rental housing communities going up at an alarming clip, as interest rates rise and those looking to get a mortgage see that goal slipping just out of reach.

Similarly, salaries are flat, which means finding affordable rent can be daunting, particularly in hot neighborhoods. Those with concerns may have an ace up their sleeve – Section 42 housing.

What is Section 42 housing?

First off, it’s not Section 8 – of which you may already be familiar. Both have eligibility requirements, but from there, they branch off in different directions.

Unlike Section 8, Section 42 is not a government-subsidized program, but instead is known as a “housing tax credit program” that benefits builders and real estate developers who agree to devote space in their communities to affordable housing. In exchange, they receive a federal tax credit.

Properties financed under Section 42 are required to house a percentage of residents earning less than 60 percent of the area’s median income, capping qualified participants’ rent at a fixed amount.

Am I eligible?

You’ll have to apply to find out. Information required on the application will include data such as income, financial assets and family size.

The maximum income you can earn to qualify for Section 42 apartment units is determined by the number of people in your household and your gross income. Gross income is what you make before taxes and deductions. The Department of Housing and Urban Development creates these formulas and qualifying income levels vary, depending on where you live.

Once it has been determined that you’re eligible, the landlord or property management company will run your application as with any other tenant – standard screenings, background checks, references, etc. will apply. Note, as income and family-size can vary from year to year, Section 42 requires recipients to reapply before receiving a new apartment lease.

Communities that participate

Apartment owners are in control of their properties – they decide whether the complex will be a mixed-income community. Hence, some properties offer a portion of their units for Section 42 housing, while the rest rent at market rates. Rates for both (the latter is decided by HUD) are determined by the median income for the area.

In areas with notoriously high rents, the Section 42 affordable housing program is exceptionally beneficial, since each county and metropolitan area determines its own income and rental limits. This means in a high-income city – Los Angeles or New York, for example – a developer can qualify for tax credits while building apartment communities that will command very high rents.

At the same time, tenants that would never be able to afford this community – but still make too much to qualify for Section 42 in another city, could find themselves eligible for the rent cap Section 42 affords.

How can I apply?

Locate a community that offers Section 42 units by visiting the HUD website. Select your state, then your city or zip code to get a list of properties that offer Section 42 housing. This will include all the necessary information you’ll need to get started. Each community’s on-site management will be able to supply and initiate your application.

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