Where can I find policy governing rent credit?

Rent Credits refer to the amount of the rental payment that exceeds the appraiser’s estimate of fair market rent. The Mortgagee may use the cumulative amount of rental payments that exceeds the appraiser’s estimate of fair market rent towards the Borrower’s Minimum Required Investment (MRI).  The Mortgagee must obtain:

•             the rent with option to purchase agreement,

•             the appraiser’s estimate of market rent, and

•             evidence of receipt of payments.

A reduced rent is an inducement to purchase when the sales contract includes terms permitting the Borrower to live in the Property rent-free or has an agreement to occupy the Property at a rental amount greater than 10 percent below the Appraiser’s estimate of fair market rent.  When such an inducement exists, the amount of the inducement is the difference between the rent charged and the Appraiser’s estimate of fair market rent prorated over the period between execution of the sales contract and execution of the Property sale.

Rent below fair market is not considered an inducement to purchase when:

•             a builder fails to deliver a property at an agreed-upon time, and permits the Borrower to occupy an existing or other unit for less than market rent until construction is complete, or

•             for Borrowers who meet the Identity-of-Interest exception for Family Members.  

For additional information see Handbook 4000.1 A.4.d.iii(H)(3); II.A.4.d.iii(T); II.A.5.c.iii(H)(3); II.A.5.c.iii(T) available at: https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-04389