I live in a state that wasn’t part of the pilot for income banding, can you tell me how this will work with SHOP funds?

Sincerely, Income Banding Newbie


Dear Income Banding Newbie,

With the nationwide adoption of income banding and the two-tier income limit structure for USDA RD mortgages there is an important income-qualifying distinction to be made, regardless of the source of HUD funds (i.e. SHOP, CDBG, HOME) when layered with USDA RD funding. The use of USDA’s income banding to qualify your homebuyers for USDA mortgages (such as 502 Direct) is likely to result in non-compliance with the required income limits for HUD programs such as SHOP, HOME, and CDBG. Under these HUD programs, eligible homebuyer households must be low-income individuals and families whose annual incomes do not exceed 80 percent of the median income for the area as established by HUD with adjustments for household size. HUD does not employ a two-tier income limit structure (income banding), but rather the income limit structure is tied to the specific size of the homebuyer household.

To qualify for a USDA mortgage under this new rule, a family with between one and four people would need to have an income below HUD’s four‐person limit, and a family with between five and eight would need to fall below the eight‐person limit.

To be SHOP compliant, homebuyers of SHOP-funded properties must qualify under HUD’s HOME income limits for low-income based on household size.

It is expected that the majority of properties being acquired for sweat equity housing development will remain SHOP-eligible. If you have specific questions about layering HUD funds with 502 in your project, contact your HUD funder for answers.

Sincerely, Dear Sher

Dear Sher is a regular Self Help Builder News feature. If you have a question you would like answered or researched by Sher, please send it to asisco@rcac.org and your question may be featured in a future publication.