Affordability Period: HOME and LIHTC Rules, Rents, and Duration

An affordability period is the span of years during which a housing unit that received federal or state subsidy must stay available to lower-income households at restricted rents. The length, the rules, and the penalties for breaking them depend on which program funded the property. The two you’re most likely to encounter are the HOME Investment Partnerships Program and the Low-Income Housing Tax Credit (LIHTC), and the restrictions travel with the property even after it’s sold.

How Long the Period Lasts

HOME Rental Housing

For HOME-funded rental units, the minimum period is tied to how much federal money went into each unit. Under 24 CFR 92.252:

Under $25,000 per unit: 5 years
$25,000 to $50,000 per unit: 10 years
Over $50,000 per unit, or rehabilitation involving refinancing: 15 years
New construction or acquisition of newly constructed housing: 20 years

The clock starts at project completion, not when the funding was awarded.¹

HOME Homeownership

Homeownership units follow the same per-unit dollar thresholds but cap out at 15 years rather than 20:

Under $25,000: 5 years
$25,000 to $50,000: 10 years
Over $50,000: 15 years

These periods control how long recapture and resale provisions remain enforceable against a homeowner who received down payment help or another HOME-funded subsidy.²

LIHTC Properties

LIHTC runs longer and offers less flexibility. The compliance period is 15 taxable years, beginning the first year the owner claims credits. After that, an extended use agreement keeps the property restricted for at least another 15 years, so the minimum total is 30. Many state housing agencies require longer terms as a condition of awarding credits in the first place.³

If a property’s qualified basis drops during the compliance period, the IRS can recapture previously claimed credits. The recapture amount includes the accelerated portion of the credits already taken, plus interest at the federal overpayment rate. That interest compounds for every year the credits were claimed, so a violation late in the compliance period costs far more than one early on.³

Who Qualifies to Live in the Unit

Eligibility rides on the Area Median Income figures HUD publishes each year for every metropolitan area and non-metropolitan county in the country. HUD calculates a median family income for the area, then adjusts by household size.⁴ Most affordable housing targets households at 50% or 60% of the local median; some units serve extremely low-income households at 30%.

Property managers verify income before signing a lease. That verification doesn’t end at move-in. HOME-funded rentals require annual income recertification. If a tenant’s income later rises above the limit, the unit can remain in compliance only if the owner fills vacancies with qualifying households, and the over-income tenant’s rent increases to the lesser of what state or local law allows, or 30% of the household’s adjusted income.⁵

LIHTC handles over-income tenants differently. A household doesn’t lose its low-income status simply because earnings grow after move-in, as long as the unit stays rent-restricted. The trigger is 140% of the applicable income limit. Once a household crosses that line, the owner must rent the next available comparable unit in the same building to a qualified tenant. Miss that step, and every over-income unit of comparable size in the building loses its low-income designation, which can jeopardize the project’s minimum set-aside and trigger credit recapture.⁶

What Owners Can Charge

HOME Rent Limits

HOME sets two tiers of maximum rent. High HOME rents apply to most units and are capped at the lesser of the local Section 8 Fair Market Rent or 30% of the adjusted income of a household earning 65% of area median income. Low HOME rents are stricter, capped at 30% of income for a household at 50% of AMI, and they can’t exceed Fair Market Rent even if the 50% AMI calculation produces a higher figure. In any rental project with five or more HOME-assisted units, at least 20% of those units must carry the lower rent restriction.¹

These ceilings include all housing costs. When a tenant pays utilities separately, the owner subtracts a HUD-approved utility allowance from the maximum rent before setting the base charge. So if the ceiling is $1,000 and the allowance is $150, rent is capped at $850. Utility allowances can be built from engineering-based models or from consumption-based models using actual utility bills, and either way they must be reviewed annually. HUD publishes updated rent limits each year, and owners have to adjust to stay within them. Charging above the published limit violates the regulatory agreement and can bring penalties or loss of funding.

LIHTC Rent Floor

LIHTC rents differ in one important respect: they have a floor. Every tax credit property locks in a baseline rent limit, set either at the placed-in-service date of the first building or at the credit allocation date, whichever the owner elects. If area median income drops in a later year and the new calculation falls below that baseline, the owner can keep charging the higher floor amount.³

Tenant Protections

HOME-funded rentals carry protections that go beyond typical landlord-tenant law. Every household must receive a written lease of at least one year unless both sides agree to something shorter.⁷

The lease cannot contain provisions common in market-rate leases. Prohibited terms include clauses where the tenant agrees to be sued without notice, waives the right to a jury trial, waives the right to appeal a court decision, gives up the right to hold the owner legally responsible for negligence, or agrees to pay the owner’s attorney fees regardless of who wins. Owners also can’t require tenants to accept supportive services as a condition of the lease, except in transitional housing.⁷

The biggest protection: an owner cannot terminate a tenancy or refuse to renew a lease without good cause. Good cause means serious or repeated lease violations, or violations of federal, state, or local law. An increase in the tenant’s income is explicitly not good cause. This is where owners sometimes get into trouble, assuming they can push out a household that no longer meets income limits. They can raise the rent as described above. They cannot force the family out just because the household is earning more.⁷

Recapture and Resale for HOME Homeowners

When a HOME-assisted homeownership property sells during the affordability period, the funding agency uses one of two mechanisms.

