Area Median Income (AMI) is a statistic published by the US Department of Housing and Urban Development (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 and Low-Income Housing Tax Credits (LIHTC). Since economic and monetary factors, like inflation, can constantly change an area's income, HUD releases a new set of statistics each year.

AMI is used to determine the maximum loan-to-value (LTV) ratio requirements for a HUD 221(d)(4) loan. Depending on the amount of affordable or low-income units your development has, you may be subject to different LTV ratio requirements. 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. To determine what "affordable" or "low-income" is in your specific area, you'll need to determine both the AMI for that area and the specific percentage of AMI that's considered acceptable to qualify for an affordable or low-income designation. Sources: hud221d4.loan/hud-221-d4-faqs/ami-area-median-income, hud221d4.loan/hud-221-d4-faqs/what-is-the-us-department-of-housing-and-urban-development-hud, hud221d4.loan/hud-221-d4-faqs/section-8-hud-221d4, hud221d4.loan/hud-221-d4-faqs/lihtc-low-income-housing-tax-credits-in-relation-to-hud-221d4-loans

The income limits for HUD 221(d)(4) loans based on AMI depend on the amount of affordable or low-income units your development has. Market rate properties are allowed a maximum 85% Loan-to-Value (LTV) ratio, affordable properties are allowed a 87% LTV, and properties with 90% or more low-income units are allowed a maximum 90% LTV. To determine what "affordable" or "low-income" is in your specific area, you'll need to determine both the AMI for that area and the specific percentage of AMI that's considered acceptable to qualify for an affordable or low-income designation. For example, the Low Income Housing Tax Credit (LIHTC) program requires that developers 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).

AMI is calculated by the U.S. Department of Housing and Urban Development (HUD) and is based on the median income of a given area. HUD releases a new set of statistics each year, so you need to make sure you're using the most recent statistics when attempting to calculate the potential rent limits on a multifamily property. You can find more information about AMI and HUD 221(d)(4) loans here.

HUD 221(d)(4) loans offer up to 90% Loan-to-Value (LTV) for subsidized properties, up to 87% LTV for affordable properties, and up to 85% for market-rate properties. This is significantly higher than other loan products such as CMBS loans, which offer a maximum of 80% LTV (in exceptional situations), and life company loans which offer 75%, but more often only provide up to 65%. Freddie Mac and Fannie Mae typically offer 70% to 75% for fully amortizing, fixed-rate loans. HUD 221(d)(4) loans are also fully amortizing, fixed-rate loans.

In addition, HUD 221(d)(4) loans are based on Area Median Income (AMI). This means that the loan amount is based on the median income of the area in which the property is located. This can be beneficial for borrowers who are looking to purchase or refinance a property in an area with a lower median income, as the loan amount may be higher than it would be with other loan products. CMBS loans and other loan products are not based on AMI.

The main disadvantage of HUD 221(d)(4) loans based on Area Median Income (AMI) is that they are only available for certain types of projects. These projects must be for the purpose of providing affordable housing, and must meet certain criteria set by the Department of Housing and Urban Development (HUD). Additionally, HUD 221(d)(4) loans are more costly to originate than other types of multifamily construction loans, and take significantly longer to originate. This can be a deterrent for some developers and investors.

For more information, please see the following sources:

• HUD 221(d)(4) Benefits
• HUD 221(d)(4) Loan Program
• CMBS Loan Terms