How lenders count Section 8 rent on an apartment loan.
Voucher rent arrives on the first of the month whether or not the tenant has a good week. That should make it the easiest income to underwrite. In practice, three lenders will give you three answers. Here is why, and how to get the good one.
By Capituro6 min read
- Most lenders count voucher rent when the leases and Housing Assistance Payment contracts are documented.
- Some size on the lower of contract rent or market rent. On a building where vouchers pay above market, that is the whole loan.
- A few programs will not take a building with government-assisted tenants at all. We know which ones, so the loan request does not go there.
Why the answer is not just yes
A tenant with a Housing Choice Voucher pays part of the rent, and the local housing authority pays the rest directly to you under a Housing Assistance Payment contract. In Middle Georgia, in parts of Columbus and Augusta, and in plenty of smaller markets, voucher tenants are a third to two thirds of the rent roll on older apartment communities.
Lenders see two things when they look at that rent roll. The first is income that is more reliable than most market-rate rent, because the larger share of it comes from a government agency. The second is income that is set by a payment standard rather than the market, which means it can be above what the unit would rent for on its own, and it can be adjusted by the housing authority.
How underwriting weighs those two things decides how much loan the building supports.
The three ways lenders handle it
1. Contract rent counts in full. Underwriting takes the rent roll as written, applies the usual vacancy allowance, and moves on. Our bank-style and agency small-loan programs work this way when the HAP contracts are current and the housing authority's payment history is clean. This is the answer you want, and it is the one we start from.
2. Lower of contract rent or market rent. Underwriting or the appraiser estimates what each unit would rent for without a voucher and uses whichever is lower. On a building where the payment standard is $1,050 and the market is $900, that haircut is 14% of gross rent on every voucher unit, and the loan shrinks to match. Some investor programs and some banks do this by policy. It is not always in the term sheet, which is why we ask before a loan request goes in.
3. Government-assisted tenants excluded. A few lenders, including some credit unions with national programs, list "government assisted tenants" among the property types they do not finance. It is not about the building or the borrower. It is a policy line. An application that goes to one of those lenders wastes six weeks.
Send the rent roll with the voucher units marked and we will tell you which of the three answers your building gets, before an appraisal is ordered.
What the appraiser does
Even when underwriting counts contract rent, the appraiser has an opinion. Most will note the voucher share, compare the payment standard to market, and comment on whether the income is "market supported." If contract rents are far above market, the appraiser may cap the income at market in the income approach, which pulls the value down and, on a loan limited by LTV, the loan with it.
Two things help here. One is the housing authority's published payment standard for the county, which shows the rents are not something you made up. The other is a rent comparable or two from similar non-voucher buildings nearby that sit close to the contract rent. If the gap is small, the appraiser usually leaves the income alone.
What we ask for on a voucher-heavy building
- The rent roll, with a column that marks which units are voucher units and shows the tenant portion and the HAP portion separately.
- A copy of each HAP contract, or at least the current HAP statement from the housing authority showing the monthly payment per unit.
- The last three months of housing authority payment ledgers or bank statements showing the deposits.
- The most recent HQS inspection results. Failed inspections with open items are a problem; passed inspections are a plus.
- Lease copies for the tenant portion.
- Trailing twelve months of operating statements, because turnover and repair costs on voucher units get looked at.
The worked example: an 80 unit community in Middle Georgia
The building. An 80 unit garden community with roughly 70% voucher tenants, owned free and clear except for a small loan, run by an experienced operator. Contract rents sat slightly above the market for comparable non-voucher units in the area.
The ask. The owner wanted to pull equity, and non-recourse was his first requirement. That ruled out most banks, which carry a personal guaranty.
Where it went. At the leverage he needed, which was low, roughly 25% of value, our agency small-loan lane was the natural fit. It counts HAP income, it is non-recourse, and the low leverage made the market-versus-contract question moot: even at market rent the coverage was several times the minimum.
What it means. The voucher share was never the problem. The problem was matching the requirement (non-recourse) to the lane that could give it. At higher leverage the same building would have gone to one of our programs that counts contract rent in full, and we would have said so on the first call.
Figures are rounded and the property is not identified. Terms vary by lender and change without notice.
Voucher-heavy building, cash-out or non-recourse in mind? We size it on contract rent where the program allows and tell you the number before you spend anything.
Frequently asked
Do lenders treat Section 8 rent as reliable income?+
Why would a lender use market rent instead of my contract rent?+
Are there programs that will not finance a building with voucher tenants?+
Does a high voucher share affect the appraisal?+
Where this leads next
10+ Unit Apartment Refinance
Refinance larger apartment buildings on the property's income.
OpenMacon Investment Property Loans
Apartment and commercial loans in Macon and Middle Georgia.
OpenWhy the appraisal on a small apartment building comes in low
The building is full, the rents are up, and the appraisal still came in $300,000 under what you expected.
OpenSend the rent roll with the HAP column and we will tell you which lenders count it.
We will review the loan request with the voucher share in mind and size it on the program that counts the income the way you do.