Under a recapture model, the agency recovers all or part of the original subsidy from the sale proceeds. This is common in down payment assistance: if a buyer gets a grant and sells before the period expires, the grant is repaid. Recapture cannot exceed the net proceeds of the sale, so the seller isn’t on the hook for more than they actually receive after other loans and closing costs.²

Under a resale model, the home must be sold to another income-eligible buyer at a price that keeps it affordable while giving the original owner a fair return. The participating jurisdiction defines what “fair return” means in its written agreement, and the restrictions stay with the property for the remainder of the affordability period.

Both approaches are secured through deed restrictions or Land Use Restrictive Agreements recorded against the property title. Those documents put any future buyer or lender on notice that the affordability obligations run with the land. Lenders typically must sign subordination agreements acknowledging the restrictions, which lets the affordability period survive a refinance of the senior mortgage.

Early Exit and Foreclosure

The LIHTC Qualified Contract

LIHTC owners have one narrow way out of the extended use period before it expires. After the 14th year of the compliance period, an owner can submit a written request asking the state housing credit agency to find a buyer who will continue operating the property as a qualified low-income building.⁸

The agency then has one year to present a qualified contract. If a buyer is found and the owner accepts, the property continues under the same restrictions with new ownership. If the owner rejects the contract, the extended use agreement stays in place. If the agency can’t find a buyer within the one-year window, the extended use period terminates on the last day of that year.⁸

Even when the extended use period ends this way, existing tenants are protected for three years afterward. During that window, the owner cannot evict any low-income tenant without good cause and cannot raise rents above what the program would have allowed. Some states have eliminated or restricted the qualified contract option through more stringent commitments in their extended use agreements.

Foreclosure

Foreclosure can end affordability restrictions on HOME-assisted homeownership properties. If a lender forecloses, takes a deed in lieu, or an FHA-insured mortgage is assigned to HUD, the affordability requirements may terminate. But if the original owner somehow reacquires an ownership interest in the property during what would have been the original affordability period, the restrictions snap back into place under the original terms.⁹

The financial consequences depend on the model. Under recapture, the agency can only recover whatever net proceeds it gets from the foreclosure sale; if there are none, no repayment is required. Under resale, the agency must either find a buyer who meets program income requirements or repay the full original investment to HUD.⁹

For rental properties, if the new owner after foreclosure doesn’t agree to maintain the affordability requirements for the remaining period, the agency may need to repay the original HOME investment. HUD recommends structuring the recorded restrictions so they survive foreclosure rather than being wiped out by the senior lien.

When the Period Ends

Once a HOME affordability period expires, the deed restrictions and regulatory agreements lose their force. The owner is free to set market-rate rents and rent to tenants at any income level. There is no federal transition protection for existing HOME tenants once the period has fully run, though state or local laws may add their own.

LIHTC properties follow a different rhythm because the extended use agreement controls the timeline. When the full extended use period, typically 30 years or longer, finally expires, the owner is similarly released from income and rent restrictions. Whether a property actually converts to market rate depends on practical factors: older buildings in softer rental markets may already be charging rents close to or below what a market-rate tenant would pay. A property built 30 years ago isn’t competing with new construction on amenities, and many owners find the math favors continued affordable operation, especially after recapitalization with fresh subsidies.

The real risk for tenants is in high-cost markets where the gap between restricted rents and market rents has grown wide. There, expiration can mean rent increases that push long-term residents out. Some states and localities require advance notice to tenants when affordability restrictions are approaching expiration, or offer owners incentives to extend the restrictions voluntarily.

1
eCFR. 24 CFR 92.252 – Qualification as Affordable Housing: Rental Housing
2
eCFR. 24 CFR 92.254 – Qualification as Affordable Housing: Homeownership
3
Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit
4
U.S. Department of Housing and Urban Development. Income Limits
5
eCFR. 24 CFR 92.252 – Qualification as Affordable Housing: Rental Housing
6
eCFR. 26 CFR 1.42-15 – Available Unit Rule
7
eCFR. 24 CFR 92.253 – Tenant Protections
8
eCFR. 26 CFR 1.42-18 – Qualified Contracts
9
HUD Exchange. What Is the Impact of Foreclosure on the Affordability Period?