CHAPTER 4 

DETERMINING INCOME ELIGIBILITY 

4.1 BACKGROUND 

One of the most critical activities in the AHP Program is 

determining and verifying income of tenants for Qualified 

Units. 

The typical steps for determining income eligibility are as 

follows: 

�	 Determine household size. 

�	 Compute "annual income" (gross income plus 

income from assets) in accordance with the HUD 

Section 8 definition10 . 

�	 Verify income information obtained from each 

household. 

�	 Certify the income information obtained from each 

household. 

�	 Determine eligibility by comparing "annual income" 

to the applicable income limit for the household 

size. 

�	 Designate units occupied by eligible households 

as QUs, if needed. 

�	 Re-examine tenant eligibility at least annually as 

long as the tenant continues to reside and retains 

income eligibility. 

10 HUD's Section 8 Program defines annual income to be anticipated income for the next 12 months. This 

principle may be unfamiliar to many owners, who more often are likely to confirm rent-paying capacity of marketrate tenants using current or past income. However, this approach is required by the FIRREA legislation, and is 

familiar to many government agencies and property managers who verify the income of tenants being assisted 

under other programs such as Tax Credits or Section 8. 

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These steps are described below, along with 

recommended practices. 

Tenant Screening and Selection Policy:
 

Fair Treatment of All Applicants
 

Program rules require special procedures to qualify VLI 

and LI applicants for the Set-Aside units, but otherwise do 

not specify what additional screening can or must be done 

in routine tenant selection. 

Owners may apply standard, lawful screening practices in 

the selection of all tenants -- AHP and market-rate. 

Such practices may include, for example, landlord checks, 

reference checks, and credit checks. 

Owners are not required to accept a VLI or LI applicant 

just because the applicant is income eligible, if the 

applicant does not meet such lawful and common 

screening procedures that determine whether the 

applicant will be a good tenant. 

However, VLI and LI applicants may not be subjected to 

any special qualifications or screening process, except as 

herein prescribed to determine income eligibility, not 

applied to all other applicants. For example, credit history 

and landlord reference checks may be done for VLI and LI 

applicants, provided it is a policy uniformly applied to all 

applicants, including those for unrestricted units. 

4.2 DETERMINING HOUSEHOLD SIZE 

Program income limits vary by the number of persons 

considered to be household members. Two issues are 

relevant to the determination of household size: 

�	 what constitutes a "household"; and 

�	 who may be counted, per AHP rules, as a member 

of a household. 

The Program does not specify who may or may not be 

considered a household, and does not specify or limit 

AHP Owner's Compliance Manual	 4-2 9/97 
 

households to families. Any group of persons who 

choose to live together in a unit is the “ household” , and 

the income guidelines below require the inclusion of 

income from all adult members of the household. 

AHP recognizes full-time and part-time students as 

households and eligible tenants as long as their income, 

as defined in Appendix C, is within AHP income limits.11 

In determining household size, owners must follow the 

instructions in Exhibit 4.1 regarding who may or may not 

be counted as household members. 

EXHIBIT 4.1 

ESTABLISHING HOUSEHOLD SIZE 

Count These Persons 

Do Not Count These 

Persons 

� Year-round occupants 

� Absent children in cases 

where the parent is pursuing 

legal custody of the child 

� Members temporarily away, 

such as students at school, 

children placed in foster care, 

Armed Forces personnel on 

temporary assignment, etc. 

� Live-in aides, 

attendants, or 

nurses 

� Absent children 

under 18 

� Unborn children 

AHP does not specify appropriate sizes of units (i.e. 

number of rooms or bedrooms) in relation to family size or 

composition. Owners may establish their own unit 

density standards, in accordance with local tenantlandlord laws, local housing or health and safety codes, 

and other state and local occupancy codes. For example, 

while unborn children are not counted for purposes of 

household size for income eligibility, they may be counted 

for determining the size of unit to rent to the household in 

order to avoid the need to relocate in the near future. 

11 Special rules have been developed for students. Scholarships or educational grants for tuition and 

school expenses may be excluded, as can student loans, but the portions of scholarships or grants for subsistence 

plus any payments from any other persons (such as parents or family members) must be included as income. 

