All over the country, it seems that the need for affordable housing is greater than ever. Between rising rents, financial difficulties, and even a global pandemic, more households are at risk than at any time in recent memory. When low-income families and individuals think of rental assistance programs, they normally think of public housing or Section 8 vouchers, both of which involve a lengthy application process and typically long waiting lists. However, the federal government offered another affordable housing program known as Section 42 housing, and not only does it provide quality, low-cost rental housing for people with low-income levels — it also incentivizes developers to create more affordable rentals for people who need them. But what, exactly, is Section 42? Here’s what you need to know about it.

Section 42 Explained

The Section 42 housing program is perhaps better known by its other name: the Low Income Housing Tax Credit Program, or LIHTC. Under this program, the IRS tax code provides a federal tax credit allocation to developers of rental properties. To be eligible for the LIHTC, the apartment community must allocate a portion of its total units as low-rent housing for people who earn less than a certain percentage of the area median income (AMI) — usually set at less than 60 percent, but which may vary based on the cost of living for the area. The amount of rent on these units is set by the local office of the U.S. Department of Housing and Urban Development (HUD) and is capped based on the AMI of the region. Renters’ eligibility for Section 42 housing is determined by the local housing authority based on total household income and family size.

How Does Section 42 Differ from Section 8?

The difference between Section 8 and Section 42 is based mainly on how housing is subsidized. Under Section 8, also known as the Housing Choice Voucher Program, eligible renters pay no more than 30 percent of their monthly household income, regardless of the rental market rate; the government pays a subsidy to the landlord to make up the difference. Under Section 42, rent rates are set at a fixed amount determined by the local HUD office. In return for the capped rent, property owners receive the tax credit on their annual tax return according to the Internal Revenue code.

On the tenant side, qualifying for Section 42 also tends to be a little easier than qualifying for Section 8. Housing voucher applicants must apply at the local housing authority, meet strict maximum income requirements, and usually sit on a waiting list for a year or more. Section 42 housing generally allows for higher income limits, and while the local housing agency still determines eligibility, prospective tenants apply directly at the leasing office of the property.

How to Apply for Section 42 Housing

Applying for Section 42 housing works similarly to filling out a standard rental application, but with some additional questions and income verification to determine whether you meet eligibility requirements. Your first step is to find a Section 42 apartment community in the area where you live (or wish to live). The local housing agency typically keeps a running list of these properties. You will then go directly to the leasing office of the apartment community to fill out the application.

Income and Asset Verification

Eligibility for Section 42 housing is based on a combination of your total gross income (before taxes) and the number of people in your household. To that end, the Section 42 rental application will consider all possible sources of income and your current financial assets. These may include:

  • Proof of current income from a job (e.g., pay stubs, tax returns)
  • Cash on hand (checking and savings accounts)
  • Child support and/or alimony payments
  • Social security
  • Pensions
  • Inheritance and/or trust funds

You’ll be asked to verify all sources of income you receive. You may also be asked about your student status, as having too many full-time students in the household may affect your eligibility.

In addition, the management company may also perform the standard checks to determine whether you are a qualified renter, including background checks, credit history, rental history, and references.

Once your maximum income has been verified and you have been approved for Section 42 housing, you’ll need to go through an annual recertification process to make sure you still meet the maximum income requirements. The HUD office may adjust rent rates from time to time, but your rent will not go up during the course of your lease.

Olympia Management is pleased to offer a broad selection of Section 42 housing options in cities and towns across the southeastern United States. We are happy to discuss our current availability and answer any questions you may have. To learn more about affordable housing options in your area and how you might qualify, give us a call at 256-894-2382.