Understanding the Income

Qualification Process using

24 CFR part 5

Methods allowed by HUD

• Annual income as defined in 24 CFR 5.609,

referred to as "Part 5 annual income";

• "Adjusted gross income" as defined for reporting

purposes under the IRS Form 1040 long form

(not IRS Forms 1040A or 1040EZ).

• Annual income as reported under the Census

Long Form for the most recent decennial

census; and (to be eliminated in proposed

HOME rule changes)

General HUD Program

Requirements found at 24 CFR

Part 5.

• The requirements pertaining to annual and

adjusted income for HUD programs are

found in this regulation. These regulations

are updated periodically, with notification

provided through the Federal Register.

Agencies are given 60 days from the date

of publication to implement changes.

HUD Handbook 4350.3

• This handbook, entitled “Occupancy

Requirements of Subsidized Multifamily Housing

Programs,” applies to many of HUD’s multifamily

housing programs, including Section 8 and

Section 236. You are not required to use this

handbook but it is helpful in understanding and

clarifying the Part 5 income rules and

requirements. The handbook is updated

whenever changes are made to the regulations.

2012 NSP Income Limits

Miami Dade

County (December 2011) http://www.huduser.org/portal/datasets/NSP.html

% AMI 1 2 3 4 5 6

50% 23,000 26250

29950 32800 35450 38050

80% 36750 42000 47250 52500 576700 60900

120% 55200 63000 70920 78720 85080 91320

Marketing, Outreach and

Advertising

• Fair Housing and Equal Opportunity

• Reach out to people least likely to apply

• Conflict of Interest Disclosure

• Follow your citizen participation plan

Pre-Screening

Determine if the request for assistance

meets:

Program Eligibility

Unit Eligibility

Household Eligibility

Do I Need a Waiting List?

• Each Program/Strategy requires its own

waiting list

• One list versus lists by income category

• Establish a system that is fair and cannot

be compromised

• First Come, First Serve

• First Come, First Qualified

Written Guidance

– Guide to Completing NSP Income Certifications (www.hudnsphelp.info)

– 24 CFR PART 5 method

– Technical Guide for Determining Income and Allowances for the HOME program (CPD 1780 January 2005)

– HUD handbook 4350.3 (Chapter 5)

Determining Income Annual Income Definition

(24 CFR Part 5)

All amounts, monetary or not, which:

1. Go to, or on behalf of, the family head or spouse (even if temporarily absent) or to any family member

2. Are anticipated to be received from a source outside the household during the 12-month period

3. Annual income also means amounts derived from assets

Income Qualification Process

Step 1: Application

Step 2: Income Verification

Step 3: Asset Verification

Step 4: Calculation

Step 5: Certification

Step 6: Award

The Application • Design application to include all information

required

• Application – Complete and signed by all adult household members. Provide a list of documents needed.

• Date Stamp/number applications as they arrive

• Keep the applicant informed – Preferably in writing. If calls are made, document file.

• The interview – Face to face interview with the applicant.

• Develop waiting list procedures

Application Should Include

• Signed statement consenting to the disclosure of information for verifying income and assets for all adult members of the household.

• Statement: The applicant understands that the application is subject to Florida’s public records laws.

• WARNING: Title 18, Section 1001 of the U.S. Code states that a person is guilty of a felony for knowingly and willingly making false or fraudulent statements to any department of the United States Government

• Advise applicant that they must make the property available for inspection by monitoring agents.

Document Checklist

• Identification for all household members – Driver’s license

– Birth Certificate

– Social Security Cards

• Divorce Decree – Child Support

• Income documentation – tax returns

– pay stubs

– Social security

• Asset documentation – bank statements

– Stocks, bonds, real estate

Determining Household Size

• When determining family size for the

purpose of establishing income

eligibility, include all persons living in

the unit unless they are specifically

excluded.

