"CDA's own Multifamily Rental Financing Program Guide sets a minimum debt service coverage ratio, a vacancy floor, and specific dollar-per-unit bands for operating expenses and reserves before I've even finished picking a minimum set-aside — how much of my pro forma is actually mine to build, and how much is DHCD's underwriting standard to hit exactly?"
Minimum set-aside: three federal options, and a second test bond deals can't fully use
Consistent with the federal Consolidated Appropriations Act of 2018 (effective in Maryland as of August 1, 2018), a project owner must make one, irrevocable Set-Aside Election no later than the date CDA and the owner execute the project's IRS Form 8609: at least 20 percent of units for households at or below 50 percent of area median gross income (the 20@50 Set-Aside); at least 40 percent of units at or below 60 percent (the 40@60 Set-Aside); or Income Averaging — at least 40 percent of units at or below 80 percent of area median gross income, so long as the average restricted-unit income limit across the project does not exceed 60 percent. Household size for these calculations follows fixed bedroom-configuration assumptions, and unit rents may not exceed 30 percent of the applicable income limit.
The QAP is explicit that this 2018 flexibility does not travel to the separate minimum-set-aside test tax-exempt bond financing carries under IRC §142: "The changes to the Internal Revenue Code made by the federal Consolidated Appropriations Act of 2018... do not extend to the set-aside requirements associated with the issuance of tax-exempt bonds in accordance with §142 of the Internal Revenue Code. Projects that receive an allocation of 4% LIHTC in conjunction with an issuance of tax-exempt bonds must meet the set-aside requirements of both §42 and §142." Because §142 was never amended to add an Income Averaging option, a bond-financed deal that elects Income Averaging for its §42 credit must independently satisfy the older, binary 20@50-or-40@60 test under §142 for the bond side of the same building — a second, narrower election running in parallel with the first, not a single unified test.
Setting the actual rent: imputed household size, not just the income chart
DHCD's rent-setting mechanics run through an imputed-occupancy assumption rather than a unit's actual tenants: maximum unit rent (inclusive of tenant-paid utilities) may not exceed 30 percent of the imputed gross income limit for that unit, based on an assumed 1.5 persons per bedroom for units with one or more bedrooms, and 1.0 person for efficiency or single-room-occupancy units. The Guide's own worked example: a two-bedroom unit targeted at 40 percent of area median income is priced using 40 percent of the three-person-household income limit — not the two-bedroom count itself — divided by twelve and multiplied by 30 percent.
Elderly-restricted units get a separate, capped imputed household size: no more than three persons, regardless of how many bedrooms the unit has. The Guide contrasts this directly against a family project — a three-bedroom family unit is priced on a 4.5-person household, but the identical unit designated for Elderly Households is priced on only a three-person household, a materially lower (and therefore lower-rent) imputed income limit for the same physical unit.
DHCD's underwriting standards are a threshold, not a suggestion
Section 3.9 of the Guide states plainly that "to pass threshold, an application must meet the underwriting standards listed in Sections 3.9.1 through 3.9.9" — these are pass/fail gates on the pro forma itself, not general guidance a sponsor can deviate from with a footnote.
The operating reserve's release conditions are conjunctive, not a menu — all three must be met before capitalized reserves can even begin to be released: the project must have achieved a minimum 1.15 DSCR, economic break-even operations for one complete fiscal year as confirmed by the project's annual audit, and 90 percent occupancy sustained for twelve consecutive months. Even then, release happens only at DHCD's discretion and can be staged over the following three years, conditioned on the project continuing to hit break-even and 90 percent occupancy; once released, reserves may be used to pay outstanding deferred Developer's Fee, reduce a State loan, fund other reserves, or fund project betterments, again at DHCD's approval.
The specific DSCR figure varies slightly by which DHCD loan product a project uses. The general underwriting standard (Section 3.9.7) states 1.15 in the first year of stabilized operations and at least 1.10 through year 15. DHCD's Flex Rate Loan and Minimum Required Payment Loan terms both restate this as 1.15 in the first year after any Interest Only period ends and 1.10 through year 15 of the permanent loan phase, while the Standard Surplus Cash Loan terms instead call for 1.15 flat "during the permanent loan phase" — in every case, DSCR is measured against the higher of the senior lender/credit enhancement provider's own requirement or DHCD's stated floor, and a separate Total Debt Service Coverage Ratio (TDSCR), covering all must-pay debt service including DHCD's own gap financing, is set case-by-case by the underwriter rather than fixed in the Guide.
