What is Area Median Income (AMI)?
Area Median Income, or AMI, is a statistic published by HUD that estimates the median wealth of households in a specific area. AMI is used to determine qualifications for a variety of housing programs, including Section 8 programs. It is also used to determine eligibility for LIHTC credits.
Area Median Income and LIHTC Credits
The LIHTC, or Low Income Housing Tax Credit program, which allows developers to get a 10-year tax credit, requires that they allot 40% of the units in a development for tenants earning less than or equal to than 60% of AMI, (the 40/60 test). Or, they must allot 20% of the units in a projects for tenants earning less than or equal to 50% of the AMI (the 20/50 test).
Area Median Income and HUD 221(d)(4) LTV Requirements
Depending on the amount of affordable or low-income units your development has, you may be subject to different loan-to-value (LTV) ratio requirements for a HUD 221(d)(4) loan. For example, market rate properties are allowed a maximum 85% LTV, affordable properties are allowed a 87% LTV, and properties with 90% or more low-income units are allowed a maximum 90% LTV.
However, to determine what "affordable" or "low-income" is in your specific area, you'll need to determine both:
The AMI for that area
The specific percentage of AMI that's considered acceptable to qualify for an affordable or low-income designation
To clarify, these are two different things.
How Often Is Area Median Income Changed?
Since economic and monetary factors, like inflation, can constantly change an area's income, HUD releases a new set of statistics each year. Therefore, you need to make sure you're using the most recent statistics when attempting to calculate the potential rent limits on a multifamily property.