• Exclusions include live-in aide, foster

children, foster adults

Include as household members

• Children temporarily absent due to placement in a foster home;

• Children in joint custody arrangements who are present in the household 50% or more of the time;

• Children who are away at school but who live with the family during school recesses;

• Children who are in the process of being adopted.

• Temporarily absent family members who are still considered family members. For example, a family member who is working in another state on assignment

Dependents

A dependent is a family member who is:

• Under 18 years of age

• Disabled or

• Full-time student

The head of the family, spouse, co-head,

foster child, or live-in aide are never

dependents.

Separated but not Divorced

• Count the estranged spouse’s income

– Unless…

• You can determine that the separation is

permanent. Obtain proof that the estranged

spouse maintains a separate residence and files

a separate tax return.

Foster Children – Foster Adults

• Not counted as household members when

determining income eligibility.

– Count as household members when determining

the size of a unit needed for occupancy.

• Payments received by the family for the care of

foster children or foster adults are not counted.

– This rule applies only to payments made through

the official foster care program of local welfare

agencies

Permanently Absent Household

members • The family decides if such persons are

included when determining family size for

income limits.

• Nursing home resident or adult student

living away from home.

• If included, do not list as head, co-head or

spouse, list as other adult family member.

• If person is included as a household

member include income received.

Live-in Aide

• A person who resides with one or more elderly

persons, near-elderly persons, or persons with

disabilities, and :

• Is determined to be essential to the care and

well-being of the person(s);

• Is not obligated to support the person(s); and

• Would not be living in the unit except to

provide the necessary supportive services.

Household Member in Prison

• www.dc.state.fl.us

• Home page

• Click “Inmate Population Information Search”

• Enter name, SS # or birth date & inmate #, if

available

• Print this information for the file.

Count as household member if released within 12

months

Do not count if release date is more than 12

months

Illegal Immigrants

• Beneficiaries of federal programs

should have legal status.

• Document legal status

• If unsure, seek legal counsel

Boyfriend, Girlfriend or Fiancé

• Count if they are currently part of the

household or will be residing in the home

when purchased.

• If they are not part of the household and

will not reside in the home at the time

purchase, do not count as household

member.

Joint Custody of Children

• Must be present in the home at least 50%

or more of the time to count as a

household member

– Document with

• Tax returns

• School records

• Court orders

• Divorce settlement statements

Military Personnel

• Do not count them as a household member or include their income unless they are the head of the family, spouse, or co-head.

• If their spouse or dependent lives in the unit, then the military person’s income is counted in full, even if the military member is not the head, or spouse of the head of the family.

• The income of the head, spouse, or co-head will be counted even if that person is temporarily absent for active military duty.

Adopted Children

Include as Household member

• Adopted children

• Children in the process of being adopted

• Include only the first $480 of adoption

assistance payments

Step 2: Income Verification Process

• Written Third-Party Verification- BEST

PRACTICE!!

– E-mail, facsimile, or internet

• Verbal Third-Party Verification

– Oral verification form

• Last Resort – pay stubs, bank statements, printouts from the internet

Document file with reason why 3rd party verification was not obtained.

I Can’t Get a Third-Party

Verification 1. Include a written note to the file explaining why a

third-party verification was not possible;

or

1. Include copy of the date-stamped original request that was sent to the third party;

2. Written notes or documentation indicating follow-up efforts to reach the third party to obtain verification; and

3. A written note to the file indicating how long the request has been outstanding without a response from the third party

Consent & Verification Forms

Consent forms must be signed by:

• Head of household (regardless of age);

• Spouse or Co-head (regardless of age);

and

• Any family member who is 18 or older

What needs to be verified?

• Employment

• Self-Employment (business)

• Assets

• Regular Cash Contributions

• Social Security

• Pension

• Child Support

• Unemployment Compensation

Verification of Employment Form

• Income information: Base pay, overtime,

bonuses, commissions, tips.

• Anticipated raise?

• Expected Average Hours to be worked during

next 12 calendar months

• What is the Employer’s estimate of the entire

amount of employment income the applicant

will receive in the next 12 months?

