Income Limits Touch Millions of American Families

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Housing programs have had income limits for eligibility since the federal government established public housing in the 1930s. Income limits ensure that those who are most in need of it receive housing assistance. Both income limits and the median family incomes on which they are based are calculated and updated annually for each metropolitan area and nonmetropolitan county in the U.S. Over the years, a wide array of income-targeted federal programs have come to incorporate, through statute or regulation, HUD’s median income or income limit estimates as a basis for establishing eligibility and other standards. To help the many members of the public affected by HUD’s median income and income limit estimates better understand how we arrive at these figures, HUD now offers a comprehensive web-based system detailing all of the calculations behind the median family income estimates and the associated income limits. This Income Limits Documentation System can be accessed at www.huduser.org/datasets/il/il2007_docsys.html.

How Income Limits are Determined

The process begins by estimating the median family income for each area. These estimates are based on income distributions reported in the most recent decennial census (2000), and use more recent data drawn from the American Communities Survey (ACS) and the Bureau of Labor Statistics to estimate state- and county-level changes since the last census. For the first time, the income estimates also reflect results from the initial full ACS conducted in 2005 and the local area data released from that survey. For Fiscal Year (FY) 2007, the estimated median family income for the U.S. is $59,000.

The U.S. Housing Act of 1937, as amended, is the statutory basis for income limits. Its policies can be summarized as follows:

• Low-income families are defined as families whose incomes do not exceed 80 percent of the median family income for the area.

• Very low-income families are defined as families whose incomes do not exceed 50 percent of the median family income for the area.

• The 1998 Act amendments establish a 30-percent-of-median-family-income program targeting standard, which is often referred to as the “extremely low-income” standard.

In addition, the following annual adjustments are made:

• Income limits are adjusted for family size;

• Income limits are adjusted for areas with unusually high or low family income, or housing-cost-to-income relationships;

• Income limits are held at the previous year’s levels for areas where they would otherwise be decreased; and

• Income limits for non-metropolitan areas may not be less than limits based on the state non-metropolitan median family income level.

Who Uses Income Limits?

HUD median income estimates and income limits, or derivatives thereof, apply to a wide array of programs both within HUD and throughout the federal government. Within HUD, median incomes or income limits serve as parameters in 11 different housing assistance and community development programs. The federal Tax Code includes five provisions having to do with Low-Income Housing Tax Credits and state-issued tax-exempt bonds that reference HUD median income estimates. The Departments of Agriculture and Veterans’ Affairs use HUD income limits to set program income eligibility standards. Fannie Mae and Freddie Mac affordable lending goals are defined in terms of HUD median income estimates, as are rules for Community Reinvestment Act compliance and the Federal Housing Finance Board’s affordable housing lending programs. Clearly, the HUD median income estimates and income limits are among the most important numbers produced by a federal agency.

Frequently Asked Questions

HUD USER’s Call Center receives a large volume of questions each year from consumers of income limits, such as local and state governments, financial institutions, public housing authorities, community-based organizations, and individuals. The following questions are typical of the inquiries received, and are answered below for ResearchWorks readers with questions about the FY2007 income limits:

Q: How are this year’s income limits different than previous years’ income limits?

A: There was a change in methodology for the FY2007 Income Limits. This year’s estimates are based on the first full American Community Survey (ACS) sample sizes surveyed in 2005 by the U.S. Bureau of the Census. While HUD’s FY2007 median family income estimates are still updates of the 2000 Census data, the 2007 HUD update factors differ from FY2006 update factors in two very important ways:

• FY2007 estimates are based on local area ACS 2005 surveys for places of 65,000 or more, where such surveys have been published; and

• Estimates for all other areas now reflect the state-level change between the 2000 Census state and 2005 ACS state estimates, rather than being based on applying ACS changes (e.g., 2000–04 for FY2006 estimates) to 2000 Census estimates.

Q: Can FY2007 Median Family Incomes (MFIs) be compared with estimates for previous years?

A: They should not be directly compared with previous years as an indicator of annual income change, due to the change in methodology. For more information, please review the Transmittal Notice at www.huduser.org/datasets/il/il07/Medians2007.pdf.

A: There are many exceptions to the arithmetic calculation of income limits. These include adjustments for high housing cost relative to income, the application of state nonmetropolitan income limits in low-income areas, and national maximums in high-income areas. To understand how an area’s income limits are determined, please review the Income Limits Documentation System at www.huduser.org/datasets/il/il2007_docsys.html. The exceptions are also detailed in the FY2007 Income Limits Briefing Material report located at www.huduser.org/datasets/il/il07/index.html.

A: The FY2007 income estimates and income limits are available as a free download from HUD USER at www.huduser.org/datasets/il/il07/index.html. You will also find a link to a new documentation system that explains each income limit and area median income estimate, as well as links to the current Income Limit Area Definitions and other information at this location.

A: Although HUD revised its median family income estimates to use the new ACS data, we are continuing our hold-harmless policy with respect to income limits. That is, HUD will continue to set income limits at the higher of normal income limit calculations or at the previous year’s income limits.

Additional questions are welcome and can be directed to HUD USER by calling 800.245.2691, option 1. The complete list of programs with eligibility limits is located in FY 2007 Income Limits Briefing Materials, available at www.huduser.org/datasets/il/il07/index.html, where a list of the recently released income limits can also be downloaded.