Section 42 Housing: A Guide to Eligibility, Benefits, and How to Apply

Section 42 housing provides affordable rental opportunities for low- and moderate-income households through federal tax credits offered to property developers. To qualify, your household income must typically be between 30% and 50% of your area’s median income (AMI), a figure determined annually by the U.S. Department of Housing and Urban Development (HUD). This program is distinct from other forms of rental assistance, such as Section 8, and offers stable, below-market rent in often high-cost rental markets.

What Is Section 42 Housing?

Created by the Tax Reform Act of 1986, the Section 42 program, officially known as the Low-Income Housing Tax Credit (LIHTC), incentivizes private developers to build and maintain affordable housing. Instead of a direct subsidy to tenants, the subsidy is a tax credit granted to the property owner. In exchange, the landlord agrees to set aside a number of units and rent them at restricted, affordable rates to eligible tenants. These properties must comply with strict habitability standards and undergo regular inspections to maintain the tax credit.

Who Qualifies for Section 42 Housing?

Eligibility is primarily based on two factors: your household's annual gross income and its size, measured against the local AMI.

• Income Limits: Your income must be at or below the set percentage of the AMI for your county and household size. For example, if the AMI for a family of three in your county is $60,000 and the program uses a 50% limit, your household's annual income must be at or below $30,000.
• Asset Limits: While personal belongings like furniture and a primary vehicle are not counted, HUD may place limits on assets that generate income, such as savings accounts, stocks, or bonds. The specific thresholds vary by location.
• Other Factors: Legal residents, permanent residents, and naturalized citizens are generally eligible. Landlords will also conduct standard tenant screening, which may include a review of rental history and a criminal background check.

Based on our experience assessment, you will need to provide documentation for verification, including tax returns, pay stubs, and bank statements. You must also recertify your eligibility annually, and report any changes in income or household size to your property manager immediately.

How Is Income Calculated for Section 42?

The calculation is standardized but varies by geographic area. The core formula is:

Percentage of AMI x Area Median Income = Maximum Eligible Income

For instance, in an area where the AMI for a family of four is $80,000, the 50% income cap would be calculated as follows: 0.50 x $80,000 = $40,000

This means a four-person household could not exceed an annual income of $40,000 to qualify. Most programs set a floor at 30% of AMI, with households below that threshold often referred to other assistance programs like Section 8. The table below illustrates how income limits can vary by household size for a hypothetical area with an AMI of $75,000.

What Are the Key Differences Between Section 42 and Section 8?

While both are federal affordable housing programs, they operate differently.

• Section 8 (Housing Choice Voucher): This program is for very low-income households. Tenants typically pay 30% of their adjusted monthly income toward rent, and a public housing agency (PHA) pays the remainder directly to the landlord. Tenants apply through their local PHA, and rent fluctuates with income.
• Section 42 (LIHTC): This program targets low- to moderate-income households. The rent is a fixed, below-market rate set by HUD guidelines, not directly tied to a tenant's fluctuating income. Tenants apply directly through the property manager of a participating apartment complex.

A Step-by-Step Guide to Applying for Section 42 Housing

1. Assess Your Eligibility: Calculate your total household income and compare it to the current HUD AMI limits for your county.
2. Locate Properties: Search for LIHTC or income-restricted properties in your desired area. Your local housing authority website is a valuable resource.
3. Gather Documentation: Prepare necessary documents, including government-issued ID, Social Security cards, proof of income (recent pay stubs, tax returns), and asset statements.
4. Submit an Application: Apply directly with the property management company. Complete the application accurately to avoid delays.
5. Complete the Process: If you meet the criteria, you will proceed through the landlord's standard screening and lease-signing process.

What Are the Pros and Cons of Section 42 Housing?

Benefits:

• Affordable Access: Provides access to housing in neighborhoods that might otherwise be unaffordable.
• Well-Maintained Units: Properties are required to meet specific quality standards to maintain their tax credit status.
• Rent Stability: Rent is a fixed, predictable amount rather than a percentage of your income that can change frequently.

Considerations:

• Limited Availability: There is often high demand and long waiting lists for these units.
• Annual Recertification: You must provide updated financial information each year to remain eligible.
• Reporting Obligations: You must promptly report any changes in income or household composition.

Conclusion: Is Section 42 Housing Right for You?

Section 42 housing is a viable option for households that meet the income qualifications and seek stable, affordable rent. The key to a successful application is thorough preparation. Gather all required financial documentation, carefully review your local HUD income limits, and be prepared for the annual recertification process. For many, the benefit of predictable housing costs in a well-maintained property outweighs the additional administrative steps.