Please provide information about anticipated employment income during the next 12 months:

Position:_______________________________________________ Length of Time Employed: _________________

Pay Rate: _____________Pay Frequency (Hr, Wk, Mo): ______________ Hours worked per week ______________

Overtime Pay Rate: __________________ Average Overtime Hours/Wk: __________________________________

Total Annual Base Pay Earnings: $____________________Total Overtime Base Pay Earnings: $_______________

Amount and Frequency of Other Compensation (bonus, raise, commission, tips): $ ___________________________

Vacation Pay (Y or N): _____________________________ If yes, number of days: __________________________

Retirement Account (Y or N): _______________ Amount Accessible to Employee: $ _________________________

Total Gross Annual Income, including other compensation, for next 12 months: $ ____________________________

Signature of authorized representative: _____________________________________________________________ Printed Name: ________________________________________Title: ____________________________________

Common Income Inclusions &

Exclusions Inclusions:

• Gross wages, salaries, bonuses, tips

• Net income from operation of a business

• Interest, dividends, SSI, retirement, death benefits, welfare, child support, alimony

Exclusions:

• Employment income from child under 18 or foster child

• Income > than $480 for full-time student or adopted child assistance

• live-in-aide income, student financial assistance, hostile fire military pay, inheritances, insurance payments, lump sum SS/SSI

CALCULATION METHODOLOGIES

• To annualize full-time employment,

multiply

– hourly wages by 2,080 hours

– weekly wages by 52

– bi-weekly amounts by 26

– semi-monthly amounts by 24

– monthly amounts by 12

• Always use gross, do not round up or down

Alimony or Child Support

• Count Court Awarded alimony or child support

unless …

• Applicant certifies payments are not being made

AND

• All reasonable legal action has been taken to

collect amounts due, including filing with the

court or agencies responsible for enforcing

payment

• Department of Revenue’s Child Support

Enforcement office 1 (800) 622-5437.

Child Support • Accept printouts from the court or agency

responsible for enforcing support payments, or

other evidence indicating the frequency and

amount of support payments actually received.

• Use this information to document income from child

support if applicant has made all legal effort to

collect.

• When no documentation of child support, divorce,

or separation is available, either because there was

no marriage or for another reason, require the

family to sign a certification stating the amount of

child support received or that no child support is

being received

Full time Students

• The earned income of a full-time student

18 years old or older who is a dependent

is excluded to the extent that it exceeds

$480.

In other words, count the first $480 only

• All income of a full-time student, 18 years

of age or older, is counted if that person is

the head of the family, spouse, or co-head.

Regular Cash Contributions or Gifts

• Count as income any regular

contributions and gifts from persons

not living in the unit. These sources

may include rent and utility payments

paid on behalf of the family, and other

cash or noncash contributions

provided on a regular basis

Minors

• Earned income of family members

under 18 is not counted

– Example: part time job afterschool

• Benefits or other Unearned income of

minors is counted

– Example: Checking or savings account,

disability payments

Calculating Income from

Self Employed Applicants

• One or two tax returns

• Profit and Loss Statement

– aka Income & Expense Report

– Schedule C of tax return

• Signed statement estimating seasonal

earnings

Income from a Business

When calculating annual income, include

the net income from operation of a

business or profession including self-

employment income.

Net income is gross income less business

expenses, interest on loans, and

depreciation computed on a straight-line

basis

Income from a Business

In addition to net income, count any

salaries or other amounts distributed to

household members from the business,

and cash or assets withdrawn by

household members,

except

when the withdrawal is a reimbursement of

cash or assets invested in the business.