AHP Owner's Compliance Manual 4-3 9/97 
 

 

However, if a unit size standard is applied, the owner must 

apply it consistently to all units in the property. 

4.3 COMPUTING ANNUAL INCOME 

AHP uses the definition of "annual income" as defined in 

HUD’s Section 8 Program. Annual Income, generally 

speaking, is the amount of gross income anticipated to be 

received during the 12-month period following certification 

(or recertification) of eligibility. 12 Generally, only earned 

income from household members ages 18 and over is 

included. 

Annual Income is derived from two basic categories -- 

regular income and asset income. 

A. Regular Income 

This category covers traditional earned income such as 

wages and salaries (including bonuses, overtime and 

other additional compensation), as well as assistance 

payments and benefits, such as Social Security, welfare, 

and pensions. It also includes payments in lieu of 

earnings, such as unemployment compensation, workers' 

compensation for injuries, and other periodic payments. 

Excluded from regular income are any non-recurring 

payments and certain kinds of payments itemized in the 

"Guide for Determining Annual Income" contained in 

Appendix C to this manual. 

B. Asset Income 

The Program also requires income from assets to be 

included in annual income. Income which is generated 

from savings accounts, certificates of deposits, stocks and 

mutual funds, real estate, and other items held for 

investment purposes is considered asset income, and 

12 The specific definition can be found in Chapter 3 of the HUD Handbook 4350.3 ("Occupancy Requirements of 

Subsidized Multifamily Housing Programs"). Annual income is NOT the same as adjusted income. Annual 

income generally corresponds to gross income, with no adjustments (deductions) for child care, medical expenses, 

dependents, etc. Adjusted income is used in some federal housing programs, such as Section 8, to determine the 

level of benefit provided to a household, but is not used in AHP. 

AHP Owner's Compliance Manual 4-4 9/97 
 

added to other income for purposes of determining 

household eligibility. 

Actual income from assets (such as interest or dividend 

income) is included in annual income, but if the total value 

of assets is $5,000 or greater, owners must use the 

greater of: 

�	 the actual annual income to be derived from these 

assets; or 

�	 the "imputed income" computed by multiplying total 

assets times the "passbook rate" supplied by the 

State Monitoring Agency. 

This procedure is designed for situations when a large 

amount of assets are not producing current income. 

Example: A household's assets are valued at $10,000 

and the actual annual income is expected to be $250 in 

interest. Suppose the current passbook rate as of this 

writing is 4.2 percent. Multiply $10,000 X 0.042 = $420. 

Since $420 is the greater of the two figures, this would be 

considered the amount of asset income in this instance. 

A list of inclusions and exclusions from asset income are 

included in the "Guide for Determining Annual Income" 

contained in Appendix C. 

C. Obtaining Tenant Information 

Applications 

Because the definitions of income and household are 

specific to the Program, standard commercial application 

forms may not collect all the required information to 

determine AHP eligibility. 

A sample rental application form approved by FDIC is 

included in Appendix A. Owners may use this form, or 

modify an existing application form to include all required 

income information. It is recommended that forms other 

than the approved form be submitted to the monitoring 

agency for approval prior to use to ensure completeness. 

AHP Owner's Compliance Manual	 4-5 9/97 
Helpful Hints on
 

Obtaining Information
 

�	 Some applicants will need help in completing 

application forms. 

�	 Some managers find it useful to have the applicant 

complete the application in a face-to-face interview. 

�	 Retain all applications for 3 years in case eligibility 

decisions are challenged by applicants. 

Application forms should be used for incoming residents 

of QUs as well as in-place tenants who would like to 

qualify. 

Helpful Hints For
 

Income Eligibility Processing
 

�	 Owners may adopt the practice of making initial 

determinations of eligibility using the information 

supplied on the application form. 

�	 If an initial assessment reveals a household’s income 

to be above the AHP income limits, owners may want 

to inform the household at that time, and not continue 

with the verification and certification steps below. 

�	 Owners should keep waiting lists to have ready 

applicants for any available units. Keep separate 

waiting lists for each of the three categories: 

unrestricted, VLI and LI. Follow chronological order. 

�	 Owners may follow normal, lawful leasing procedures 

to rent unrestricted units to AHP-ineligible applicants. 

