Qualifying Multi-Family CD Loans

I am struggling in qualifying these loans and feel like I am missing something. It is my understanding that in order to qualify the proposed rents need to fall below HUDS fair market rents AND be at the affordable rent threshold is that correct? The reason I am questioning is I have 2 apartment complexes located in a low CT, according to their rent rolls the lowest rent rate is $695 and highest is $1,225.00 The AMFI for the area is $82,000.00 so based on my calculations the affordable rent threshold is $1,640.00. Then doing the calculations on the income needing to afford it that essentially for the $695 the qualifying income was $27,800 and for the $1,225 the qualifying income was $49,000.00. But when I go and look at the FMR's the rates are lower (low - $597.00 & high - $875.00 so now this won't qualify? I feel like I might be missing something. This is a $5 million loan so would be nice to get this to qualify. My calculations are below for reference.


AMFI - $82,000.00
($82,000.00 x .80) x .30 / 12 = $1,640.00 (affordable rent threshold)

Lowest Rent Rate - $695.00
($695 x 12) / .3 = $27,800.00
$27,800.00/$82,000.00 = 33.90%

Highest Rent Rate = $1,225.00
($1225 x 12) / .3 = $49,000.00
$49,000.00/$82,000.00 = 59.75%

To clarify - you are pulling the Fair Market Rents from the HUD website for the respective county? As a FDIC bank, our examiners have been okay with us just showing the Fair Market Rents for that county. Are there any rents based on the rent roll that qualify? For example, we had one project where only the one-bedrooms met the FMR data for the county. The one-bedrooms made up 30% of the total units. Our examiners pro-rated our credit based on the 30%. We only provide the HUD data for our exams.

Yes from the HUD website. And no all of the FMR's from the HUD website are all below the rent rolls for the apartment complex. Just seems strange to me that it could qualify as affordable (via the calculation) but since the FMR's are lower it will no longer qualify. Just wanted to make sure I was understanding it correctly.

RookiE - I think it depends on the type of census tract the apartments are in. Some, if not most FDIC examiners require HUD fair market rents if the CT is middle or high income. If the CT is LMI, then you do the calculation.

This is another one of those areas where the practice in the field can be inconsistent. If you don't have information about the tenants income then there are some proxies you could use (nothing is guaranteed to be accepted by examiners however). I would suggest you get the income demographic for the tract population (not the tract - the tract population). Say 30% of the families in the tract are low-income and 45% are moderate-income, you could claim that there's a good probability that the majority (75% of the tract population qualifies as LMI) of the tenants are LMI families unless this is some upscale apartment (which it doesn't sound like based on the rents). Part of the problem is affordable rent for tenants at the high end of the moderate-income range may not be affordable to someone in the low-income class. BTW, affordable multifamily housing is the one exception when you can get pro-rata credit for community development under CRA.

Since the complex is in a low-income tract it also may qualify for "revitalization/stabilization" recognition since it is attracting or retaining people to the area.

Thank you both.

On another loan I am trying to qualify it is secured by several properties. 4 of the 12 properties are multi-family, located in a moderate income CT and would be affordable based on my calculation. I was going to try and and figure out how I can get pro-rate credit on this but am stuggling as the other 8 properies are a mixture of bare land, 1-4 family and a commercial business. Hard to base on number of units etc. I then thought (it was a stretch) to base on value and asked for the appraisal but they appraised all properties together. Any other ideas?

I have a similar situation. Property in a moderate income tract. Rents S-$1100, 1 BR $1300, 2BR $1600.
HUD fair market is $723, $757 and $977. So by that measure the rents don't make it.

But the 2020 estimated tract median family income for the tract is $60,222.

30% of $60,222 / 12 = $1505.
So does that mean the studio and 1 BR are under and therefor the loan can be pro-rated for part credit based on some of the units?

the property was already qualified for historic tax credits.

The income class of the borrower or tenant as determined under CRA does not relate to the median family income of the tract. It relates to the EMFI of the MSA or statewide non-MSA in which the dwelling is located which becomes the divisor. So the rent would be divided by that number and the result would tell you if the rent is "affordable" for a tenant within the low- to moderate-income range.