Option 4 Rural Housing
Renewal of Projects Exempt from or Not Eligible for Debt Restructuring for Rural Housing Service 515 Projects
Known as the “Exception Rents” option, Option 4 Rural Housing is a good option for Owners when they have properties above market.
For-profit and Non-profit owners can submit a request for Option 4 Rural Housing.
To qualify for Option 4 Rural Housing, owners must:
- Have a property that is exempt from debt restructuring under Section 515(h) of MAHRA; or
- The property does not meet the definition of an “eligible multifamily housing project” under Section 512(2) of MAHRA
Owners of Section 515/8 projects who are requesting a contract renewal under Option 4 pursuant to 524(b)(1) of MAHRA must submit their project budget approved by RHS. HUD Account Executives and Performance Based Contract Administrators are not required to review and approve these budgets. If the budget has been approved by RHS, the budget-based rent will be accepted.
Properties can choose a term of 1 to 20 years for a contract renewal. Anything over 5 years requires HUD approval. In long term contracts, the property will be eligible for the Auto OCAF during rent adjustment years. If the property would like to adjust their rents with a budget during a rent adjustment year, a Rent Comparability Study would be required.
Utility Allowance Analysis
A Full Baseline Utility Allowance with all supporting data collected from utility companies or tenants is required at minimum every 3 years but can be prepared and submitted annually.
Download the Baseline Utility Allowance Worksheet
For the two years following the most recent Baseline Utility Allowance, owners and agents have the option to again obtain data from utilities or tenants to determine utility allowances, or to perform a Factor-Based Utility Analysis, adjusting the allowance using a state-specific increase factor called the Utility Allowance Factor (UAF) provided by HUD.
Download the UAF Calculation Worksheet
What is required for your submission?
Access our Option 4 Rural Housing Checklist here for a detailed list of submission requirements, or download it along with our Option 4 Resource Bundle below.
Related products
Mark-up-to Market (MU2M)
One of HUD’s primary goals is the long-term preservation of affordable housing. Chapter 15 of the Section 8 Renewal Guide encourages the rehabilitation, known as “Capital Repairs”, and/or the acquisition, known as “Transfer”.
Owners must first qualify under either Option 1 (Option 1a or Option 1b), or Option 2, to utilize Chapter 15.
To first qualify for Option 1a or 1b
The Owner must have:
- Aggregate current rent levels under the expiring contract must be less than the comparable market rents (this is determined with a Rent Comparability Study)
- The property must have received a “Satisfactory” score or higher on their most recent Management Occupancy Review
- A physical inspection score from the Real Estate Assessment Center (REAC) of 60 or above, with no Exigent Health & Safety (EH&S) violations
- All Financial Assistance Subsystem (FASS) findings need to be closed or under a HUD-approved corrective action plan, if applicable.
To further qualify for Option 1a, Entitlement
Property owner must be:
- A profit motivated entity, or
- A housing authority occupying the status of a “public body corporate and politic” under the stat legislation under which it was created, or
- A limited partnership with one or more nonprofit general partners or a sole general partner that is wholly owned and controlled by one or more nonprofit entities, or
- A limited liability company with one or more nonprofit managers or nonprofit managing members or a sole manager or managing member that is wholly owned or controlled by one or more nonprofit entities
Or, to further qualify for Option 1b, Discretionary
Property owner must meet one or more of the following characteristics:
Vulnerable populations – At least 50% of the population of the assisted units are rented to elderly families, disabled families, or large families (5 or more persons). The 50% can be met with an individual referenced population or inclusive of all categories
Vacancy Rates (Verified by HUD) – The project is in a low-vacancy market area (or in a rural area with no comparable rental housing) where there is a lack of affordable housing and where Housing Choice Vouchers (HCV) would be difficult to use
Community Support – The project is a high priority for the local community as demonstrated by a contribution of State and/or local funds to the project. Evidence of support may be in the form of tax credits, tax abatements, capital improvement funds, etc. that have been provided to the property within the last 5 years.
*Please read Chapter 3 of the Section 8 Renewal Guide for further specifics on requirements & qualifications
In addition to the Option qualifications
Owner/Purchaser must agree to the following:
A Use Agreement – The Owner must agree to accept a 20-year recorded Use Agreement requiring the current or future owners to accept any Section 8 contract offered by HUD for the next 20 years. If the property already has a Use Agreement, the Owner must agree to extend the term an additional 20 years.