Business Income

When calculating net income, do not deduct :

– expenses for business expansion or

outlays for capital improvements

– principal payments on loans, or

– interest on loans for business expansion or

capital improvements

• If the net income from a business is negative,

count it as zero

• A negative amount is not used to offset other

family income

Social Security/Disability payments • Count the gross amount, before deductions

• Include payments received by:

– Adults

– Adults on behalf of minors, and

– Individuals under 18 for their own support

• Use the adjusted amount for benefits that are reduced for a prior overpayment

– SS benefit being reduced for 6 months due to prior overpayment. Use reduced benefit amount for 6 months, then regular amount for 6 months.

SSA Benefit Letters

• Copy of the award letter is acceptable

• Go to www.socialsecurity.gov.

• Select What You Can Do Online

• follow the instructions for requesting a Proof

of Income Letter or

• Call 1-800-772-1213

Periodic Payments-Income

• Periodic payments from annuities, insurance

policies, retirement funds, pensions, and

disability or death benefits is included in annual

income.

• Withdrawals from retirement savings accounts

such as Individual Retirement Accounts and

401K accounts that are not periodic payments

do not fall in this category and are not counted in

annual income but are counted as assets

Lottery Winnings

• Asset if paid in one payment

• Income if paid in periodic payments

Only count the amount the applicant has

access to.

Educational Scholarships & Grants

• All forms of student financial assistance

are excluded from annual income, whether

paid to the student or directly to the

educational institution.

Unemployment

• Project benefits for a 12 month

period

• Documentation on amount of

benefits received and

frequency

Do not Count

• Temporary, nonrecurring, or sporadic income (including gifts).

• Armed Forces stipend for hostile fire

• Meals on Wheels program, food stamps, or other food for the needy assistance;

• Groceries provided by persons not living in the household; and

• Amounts received under the School Lunch Act, Child Nutrition Act of 1966, reduced lunches or (WIC).

Verification of Assets

• Item of value that may be turned into cash.

A savings account is a cash asset & the

interest is the income from that asset.

Money under a mattress is an asset; even if

it is not producing income.

• Necessary personal property is not an

asset.

Income from Assets

To determine the amount of income to include

from an asset consider both of the following:

• Total cash value of the family’s assets; and

• Amount of income those assets earn or could

earn.

The rule for calculating income from assets

depends on whether the total cash value of

family assets is:

Less than <$5,000 or Greater than > $5,000

Income from Assets

• Determine if total “cash value” of assets

exceeds $5,000

• “Cash value” is the market value less the

cost to convert it to cash, such as:

– Penalties for premature withdrawal;

– Broker and legal fees; and

– Settlement costs for real estate transactions

Asset Inclusions • Bank accounts/stock/bonds/mutual

funds/IRA/401lk

• Cash value of whole life insurance

• Personal property held as investment

– Jewelry, coin collections, antique cars

• Lump sum receipts – Inheritance, lottery, insurance settlements

• Property

– Rental property, vacant land, vacation or 2nd home

Property calculation • To determine the cash value of a property:

– Market value $50,000

– Less mortgage -$30,000

– Less sales costs -$ 4,000

– Closing, realtor

– Total cash value $16,000

• If this is a rental property, you must also calculate net rent as

income from asset

– Rent received $400/mo= $4800/year

– Less expenses $3000/year (taxes, insurance, maint…)

– Actual income from asset $4800-$3000= $1800

» Review tax returns

Assets do not Include

• Personal property (clothing, furniture, cars, wedding ring)

• Term life insurance policies

• Equity in the cooperative unit in which the family lives.

Determining Asset Income

• Actual Income From Assets

• Imputed Income From Assets – 2% of assets

over $5,000 in value

• Asset Cap – A City or County can choose to set

a cap for its program

• Count assets of ALL household members

(even minors)

• For savings accounts use current balance

• For Checking accounts use average 6 month

balance

When assets total less than $5,000

• The actual income the family receives

from the assets is the amount that is

included in annual income as income from

assets.

Imputed Income from Assets

1. Add the cash value of all assets.

2. Multiply the total cash value by HUD

passbook rate determined by your field

office (2% is the standard)

3. The product is the “imputed income” from

assets.

