Affordable Housing Program (AHP) Income Guidelines FHLBank Pittsburgh (the Bank) is using the following income guidelines to verify household income and to subsequently determine the eligibility of households to participate in AHP. 1. Income Guidelines The AHP program requires that a determination of a recipient s household income be based on one of the following income definitions: a. Annual household income as defined within U.S. Department of Housing and Urban Development (HUD) regulations in the Code of Federal Regulations with the exception of asset income which is not be included in the calculation of household income. This definition of income is also used by the Pennsylvania Housing Finance Agency (PHFA) for low-income housing tax credit (LIHTC) projects; or b. For purposes of reporting under the Internal Revenue Service using Form 1040 or 1040A, these federal income tax returns are accepted only in the first three calendar months of the year and must be accompanied by all W-2s used to complete the tax return. The highest amount reported on a W-2 will be used to calculate income. c. For projects identified as shelters, the Federal Housing Finance Agency (FHFA) opined in a June 4, 1998 letter to FHLBank San Francisco that an FHLBank may rely on the selfreported incomes of residents of a shelter in order to determine a project s compliance with its targeting commitments. As such, AHP projects identified as shelters are exempt from the income verification requirements enumerated within these guidelines and FHLBank Pittsburgh will rely on self-reported income to determine compliance with targeting requirements. 2. Income Timeframe For rental units, household income is determined at initial occupancy of the unit. For owneroccupied housing units, income is determined at the time the household is qualified for participation in the project and/or program. The household income is based on income at initial occupancy (rental) or program qualification (owner-occupied) and projected over a 12-month period. 3. Income Verification In order to determine income eligibility, the project sponsor/owner for AHP projects must obtain verification of all income sources of all adult household members age 18 and older, as well as benefits paid on behalf of minors in the household.. A household s income determination cannot occur until third-party verification of all income has been obtained. For AHP purposes, a household is defined as follows: A household includes everyone who lives in the unit except live-in aides and foster children and foster adults. 10-31-99 (Updated 1-13-13)
4. Income Calculation For all AHP household income calculations, the AHP Income Calculation Worksheet must be utilized with all income calculations supported by third-party income documents (listed at the end of this document). The calculation of income must be completed in accordance with the AHP Income Guidelines and must be clearly documented so the calculation can be easily recalculated and confirmed by the Bank. Note: HUD Form 50059 can be substituted for the AHP Income Calculation Worksheet. 5. Income Limits The U.S. Department of Housing and Urban Development (HUD) publishes median income information for Pennsylvania, Delaware and West Virginia which is broken down into local areas, such as county or metropolitan areas. These limits are published by HUD on an annual basis and will be used for the AHP program to determine whether a household s income is very-low, low or moderate. Additionally, a state average can be used. http://www.huduser.org/portal/datasets/il.html 6. Annual Income Inclusions (Non-Federal Tax Return) The following sources are to be included when calculating a household s annual income: a. The gross amount (before any payroll deductions) of wages and salaries, overtime pay, commissions, fees, tips, bonuses, and other compensation for personal services of all adults of the household, except that of full-time students in excess of $480. Includes salaries received from a family-owned business. Note: If using pay statements to calculate income, there should be, at a minimum, 2 months of consecutive pay statements. b. Net income, salaries, and other amounts distributed from a business. If this is a source of income, the two most recent years of federal income tax returns must be provided c. The gross amount (before deductions for Medicare, etc.) of periodic Social Security payments. Includes payments received by adults on behalf of minors or by minors for their own support. Note: If Social Security is reducing a family's benefits to adjust for a prior over-payment, use the amount remaining after the adjustment for the over-payment. This is usually the "gross" amount reported on Social Security's verification form. d. Annuities, insurance policies, retirement funds, pensions, disability or death benefits, and other similar types of periodic receipts. e. Lump-sum payments received because of delays in processing unemployment, welfare, or other benefits. This does not apply to a lump-sum payment for the delayed start of Social Security. 2
