The very low-income limits (usually based on 50 percent of median incomes) are the basis of all other income limits, as they are the best-defined income limits and have been the subject of specific, limited legislative adjustments subsequent to reviews of the HUD calculation methodology. In addition, a number of other income limit calculations are tied by legislation or regulation to their calculation.
There are currently several legislated income limit standards (e.g., 30%, extremely lowincome limits, 50%, 60%, 65%, 80%, 95%, 100%, 115%, 125%) that were intended to have progressive relationships. To ensure that this occurs, the very low-income limits have been used as the basis for deriving other income limits unless that relevant statutory language has no references or relationship to low- and very low-income limits as defined by the U.S. Housing Act of 1937. If this were not done, for instance, HUD low-income limits would be less than very low-income limits in areas where very low-income limits had been adjusted upward by more than 60 percent because of unusually low area median family incomes relative to the Section 8 Fair Market Rents (FMRs).
Very low-income limits are calculated using a set of formulae as follows. The first step is to calculate a four-person income limit equal to 50 percent of the area median family income. Adjustments are then made if this estimate is outside formula constraints. More specifically, the very low-income limit for a four-person family is calculated as follows:
(1) 50 percent of the area median family income is calculated and set as the preliminary four-person family income limit;
(2) the four-person very low-income limit is increased if it would otherwise be less than the amount at which 35 percent of it equals 85 percent of the annualized two-bedroom 40th percentile rent. This adjusts income limits upward for areas where rental housing costs are unusually high in relation to the median income;
(3) the four-person very low-income limit is reduced to the greater of 80 percent of the U.S. median family income level, or the amount at which 30 percent of a four-person family's income equals 100 percent of the two-bedroom 40th percentile rent. This adjusts income limits downward for areas of unusually high median family incomes;
(4) the four-person income limit is increased if it is less than 50 percent of the relevant state non-metropolitan median family income level,3
(5) the four-person income limit is increased if it is less than 95 percent of last year's very low-income limit and reduced to the greater of 105 percent of last year’s very low-income limit or twice the change in the national median family income estimate if that amount would be larger than 5 percent. For FY 2020 income limits, twice the increase in the national median income compared to the FY 2019 median income is 7.9 percent, so the cap on increases is set at 7.9 percent. HUD uses FMRs to calculate high and low housing cost areas. Beginning with the FY 2020 FMRS, effective October 1, 2019, there are no 50th percentile FMRs; all FMRs are calculated at the 40th percentile.
Table 1 summarizes the rules governing very low-income limit determinations:
Table 1 Summary of Income Limits Determinations for FY 2020 Very Low-income Limits
||Type Income Limit Calculation
||Limits based on 50% of local median family income
||Limits based on State non-metropolitan median family income level
||Limits increased to the amount at which 35% of 4-person family's income equals 85% of the 2-bedroom 40th percentile rent
||Limits decreased to the greater of 80% of the U.S. median family income or the amount at which 30% of a 4-person family's income equals 100% of the 2- bedroom 40th percentile rent
||Limits floored if they would be less than 95% of last year's limit
||Limits capped if they would otherwise increase by more than twice the increase in the National Median Income (i.e., would be more than 110% of last year's limit)
A Housing and Community Development Act of 1987 amendment directed that non-metropolitan area income limits should never be set at less than if they were based on the State non-metropolitan median family income level. In implementing this provision, HUD used its discretion to apply this policy to metropolitan areas to avoid inequities that would otherwise result. Doing so avoids the anomaly of assigning higher income limits to a non-metropolitan county than are assigned to an adjacent metropolitan area where the median family income is less than the State non-metro level but above the level for the non-metro county.