If VLI or LI applicants also wish to apply or be placed on a 

waiting list for unrestricted units in addition to a VLI or LI 

unit, owners should not deny them access to the 

unrestricted units or waiting list, subject to all normal 

qualification criteria applied to all applicants. 

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Tenant Release and Consent Forms 

Households seeking to become eligible under AHP must 

sign Release and Consent forms, which authorize 

property management staff to verify income and asset 

information. An FDIC-approved Release and Consent 

form is included in Appendix B. 

4.4 VERIFYING INCOME INFORMATION 

Owners must verify the annual income of each household 

that is to be determined income eligible. All income 

sources must be verified, with one exception: if a 

household’s assets total less than $5,000, verification of 

the assets is not required. 

In verifying household income, owners must use one of 

three basic types of acceptable income verifications: 

¤ Third-party written verifications are preferred. This 

usually involves a letter from the income source, or a 

form letter (on management agent letterhead) on 

which the source certifies the amount of income. 

Sample verification form letters are contained in 

Appendix D. 

¤ First-hand verification is the most useful means of 

verification in some cases, such as applicants who are 

self-employed and banks that charge for verifying 

deposits. Documents such as certified copies of tax 

returns, bank statements, or copies of legal papers 

(e.g., payment of court awarded child care payments, 

etc.) are acceptable forms of firsthand verification. 

¤ Oral (telephone) verifications may be used when 

other forms of verification are not feasible, such as 

when sources refuse to provide it, or where it would 

excessively delay a move-in or a re-examination. The 

owner/manager must put signed and dated notes in 

the file documenting the third-party oral information. 

Owners may use different methods for different sources of 

income. Exhibit 4.2 summarizes acceptable types and 

sources of verification. 

AHP Owner's Compliance Manual 4-7 9/97 
EXHIBIT 4.2
 

ACCEPTABLE FORMS OF INCOME VERIFICATION
 

SOURCE OF 

INCOME 

THIRD-PARTY 

FIRST-HAND 

Written Oral DOCUMENTATION

Employment Verification Forms or letter 

from employer 

Telephone or in-person 

contact with employer, 

specifying amount to be paid, 

by pay period, including 

anticipated raises, bonuses, 

etc. 

W-2 forms or tax returns if 

other sources unavailable and 

employee has had same 

employer or pay can be 

forecasted accurately. 

Self-Employment, Tips, etc. N/A N/A Certified Form 1040/1040A 

showing amount earned and 

employment period 

Income Maintenance 

Payments, Benefits, Income 

Other than Earnings 

(Including Welfare, Social 

Security, SSI, Unemployment, 

etc.) 

Verification Forms or letter 

from source 

Telephone or in-person 

contact with source, specifying 

amount of payments, 

deductions, if any (Medicare 

premiums, etc.) 

Recent check with date, 

amount, and period involved, 

and deductions, if any 

(Medicare premiums, etc.) 

Alimony or child support N/A N/A Copy of separation agreement 

or divorce decree stating the 

schedule and amount of 

payment 

Recurring contributions and 

gifts 

Notarized statement or 

affidavit signed by donor, or a 

letter from bank, attorney, or 

trustee administering the 

contributions 

N/A N/A 

Scholarships, Grants, and 

Education Benefits 

Verification Form or letter from 

source 

Telephone or in-person 

contact with source 

Copies of latest benefit checks 

if amount is not expected to 

change over the next 12 

months 

Net Business Income N/A N/A Certified Form 1040, 

Schedules C, E, or F, or 

audited financial statements, 

or a loan application listing 

business income from the 

preceding 12 months 

Dividends or Interest Income, 

including Savings Accounts 

Verification Form or letter from 

source 

Telephone or in-person 

contact with source (but banks 

are not likely to provide this 

orally) 

Copies of current statements, 

CDs, etc., or Form 1099 from 

the institution, if amount is not 

expected to change over the 

next 12 months 

Interest from Sale of Real 

Property 

Verification Form or letter from 

an accountant, real estate 

agent, or other source 

including amortization table 

Telephone or in-person 

contact with an accountant, 

real estate agent, or other 

source including amortization 

table 

Copy of amortization schedule, 

with information to determine 

the amount of interest to be 

earned during the next 12 

months 

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A. Documenting Income Verifications 

All attempts to verify tenant information should be 

documented. This includes: 

�	 keeping copies of all form letters sent to third-party 

sources; 

�	 maintaining telephone logs for oral inquiries; and 

�	 making appropriate notations in the tenant file. 