f. Payments in lieu of earnings, such as unemployment and disability compensation, workers' compensation, and severance pay. Any payments that will begin during the next 12 months must be included. g. Welfare assistance: If the payment includes an amount specifically designated for shelter and utilities and the welfare agency adjusts that amount based upon what the family is currently paying for shelter and utilities, special calculations are required. If the welfare agency is reducing the family benefits to adjust for a prior overpayment, use the amount remaining after the adjustment for the overpayment. This is usually the "gross" amount reported on the welfare agency verification form. h. Alimony and child support i. All regular pay, special pay, and allowances (except hazardous duty pay) paid to a member of the Armed Forces who is a family member and is the spouse or head of household (whether or not living in the dwelling) and is age 18 or over and has dependents living in the unit j. Lottery winnings paid in periodic payments. k. Recurring monetary contributions for gifts regularly received from persons not living in the unit (including rent or utility payments regularly paid on behalf of the family) 7. Annual Income Exclusions (Non-Federal Tax Return) a. Employment income of children (including foster children) younger than 18 and employment income of full-time students 18 and older in excess of $480 (except head of household and spouse) b. Food stamps, meals on wheels, or other programs that provide food for the needy; groceries provided by persons not living in the household c. Grants or other amounts received specifically for: Auxiliary apparatus for a person with a handicap or disability Expenses for attendant care provided by someone other than a family member living in the household Medical expenses Set aside for use under a Plan to Attain Self Sufficiency (PASS) and excluded for purposes of Supplemental Security Income (SSI) eligibility Out-of-pocket expenses for participation in publicly assisted programs and only to allow participation in these programs. These expenses include special equipment, clothing, transportation, childcare, etc. 3
d. Income associated with persons that live in the unit but are not household members. Includes: Payments received for care of foster children and foster adults. Income of live-in attendants. e. All amounts for student financial assistance (This includes tuition reimbursement by an employer) f. Hazardous duty pay to a family member in the military g. Lump-sum additions to family assets, such as inheritances, cash from sale of assets, onetime lottery winnings, insurance settlements under health and accident insurance and workmen's compensation, settlement for personal or property losses. Lump-sum payments of SSI and Social Security benefits received as deferred payments. h. Casual, sporadic, or irregular gifts i. Payments, rebates, or credits received under federal low-income home energy-assistance programs (including any winter differentials given to the elderly) j. Annual rent credits or rebates paid to senior citizens by government agencies k. Payments received under training programs funded by HUD (e.g., Comprehensive Improvement Assistance Program) l. Income excluded by federal statute: Relocation payments received under Title II of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 Allotment value of coupons made under the Food Stamp Act of 1977 Payments received under the Domestic Volunteer Service Act of 1973 (e.g., employment through VISTA, Retired Senior Volunteer Program, Foster Grandparents Program, youthful offender incarceration alternatives, and senior companions) Payments, rebates, or credits received under federal low-income home energyassistance programs (including any winter differentials given to elderly) Payments received under programs funded in whole or in part under the Job Training Partnership Act (e.g., employment and training programs for Native Americans and migrant and seasonal farm workers, Job Corps, veterans employment programs, state job training programs, career intern programs) Student loans (regardless of how they are actually spent) 4
Scholarships funded under Title IV of the Higher Education Act of 1965, including awards under the Federal work-study program or under the Bureau of Indian Affairs student assistance programs or veterans benefits, which are made available to cover the costs of tuition, fees, books, equipment, materials, supplies, transportation, and miscellaneous personal expenses. Examples include Pell Grants, Supplemental Opportunity Grants, State Student Incentive Grants, College-Work Study and Byrd Scholarships. m. Amounts received by a person with a handicap or disability that are set aside for use under a Plan to Attain Self-Sufficiency (PASS) n. Resident services stipends of $200 per month or less received for performing services for the project owner that enhance the quality of life in an assisted housing development, such as lawn maintenance, coordination of project activities, etc. o. Adoption assistance payments in excess of $480 per adopted child p. State homecare payments to families that have developmentally disabled children or an adult family member living at home q. Compensation received under a state or local employment training program or from a program to train residents as management staff. This exclusion only covers compensation received while the resident participates in the training program, and the duration of training must be for a limited period determined in advance. 