20-year Contract – The Owner/Purchaser must agree to accept a twenty-year Section 8 Contract, subject to annual appropriations. If the Owner/Purchaser is terminating a current contract, the Owner/Purchaser must agree that at the end of the 20-year contract, the contract will be renewed for the remaining term of the original contract.
Combine Multiple Contracts or Stages – Where applicable, and if possible, the Owner/Purchase must combine multiple contracts or stages.
Utility Allowance Analysis
A Full Baseline Utility Allowance with all supporting data collected from utility companies or tenants is required at minimum every 3 years but can be prepared and submitted annually.
Download the Baseline Utility Allowance Worksheet
For the two years following the most recent Baseline Utility Allowance, owners and agents have the option to again obtain data from utilities or tenants to determine utility allowances, or to perform a Factor-Based Utility Analysis, adjusting the allowance using a state-specific increase factor called the Utility Allowance Factor (UAF) provided by HUD.
Download the UAF Calculation Worksheet
What is required for your submission?
Access our Option 1 Chapter 15 Checklist here for a detailed list of submission requirements or download it along with our Option 1 Chapter 15 Resource Bundle below.
Contract Renewals for Other Projects with Current Rents at or Below Comparable Market Rents
Owners or Purchasers interested in the Capital Repairs and/or Transfer program as defined in Chapter 15 of the Section 8 Renewal Guide, may do so under Option 2.
Both for-profit and Non-profit owners can submit a request for Option 2.
Under Option 2 Chapter 15, the Owner/Purchaser must submit a request for budget-based rent increase, not to exceed comparable market rents for costs associated with the transaction including new debt service and debt service coverage.
To qualify for Option 2
Owners must have:
- Aggregate current rent levels under the expiring contract must be at or less than the comparable market rents (this is determined with a Rent Comparability Study), or
- The property’s aggregate current rents exceed the comparable market rents, but the property is exempt from Mark-to-Market (Option 3) restructuring and the Owner is willing to reduce their rents to the comparable market rents.
Renewal requests over 5 years requires HUD approval. For properties with a contract term that exceeds 5 years, the property will need to obtain a new Rent Comparability Study at the end of the 5th year and the rents will be adjusted to the comparable market rents.
In addition to the Option qualifications
Owner/Purchaser must agree to the following:
A Use Agreement – The Owner must agree to accept a 20-year recorded Use Agreement requiring the current or future owners to accept any Section 8 contract offered by HUD for the next 20 years. If the property already has a Use Agreement, the Owner must agree to extend the term an additional 20 years.
20-year Contract – The Owner/Purchaser must agree to accept a twenty-year Section 8 Contract, subject to annual appropriations. If the Owner/Purchaser is terminating a current contract, the Owner/Purchaser must agree that at the end of the 20-year contract, the contract will be renewed for the remaining term of the original contract.
Combine Multiple Contracts or Stages – Where applicable, and if possible, the Owner/Purchase must combine multiple contracts or stages.
Utility Allowance Analysis
A Full Baseline Utility Allowance with all supporting data collected from utility companies or tenants is required at minimum every 3 years but can be prepared and submitted annually.
Download the Baseline Utility Allowance Worksheet
For the two years following the most recent Baseline Utility Allowance, owners and agents have the option to again obtain data from utilities or tenants to determine utility allowances, or to perform a Factor-Based Utility Analysis, adjusting the allowance using a state-specific increase factor called the Utility Allowance Factor (UAF) provided by HUD.
Download the UAF Calculation Worksheet
What is required for your submission?
Access our Option 2 Chapter 15 Checklist here for a detailed list of submission requirements or download it along with our Option 2 Chapter 15 Resource Bundle below.
Mark-up-to Market (MU2M)
Back in 1999, Mark-up-to-Market (MU2M) was introduced as an emergency initiative to provide Owners of certain properties that had rents below market but were located in strong markets to be able to mark their rents up to market. This was an incentive to keep these properties in the Section 8 program and continue to provide affordable housing. Option 1 is broken into 2 different options. There is Option 1a, Entitlement, and Option 1b, Discretionary. With either option, the Owner must agree to renew their Housing Assistance Payment (HAP) contract for a minimum of 5 years.
Note: If filing for an Option 1 renewal with a Termination of Assistance under Chapter 15 please select the Option 1 Chapter 15 tab above.