Verification documents associated with the completed 

certification should be retained in the tenant file for 

inspection by the monitoring agency. 

Some monitoring agencies may be more restrictive in the 

type of verification which they will accept. The agency 

has the right to impose further limitations on acceptable 

forms of verification. The Owner should confirm with the 

agency if there are additional restrictions. 

B. Timing of Verifications 

Owners must have valid verifications at the time the 

tenant signs a Tenant Income Certification form. Verified 

information is acceptable and valid for a 90 day period. 

An oral update may be used to extend the life of the 

verification an additional 30 days up to a maximum of 120 

days from the date the verification was performed. Once 

the life of a verification has expired, owners must obtain a 

new verification of the tenant's income. 

Helpful Hints for Verification 

�	 Remember that income is being estimated for the 

coming 12 months. Be sure to ask all verification 

sources to estimate the anticipated income for the 

next 12 month period. This should include expected 

raises, bonuses, cost of living adjustments, and other 

anticipated changes. 

�	 Be sure to impress upon the verification sources that 

occupancy can be delayed by delays in verifications. 

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4.5 CERTIFYING HOUSEHOLD INFORMATION 

Owners must use an FDIC or monitoring-agencyapproved Tenant Income Certification (TIC) form to 

formally document tenant income and eligibility. The 

certification must be effective on the date the tenant signs 

the dwelling lease. 

GOOD PRACTICE: Owners can avoid having to 

update the income certification by having tenants sign 

the TIC form at the same time they sign their lease. 

The TIC form must be signed by the head of household, 

who thereby certifies that the income and household 

information provided is correct. The TIC form must also 

be signed by the property owner or designee, who 

certifies that the tenant has been classified properly as 

VLI or LI, based on the information provided. 

The FDIC-approved TIC is contained in Appendix E. Use 

this or an approved facsimile. 

4.6 DETERMINING ELIGIBILITY 

Once income and household size have been established 

and verified, tenant income must be compared to the AHP 

income limits. 

AHP uses HUD's published definitions of Very Low 

Income and Low Income, as adjusted for household size. 

Monitoring agencies will provide owners with the income 

limits applicable to their properties. Remember, Census 

and other definitions of median income may not be 

substituted to determine income eligibility for AHP. 

To determine if a particular household is eligible, an 

owner/manager should: 

�	 obtain the most recent income limits for the area in 

which the property is located; 

�	 determine the appropriate household size; and 

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�	 compare the verified income of the household to 

the applicable limits. 

Example: Below is a hypothetical income limit chart 

Hometown, USA, containing the VLI and LI limits for 

various household sizes. Suppose a 3 person household 

has a verified annual income of $21,500. This household 

is above the VLI limit ($13,750) but is below the LI limit 

($22,050), and therefore would be eligible as a Low 

income (LI) household. 

Sample Income Limits
 

Hometown USA (1997)
 

Household Size VLI Limit LI Limit 

1 person $10,700 $17,150 

2 persons 12,250 19,600 

3 persons 13,750 22,050 

4 persons 15,300 24,500 

5 persons 16,500 26,450 

6 persons 17,750 28,400 

7 persons 18,950 30,350 

8 persons 20,020 30,300 

A. Income Eligible Households 

If a household is determined to be income eligible 

according to the procedures outlined above, and passes 

all other standard and lawful screening, owners should: 

�	 Decide whether to designate the unit as a QU, 

which would be appropriate any time the property 

is below its VLI Set-Aside or Total Set-Aside, and 

when a replacement is needed for an over-income 

(OI) or vacant unit; 

�	 Set a rent that does not exceed program
 

maximums (see Chapter 5);
 

�	 Execute a lease with the tenant that includes the 

two required provisions (see Chapter 5); 

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�	 Create a tenant file with complete documentation 

(see Chapter 6); and 

�	 Reflect the status of the tenant in the appropriate 

Compliance Report (see Chapter 6). 

