In many parts of the United States, housing is simply unaffordable for people with low income. Rents are sky-high in some areas and continue to increase. For anyone wanting to own a home, down payments are a barrier, and bank underwriting standards are strict.
The U.S. sets the affordability threshold for housing at 30% of income. Policymakers consider spending more than 30% is a burden to the household. The intent is to ensure families have enough money to spend on other expenses.
For those that fall into the housing-burdened category, there are resources available for low-income housing. These programs can help people that are looking to rent, as well as those that are looking to buy a home.
What Is Considered Affordable Housing?
To consider a family cost-burdened when it comes to housing it depends on the area where the person lives. The Housing and Urban Development (HUD) department of the government determines this amount for every region of the country every year.
The amount determined by HUD is called the Area Median Income (AMI). When HUD establishes AMI, households earning less than 80% of that amount are considered low income. Any households earning less than 50% are considered very low income, and anyone earning less than 30% is extremely low income.
There are different programs that help people find affordable housing based on the AMI in that area.
Public housing developments are owned and operated by the government or subsidies. HUD determines the amount tenants pay in rent based on a formula. Those in either 50% or 80% of the area’s AMI may qualify for public housing.
Section 8 Housing
Unlike public housing, Section 8 housing is privately owned. People who are low-income are given vouchers by HUD that they can use to pay rent. 30% of the tenants’ income goes toward the rent, and the voucher covers the rest.
Qualifying for Low-Income Housing
In order to apply for housing assistance, families need to apply at their local public housing location or HUD office. They will need to provide proof of eligibility.
Everyone in the household will need to provide personal information, such as names, dates of birth, and relationship to the applicant. The applicants will need to submit income information, such as pay stubs or tax returns. The government does not review credit history.
Individuals may also need to pass a criminal background check and show proof of U.S. citizenship or legal residency. HUD further restricts people with evictions for drug-related criminal activity. For public housing, the housing authority may interview the family.
Low-Income Housing for Rent
Section 8 housing can have long waiting times, up to several months. Even people who are eligible may not receive Section 8 housing. If accepted, the next step is to find an apartment using resources such as the Affordable Housing Search on HUD’s website.
Section 42 housing, or Low-Income Housing Credit Program, designates low-income rental housing for people below certain income levels. These properties could be both new construction or rehabilitated buildings. The properties can also have mixed-use, meaning that some units are for low-income tenants, and others are offered at the market rate.
The Public Housing Authority (PHA) usually operates public housing. Older PHAs were constructed with federal funds. However, now PHAs sometimes partner with private investors and developers to build dwellings in exchange for tax credits and equity.
Low-Income Housing Tax Credit
In order to maintain affordable housing, the government created the Low-Income Housing Tax Credit (LIHTC) in 1986. The credit incents private companies to invest in affordable housing through a dollar-for-dollar reduction in tax liability.
Requirements are that the housing remains affordable for at least 30 years. Investors receive their credit over a 10-year period. Projects must set aside a certain percentage of their units for low-income tenants in the area.
Cities, towns, and counties have project-based vouchers or other rental assistance for the units in LIHTC developments. These further help individuals and families who need more assistance.
Low-Income Options to Buy a Home
It is also possible to buy a home with low income. While traditional bank loans have requirements for debt-to-income ratios and credit scores, other programs are available to help low-income people become homeowners.
Low-income home loans often have below-market interest rates and monthly payments. They may also offer discounts on mortgage insurance. Some of the programs require homeowners to go through a first-time homebuyer education course.
While each program has different eligibility requirements, there are several to explore.
United States Department of Agriculture (USDA) Home Loans require no money down and can provide 100% financing.
Veterans Affairs (VA) Home Loans require no minimum credit score or down payment and are specifically for military families.
Federal Housing Administration (FHA) Home Loans are easier to qualify for than other programs. Generally, FHA loans approve borrowers with lower credit scores and higher levels of debt.
HomeReady and Home Possible Loans require just 3% of the purchase price as a down payment for a home.
Manufactured and mobile homes are affordable housing options. Traditional bank loans can provide financing.
Down payment assistance programs are grants or loans to people in underserved or redevelopment areas. These can be offered by charities, government agencies, employers, and other sources.
Explore Low-Income Housing Options
Housing is more than a basic need for shelter. Affordable housing impacts life outcomes for families. It can improve overall health, access to education, and employment opportunities.
Low-income housing provides options by making housing more affordable in the area. Low-income families can review the different options and find the one for which they are eligible and makes the most sense for their situation.