Option 1 is a good way to bring rents up to market, if you are eligible. Option 1 is divided into Option 1-A and Option 1-B.
Get started with the Option 1 Calculation Worksheet or read more about it...
The renewal contract will be the Mark-Up-To-Market renewal contract with a minimum of a five-year term.
Rents may be renewed at the lesser of comparable market rents or 150% of the Fair Market Rents (FMRs).
- A Real Estate Assessment Center (REAC) physical inspection score of 60 or above with no unresolved Exigent Health and Safety (EHS) items.
- Profit motivated or a limited distribution ownership.
- Comparable Market Rents at or above 100% of the FMR potential.
- The project does not have a low-and-moderate income use restriction that cannot be eliminated by unilateral action by the owner.
To further preserve the affordable housing stock, HUD has the discretionary authority to mark rents up to market for projects that meet certain criteria but do not qualify under Option 1-A.
For owners who request participation in Option 1-B, and for owners of projects that request an increase in rents above the cap on comparable rents of 150% of FMR, HUD will consider these requests if the project meets at least one of the following three characteristics.
- Vulnerable Populations: The tenants of the property are a particularly vulnerable population, demonstrated by a high percentage of units rented to elderly families, disabled families, or large families.
- Vacancy Rates: The property is located in a low-vacancy market where there is a lack of affordable housing and where tenant-based vouchers would be difficult to use.
- Community Support: The property is a high priority for the local community as demonstrated by a contribution of state or local funds to the property.
Requests for Option 1-B are processed and approved by the Program Center after recommendation from NHC.
Option 2 is for owners who request a renewal of their Section 8 contract where the RCS indicates that the contract's current rents are at or below comparable market rents.
- Current Rents are at or below market rents as determined by the RCS.
- OR the contract's current rents exceed comparable market rents but the project is exempt from OAHP restructuring and the owner is willing to cut the rents to comparable market rents.
- Contract Renewal Request Form (HUD Form 9624 - Option 2)
- OCAF Worksheet (HUD Form 9265) or Budget-based Rent Adjustment Request: Any rent adjustment will be limited by the comparable rents from the current RCS.
- Rent Comparability Study (RCS): Since an RCS is good for five years, this will only be required every fifth year.
Chapter Four of the Section 8 Renewal Policy has complete guidance regarding Option 2.
Rent Adjustments with Multi-year Contracts
Annual rent adjustments can be either OCAF Rent Adjustments or Budget-Based, as determined by the owner. Every 5th year (from the contract effective date), an RCS is required to adjust the rents to comparables.
Option 3 is divided into Option 3-A (RECAP-LITE): Renewal of the contract without restructuring, with rents marked down to market; and Option 3-B (RECAP-FULL): A mortgage or rent restructuring and contract renewal with the rents marked down to market.
- FHA-insured loan
- Current Rents are above market rents.
Regardless of your option selection, NHC will refer your contract to RECAP for restructuring if the contract rents exceed comparable market rents and if the contract is eligible for referral.
Chapter Five of the Section 8 Renewal Policy has complete guidance regarding Option 3.
Option 4 is for owners whose properties are considered exception properties. Specifically, the following projects are identified by the statute as "exception properties":
- Project(s) with primary financing or mortgage insurance that were provided by a unit of state or local government and not insured under the National Housing Act.
- Projects financed under section 202 of the Housing Act of 1959 or section 515 of the housing act of 1949 (includes 202/8, 515/8: does not include 202 and 811 Capitol Advance projects, which do not have section 8 contracts)
- Projects that have an expiring contract 1937 Act pursuant to section 441 or the Stewart B. McKinney Homeless Assistance Act (SRO Mod Rehab)
- Projects that do not qualify as projects pursuant to 512 of MAHRA. Such as:
- A project that is not subject to a HUD-held or insured mortgage
- A project that has FHA mortgage insurance or is HUD-held with rents at or below comparable market rate.
The main benefit is that you do not have to submit a Rent Comparability Study (RCS) at contract renewal, as you do with Options 1 and 2. However, unlike Options 1 and 2, under Option 4 the property is subject to the Lesser Of Test.
The Lesser Of test means that the owner submits both an OCAF Adjustment request and a Budget-Based Adjustment request. NHC will process both adjustments and approve the lesser of the two.
Chapter Six of the Section 8 Renewal Policy has complete guidance regarding Option 4.
Rent Adjustments with Multi-year Contracts
Annual rent increases during the term of the contract can be either OCAF Rent Adjustments or Budget-Based, as determined by the owner. However, if you submit a budget-based adjustment, you must submit an RCS that demonstrates that your adjusted rents will not be above comparable rents, as determined by the RCS.
Eligibility for Option 5 is limited to two types of properties:
- Preservation Projects
Owners who entered into a long term use agreement with HUD as part of the Preservation Program must renew under Option 5. The rent adjustment method is determined by the Plan of Action that was approved by HUD as part of the Preservation process. These contracts can be renewed for up to the lesser of 20 years or the remaining term of the use agreement.
- Demonstration Projects:
HUD is no longer doing initial renewals under the Portfolio Reengineering Demonstration Program.
Chapter Seven of the Section 8 Renewal Policy has complete guidance regarding Option 5.
NHC will make every effort to maintain the inventory of Affordable Housing within the States of Georgia and Illinois. Owners selecting Option 6 will be made aware of all available options, including Mark-up-to-Market.
However, if the owner chooses to opt out and has satisfied all the relevant requirements, NHC will process the request in an expeditious manner.
The following requirements must be met before an owner may opt-out:
- The owner must be eligible to opt-out. This would include the absence of any restrictions placed on the property that are outlined in chapter eight of the Section 8 Contract Renewal Policy Handbook.
- The owner must have provided an acceptable one year notification to the residents and NHC. The notice must contain the required language as outlined within chapter eight of the Section 8 Contract Renewal Policy Handbook.
Chapters Eight and Eleven of the Section 8 Renewal Policy have complete guidance regarding Option 6.