B. Households Not Income Eligible 

If a household is determined not to be income eligible 

after following the procedures outlined in this Manual, 

owners should: 

�	 Consider offering the applicant an unrestricted unit 

if one is available (and the applicant passes all 

other standard and lawful screening), assuming 

that the available unit does not need to be held 

open as a Next Available Unit for an eligible 

household; or 

�	 Inform the applicant that they are above the 

applicable income limits, that there are no 

vacancies other than for eligible households, and 

place the applicant on a waiting list if one is 

maintained. 

4.7 ANNUAL RE-EXAMINATIONS 

The annual income and household composition of the 

tenant in every QU must be re-examined at least annually. 

A. Purpose 

The purpose of a re-examination is to ensure that, as 

household income changes over time, households 

occupying QUs continue to be eligible under AHP 

program rules. Changes in household composition (e.g., 

babies born, members moving out, etc.) or changes in 

annual income need to be reported only at the time of the 

annual re-examination. It is not necessary for tenants to 

notify the property management staff in the interim, unless 

non-AHP provisions of the lease require it. 

Previously-qualified tenants can maintain their LI status at 

re-examination as long as their income continues to be 

within 140 percent of the applicable (e.g., the most current 

limit for the appropriate household size) LI limit for 

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admission. This 140% LI recertification income limit is 

listed as the “ M-F Transition” income on the HUD/FIDC 

Income Limit sheets you receive annually from your 

monitoring agency. 

However, if a tenant's income exceeds 140 percent of the 

applicable LI limit, the unit must be re-designated as an 

over-income QU. Then, the next available unit of 

comparable or smaller size must be designated to replace 

this unit. 

Once the unit is declared an over-income QU, the rent for 

that unit is no longer restricted by an AHP rent limit. 

Rent increases, if any, should comply with lease 

provisions and local tenant-landlord laws. 

B. Timing of the Recertification 

Re-examinations of tenant income eligibility are required 

at least annually. Owners may conduct them more 

frequently in order to have re-examinations correspond to 

lease periods of less than one year's duration. However, 

re-examinations must occur at least annually even if the 

lease is for a period longer than one year. 

Owners must complete a tenant's re-examination by an 

established recertification date. Owners may set the 

recertification date at a time of their choice as long as the 

date falls within 12 months of the time of the most recent 

tenant certification. Thus, if the lease for a unit took 

effect during the middle of a month an owner might set 

the recertification date on the 1st of the same month in 

the succeeding year. 

Example: If a Qualified Tenant was certified and moved 

in the QU on December 17, 1996, his or her recertification 

date could be set at December 1, 1997, but not January 

1, 1998. 

Each time a re-examination is conducted, owners must 

collect updated income information from the tenant 

following the procedures in Section 4.5. As was true for 

the initial certification, the income verification must be 

valid at the time the recertification is signed. Again, 

verifications are valid for 90 days and can be extended for 

30 days with an oral update. 

AHP Owner's Compliance Manual 4-13 9/97 
 

Good Practice: In planning re-examination, owners 

should begin early enough to allow sufficient time to 

complete the verification process, but not so far in 

advance that the verification (which are good for 90 days) 

will expire before the date the tenant will sign the 

recertification. Many owners begin the process 60 days 

before lease renewal and recertification. 

C. Recertification Procedures 

The procedures for re-examinations are virtually the same 

as determining initial income eligibility. Specifically, 

owners must: 

1.	 Contact the tenant, and obtain: a) a list of current 

household members; b) a list of income sources, 

including assets, for the coming year; and c) the 

tenant's signature on the releases for verification, as 

necessary, for transmittal to all of the identified income 

sources. 

2.	 Verify tenant income information using the 

appropriate method(s) described above. 

3.	 Compare household income to the latest available 

income limits, and determine household status. 

Any changes in household size should be reflected at 

this time, as staff compares the new income figures to 

the latest income limits. Depending on the outcome 

of the re-examination, the household's status as an 

eligible household may change. 

4.	 Execute the Tenant Income Certification (TIC) form 

and mark the space for recertifications. The tenant's 

signature is required. (See Appendix E for a sample 

TIC form). Changes in status become effective on the 

date the recertification form is executed. 

5.	 Assemble all documentation and place it in the 

tenant file. 

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