What is Section 8 Housing?
Section 8 is a U.S. government housing program managed by HUD that allows for the payment of rental assistance subsidies to landlords across the country. Right now, more than 4.8 million households use some form of Section 8 program assistance. For projects using HUD 221(d)(4) financing, having Section 8 rental assistance units can lead to a variety of financial benefits.
Section 8 Benefits for HUD 22(d)(4) Loan Properties
There are several major financial incentives for incorporating Section 8 housing into a HUD multifamily development project. Primarily, properties using Section 8 can take advantage of significantly more lenient LTV and LTC requirements. Certain projects are allowed up to 90% LTC/LTV. Plus, Section 8 and new money LIHTC projects also benefit from a reduced MIP of 0.45%.
Limitations of Section 8 for HUD Multifamily Developers
While Section 8 has many benefits for owners/developers, it's not for everyone. Unlike non-Section 8 properties, landlords are prohibited from charging tenants more than fair-market rents (FMRs). Landlords also cannot charge rents that are above a certain percent of the location's area median income (AMI). Plus, owners/developers are typically not allowed to take payments outside the Section 8 program. In addition, Section 8 projects are often subject to more government inspections and documentation requirements, which some developers may find tedious.