4. Add the actual income from all assets.

5. The greater is included in annual income.

D. Assets: All household members including minors

Member

Asset Description Cash Value Income from Assets

1

2

3

4

5

6

7

Total Cash Value of Assets D(a) $

Total Income from Assets D(b) $

If line D(a) is greater than $5,000, multiply that amount by the rate specified by HUD (applicable rate 2.0 %) and enter results

in D(c), otherwise leave blank. D(c) $

Example – Calculating the Cash

Value of an Asset

• A family has a certificate of deposit (CD) in the amount of $5,000 paying interest at 4%. The penalty for early withdrawal is three months of interest.

• $5,000 x 0.04 = $200 in annual income

• $200/12 months = $16.66 interest per month

• $16.66 x 3 months = $49.99 Penalty

• $5,000 - $49.99 = $4,950.01 cash value of CD

• Actual Income from asset is $5,000 x 4% = $200

• Do you need to calculate imputed income here?

Lump Sum Payments

• Lump sum amounts received such as

inheritances, insurance settlements, or

proceeds from sale of property are

considered assets, not income.

• When social security or SSI benefit

income is paid in a lump sum as a result of

deferred periodic payments, that amount is

excluded from annual income.

Trusts

• If the funds can be withdrawn then it is an asset.

• The cash value of the trust (the amount the family member would receive if he or she withdrew all that could be withdrawn) is added to total net assets.

• The actual income received is added to actual income from assets

Annuity

• An annuity is a contract sold by an

insurance company designed to provide

payments, usually to a retired person, at

specified intervals

• When verifying an annuity, ask the

verification source whether the holder has

the right to withdraw the balance of the

annuity.

• If yes, then it is an asset

• If no, then it is not treated as an asset.

Retirement Accounts

• Balances in retirement accounts are

assets if the money is accessible.

• For individuals still employed, accessible

amounts are assets even if withdrawal

would result in a penalty.

• Amounts only accessible upon retirement

are not counted.

Timing • Verifications are valid for 180 days from

the date of receipt

• If verifications are more than 180 days old,

obtain new verifications

• Only re-verify the verification that is out of

compliance with the 180 day clock

• 180 days –HOME/NSP & LIHTC,

• 365 days- CDBG/SHIP

“The Clock”

Verifications should be dated no

more than 120 days from each

other.

What stops the clock?

• Contract for lease/purchase or

new construction

• Closing on an existing house

• Lease executed

Certification

• Complete NSP Income Certification

Form

• Check Computations

• Signatures

Homebuyer/Rehab Programs Award Letter or Written Commitment

• States the award amount or an “up to” amount

• States the conditions of award • first mortgage lender commitment

• selection of an eligible property

• completion of homebuyer class

• States the terms of the award • grant, forgivable loan, or deferred payment loan

• limitations on property

• Specifies an expiration date

• Provides next steps

Procedures • Application – Signed

• Consent forms - Signed

• Gather information and documents

• Send out verifications

• Calculate Income

• Provide written explanation for all conflicting information in file

• Use adding machine tapes to document calculations

• Ensure that you have third party verification for all income and assets

• Documents efforts when a third party verification is not possible

• Have another staff member review calculations and dates

• Who is authorized signer?

INCOME CERT FILE

CHECKLIST • Application for Program Assistance

• Authorization for the Release of Information Form

• Proof of identity of household members

• Income/assets Verification Form(s)

• File notes

• Income Certification Form –fully executed

• Letter of Commitment/award (Homebuyer)

NOTE : NSP requires additional documentation for

the initial grantee purchase

Final Note

• You are accountable for compliance.

• The entity that provides the funds dictates how funds will be used and accounted for.

• You are responsible to monitor subrecipients and developers.

• If they don’t comply you pay back funds as the entitlement entity

Additional help

• On-line Web Tutorial - www.flhousing.org

• HOME website www.hometa.info

• NSP website: https://hudnsphelp.info/

Exercises