8. Calculating Overtime Pay, Commissions, Fees, Tips and Bonuses In the case of overtime pay, commissions, fees, tips and bonuses, it is important to clarify whether such types of income are sporadic or a predictable component of an employee's income. If it is determined that an AHP applicant has earned predictable income payments and will continue to earn overtime pay, commissions, fees, tips and bonuses on a regular basis, project sponsor's must calculate the expected annual amount for such sources of income. To calculate the projected amount for these types of income, the sponsor can use pay statements or a verification of employment (VOE). If using pay statements, the sponsor should use the average amount of overtime pay, commissions, fees, tips and bonuses earned by the AHP applicant over the previous 3 months from the applicant s qualification date. If using a VOE, the amount reported by the employee within the VOE should be used. The average amount from the pay statements or the amount within the VOE is then projected over the next 12 months to determine the annual amount expected by using the following methodology: Pay Statements Obtain at least 2 pay statements. Use current YTD gross income amount and annualize. Divide by number of pay periods to date and then take that average and multiple by how the person is paid, ie: monthly 12, weekly 52, bi weekly 26, twice a month 24. 5
Example: Pay statement dated 4-28-13 indicated YTD gross income of $12,000 and is paid biweekly (26 weeks). The 4-28-13 pay is the 13th pay period for 2013. Divide $12,000 by 13 = $923 average. Then take $923 x 26 weeks = $24,000. This is the projected income. Verification of Employment (VOE) If the VOE reports recurring overtime pay, commissions, fees, tips and bonuses, then project for the next 12 months the amount on the VOE using the person's pay frequency, i.e. hourly, weekly, bi-weekly (26 weeks) or semi-monthly (24 weeks). Example: VOE reports overtime hours per pay period of 10 hours at $10.00 per hour. The person gets paid weekly. 10 hours x $10 = $100 per week x 52 weeks = $5,200 Exceptions or reasons why annualizing overtime pay, commissions, fees, tips and bonuses income would not be appropriate must be explained in writing by the project sponsor or member bank and must include written collaboration by the person s employer. Definition of predictable: Regular and recurring payments of overtime pay, commissions, fees, tips and bonuses as verified by a person s employer. Payments are received in a consistent and steady manner. Definition of sporadic: Irregular payments for overtime pay, commissions, fees, tips and bonuses as verified by a person s employer. Payments are received in an erratic and unbalanced manner, such as seasonal overtime. 9. Calculating Income From Earnings And Benefits Verified income must be converted to annual amounts by using the following calculations: To annualize full-time employment income, multiply hourly wages by 2080 hours weekly wages by 52 biweekly amounts by 26 semi-monthly amounts by 24 monthly amounts by 12 To annualize income from anything other than full-time employment, multiply hourly wages by the number of hours the family expects to work annually average weekly amounts by the number of weeks the family expects to work other periodic amounts (monthly, biweekly, etc.) by the number of periods the family expects to work In addition, a calculation made by a local, state or federal housing agency may be an acceptable income calculation for AHP at the sole discretion of the Bank. 6
Annual wages should always reflect a full 12-month period, regardless of the pay schedule. For example, if a school teacher earns a gross annual salary of $17,000, the $17,000 should be used as annual salary whether the teacher is paid over only nine months or throughout the year. If a family indicates that income might not be received for the full 12 months (as when they receive unemployment compensation), the owner should still annualize the income (since income benefits, for example, may be extended). If there is any difference between YTD earnings and an hourly amount calculation, use the higher amount. 13. Income Verification All sources and forms of income must be verified by a third party. Third-party verification must be received by the project sponsor/owner for AHP projects prior to occupancy for rental projects and prior to loan closing for a homeownership project. 14. Income Verification Documents All items that affect a household s income eligibility must be verified. The following verification methods are acceptable: a. Written Verification by a Third Party. Examples of acceptable documentation include: Verification of Employment (FNMA Form 1105) Verification of Deposit (FNMA Form 1006) U.S. Federal Income Tax Return. Note: Income tax returns are accepted as documentation only in the first three calendar months of the year. Year-end wage and tax statement (e.g., IRS W-2 forms) Pay statement (minimum two weeks) Social Security statement/letter Pension statement/letter Alimony/child support court records, copies of cancelled checks, divorce decree, or separation agreement VA letter/distribution form Welfare letter State or local housing agency s verification of income Other forms of verification are acceptable provided the information is supplied and signed by a third party. Revised 3-1-15 - Deleted asset income from income calculation 7