To first qualify for Option 1a or 1b
The Owner must have:
- Aggregate current rent levels under the expiring contract must be less than the comparable market rents (this is determined with a Rent Comparability Study)
- The property must have received a “Satisfactory” score or higher on their most recent Management Occupancy Review
- A physical inspection score from the Real Estate Assessment Center (REAC) of 60 or above, with no Exigent Health & Safety (EH&S) violations
- All Financial Assistance Subsystem (FASS) findings need to be closed or under a HUD-approved corrective action plan, if applicable.
To further qualify for Option 1a, Entitlement
Property owner must be:
- A profit motivated entity, or
- A housing authority occupying the status of a “public body corporate and politic” under the stat legislation under which it was created, or
- A limited partnership with one or more nonprofit general partners or a sole general partner that is wholly owned and controlled by one or more nonprofit entities, or
- A limited liability company with one or more nonprofit managers or nonprofit managing members or a sole manager or managing member that is wholly owned or controlled by one or more nonprofit entities
Or, to further qualify for Option 1b, Discretionary
Property owner must meet one or more of the following characteristics:
Vulnerable populations – At least 50% of the population of the assisted units are rented to elderly families, disabled families, or large families (5 or more persons). The 50% can be met with an individual referenced population or inclusive of all categories
Vacancy Rates (Verified by HUD) – The project is in a low-vacancy market area (or in a rural area with no comparable rental housing) where there is a lack of affordable housing and where Housing Choice Vouchers (HCV) would be difficult to use
Community Support – The project is a high priority for the local community as demonstrated by a contribution of State and/or local funds to the project. Evidence of support may be in the form of tax credits, tax abatements, capital improvement funds, etc. that have been provided to the property within the last 5 years.
*Please read Chapter 3 of the Section 8 Renewal Guide for further specifics on requirements & qualifications
Utility Allowance Analysis
A Full Baseline Utility Allowance with all supporting data collected from utility companies or tenants is required at minimum every 3 years but can be prepared and submitted annually.
Download the Baseline Utility Allowance Worksheet
For the two years following the most recent Baseline Utility Allowance, owners and agents have the option to again obtain data from utilities or tenants to determine utility allowances, or to perform a Factor-Based Utility Analysis, adjusting the allowance using a state-specific increase factor called the Utility Allowance Factor (UAF) provided by HUD.
Download the UAF Calculation Worksheet
What is required for your submission?
Access our Option 1 Checklist here for a detailed list of submission requirements or download it along with our Option 1 Resource Bundle below.
Download this document for free using the button below.
Contract Renewals for Other Projects with Current Rents at or Below Comparable Market Rents
Subject to HUD approval, owners may request to adjust their rents by a budget-based rent adjustment, limited by the market. In this instance, a budget is processed in lieu of the OCAF.
Both for-profit and Non-profit owners can submit a request for Option 2.
To request rental adjustments based on the Operating Cost Adjustment Factor see the ‘Option 2 OCAF Only’ tab above. To proceed with a budget-based Option 2 renewal continue to the steps below.
To qualify for Option 2
Owners must have:
- Aggregate current rent levels under the expiring contract must be at or less than the comparable market rents (this is determined with a Rent Comparability Study), or
- The property’s aggregate current rents exceed the comparable market rents, but the property is exempt from Mark-to-Market (Option 3) restructuring and the Owner is willing to reduce their rents to the comparable market rents.
Renewal requests of over 5 years require HUD approval. For properties with a contract term that exceeds 5 years, the property will need to obtain a new Rent Comparability Study at the end of the 5th year and the rents will be adjusted to the comparable market rents.
Utility Allowance Analysis
A Full Baseline Utility Allowance with all supporting data collected from utility companies or tenants is required at minimum every 3 years but can be prepared and submitted annually.
Download the Baseline Utility Allowance Worksheet
For the two years following the most recent Baseline Utility Allowance, owners and agents have the option to again obtain data from utilities or tenants to determine utility allowances, or to perform a Factor-Based Utility Analysis, adjusting the allowance using a state-specific increase factor called the Utility Allowance Factor (UAF) provided by HUD.
Download the UAF Calculation Worksheet
What is required for your submission?
Access our Option 2 Budget Checklist here for a detailed list of submission requirements, or download it along with our Option 2 Budget Resource Bundle below.
Download this document for free using the button below.