HUD Handbook 4350.3 § 5-29

Below Market Interest Rate (BMIR)

A.       Tenant’s Rent Contribution

                The tenant’s contribution to rent in the Section 236 and Section 221(d)(3) BMIR
                programs is based on the cost to operate the property and the income of the
                family. Figure 5-7 presents the rules for determining the tenant rent in these two
                programs.

                 1.       Section 236 property. Every Section 236 property has a HUD-approved
                          basic rent and market rent. Basic rent is the minimum rent all Section
                          236 tenants must pay. It represents the cost to operate the property after
                          HUD has provided mortgage assistance to reduce the mortgage interest
                          expense. The market rent represents the amount of rent the owner would
                          have to charge, if the mortgage were not subsidized. Tenants pay a
                          percentage of their income towards rent, but never pay less than the
                          basic rent or more than the market rent for the property.

                          When a tenant pays more than basic rent, the difference between the
                          tenant’s rent and basic rent is called “excess income.” Excess income is
                          an amount that exceeds what the owner needs to operate the property
                          and is subject to specific requirements. Refer to HUD Handbook 4350.1,
                          Multifamily Asset Management and Project Servicing, and other current
                          HUD notices for guidance on handling excess income. Although a tenant
                          may pay more than basic rent, no tenant in a Section 236 property will
                          pay more than the market rent for the property.

                               Example – Calculating Excess Income
                                 Rent for Tenant A
                                 (30% of Tenant A’s income):    $350
                                 Basic rent                    -$300
                                 Excess Income                   $50

2.       Section 221(d)(3) BMIR property. There is no rent calculation for tenants
                          in a Section 221(d)(3) BMIR property. HUD approves a BMIR rent that all
                          of the tenants must pay. The federal assistance in the BMIR property is
                          provided through a below market interest rate for the mortgage loan.
                          Applicants must meet income eligibility standards to be admitted to a
                          BMIR property. After move-in, if a tenant’s annual income goes above
                          110% of the BMIR income limit, the tenant must pay 110% the BMIR rent.

                 3.       BMIR cooperative. If a BMIR cooperative member’s annual income
                          exceeds 110% of the BMIR income limit at the time of recertification, the
                          cooperative must levy a surcharge to the member. See the definition of
                          market rent in the Glossary for an explanation of the market carrying
                          charge for over-income cooperative members.

        B.       Timeframe for Calculating Rent

                Owners calculate rent at three points in time.

1.       Owners must calculate rent prior to occupancy by an applicant.

                 2.       Owners must calculate rent as part of an annual recertification. Refer to
                          Chapter 7, Section 1 for information on annual recertification of income.

                 3.       Owners of Section 236 properties must calculate rent if a tenant reports a
                          change in income, allowances, or family composition. Refer to Chapter 7,
                          Section 2 for information on interim recertifications of income.

                      Figure 5-7: Tenant Contributions for the Section 236 and
                                      Section 221(d)(3) BMIR

Section 236

Section 236 without Utility                  Section 236 with Utility Allowance
                       Allowance

                Tenant rent is the greater of:                  Tenant rent is the greater of:

                  30% of monthly adjusted                          30% of monthly adjusted
                      income; or                                       income less the utility
                                                                       allowance; or
                  Section 236 basic rent.
                                                                       25% of monthly adjusted
                Tenant rent may not be more than                       income; or
                 the Section 236 market rent.
                                                                       Basic rent.

                                                                 Tenant rent may not be more than
                                                                  the Section 236 market rent.

Section 221(d)(3) BMIR

                At initial certification, the tenant pays the BMIR rent.

                At recertification, the tenant’s annual income is compared to the BMIR income
                 limits. If the tenant’s annual income is:

                  Less than or equal to 110% of the BMIR income limit, the tenant pays the
                      BMIR rent;

                  Greater than 110% of the BMIR income limit, the tenant pays 110% of the
                      BMIR rent.