Utility allowances: DHCD's method hierarchy, and the one method it hasn't adopted
DHCD's LIHTC Utility Allowance Policy implements the IRS's July 29, 2008 final regulations under §1.42-10, which created three new utility-allowance methodologies; the policy states directly that "the Agency Estimate is not being implemented by [DHCD] at this time." What is implemented is a strict hierarchy: a building assisted by the Rural Housing Service (RHS), or with even one RHS-assisted tenant, must use the RHS utility allowance for every rent-restricted unit in the building; a HUD-regulated building (rents and allowances reviewed annually by HUD) uses the applicable HUD utility allowance, unless RHS involvement supersedes it; and only buildings that fall into none of those categories reach a fourth tier with real owner choice — the local Public Housing Authority's Section 8 Housing Choice Voucher utility allowance (must be implemented within 90 days of receipt), a written utility company estimate, the HUD Utility Schedule Model (calculated by a DHCD-approved engineer or qualified professional), or an Energy Consumption Model (similarly requiring a DHCD-approved, owner-unrelated professional and 12 months of consumption data).
Sub-metered utility costs are treated as tenant-paid — and therefore includable in the utility allowance — under a 2009 IRS clarification, so long as the rate charged matches what the utility company charges the building owner; any administrative fee for sub-metering is capped at $5 per month per unit and is excluded from the gross rent calculation entirely (rather than being folded into rent as an additional charge). Any change to a unit's utility allowance takes effect for gross-rent purposes only 90 days after the change, and allowances must be reviewed and updated at least once every calendar year for the life of the compliance period. This policy's own effective date is stated as June 14, 2010, "until otherwise amended"; this research found no later amendment date on the version currently published on DHCD's website, though DHCD's own site does not date-stamp the document beyond that original effective date.
How long does the affordability restriction actually run? A real, unresolved discrepancy
The QAP itself defines a 30-year floor in two stages: a 15-year Initial Compliance Period, followed by an Extended Low-Income Housing Covenant requiring the low-income set-aside, rent restrictions, and other requirements to continue "for an additional period of at least fifteen (15) years beyond the Initial Compliance Period" — together, at least 30 years, consistent with the federal minimum under §42(h)(6). DHCD's own public-facing LIHTC Program webpage, however, states a different figure for the same requirement: "The building must remain in compliance and is subject to a covenant to enforce compliance for a minimum of 40 years." This research could not reconcile the QAP's own 30-year definition against the program webpage's 40-year claim from any source reviewed in this session — both are DHCD's own published statements, and neither document cross-references or explains the other's figure. A sponsor should confirm the actual covenant term stated in a specific project's own Extended Low-Income Housing Covenant rather than assume either the QAP's 30-year floor or the webpage's 40-year figure controls.
Two sets of published limits, and an open question about which programs use which
DHCD's Multifamily Housing Development Document Library publishes two separate, annually updated charts: "LIHTC Income and Rent Limits" (federal, HUD-derived, tied to §42) and a distinctly titled "Maryland Income and Rent Limits" chart, both currently available in 2026 versions. This research could not confirm from the documents themselves, or from DHCD's surrounding materials, precisely which non-LIHTC state programs (RHFP, RHW, or others) key off the Maryland-specific chart rather than the federal LIHTC chart, or where the two would produce different numbers for the same unit. A sponsor layering LIHTC with other DHCD funding sources on the same project should confirm which published limit chart governs which funding source before finalizing a rent roll, rather than assuming the two charts are interchangeable.
Where this goes wrong
- Electing Income Averaging for the §42 credit without separately checking the §142 minimum set-aside test on a bond-financed deal — the 2018 federal law that created Income Averaging never amended §142, so a 4% bond deal must independently satisfy the older 20@50-or-40@60 test for the bond side even if it elects Income Averaging for the credit side.
- Treating DHCD's $4,000–$9,000-per-unit-per-year operating expense corridor as informal guidance rather than a threshold — the Guide states an application must meet its Section 3.9 underwriting standards to pass threshold at all, and this corridor is waivable only for small (up to 40-unit) projects, master-metered utility projects, or subsidized permanent supportive housing.
- Underwriting a flat 5% vacancy rate on an FHA Risk Sharing-financed MBP loan — those loans are generally underwritten at 7%, not the general 5% floor that applies elsewhere.
- Treating the 2%/3% trending assumptions as a single target rather than a floor-and-ceiling pair — 2% is a maximum for rent/revenue growth and 3% is a minimum for expense growth; a pro forma cannot show slower expense inflation than 3% or faster rent growth than 2%.
- Assuming the operating reserve releases once any one of its three conditions is met — DSCR, break-even, and sustained occupancy are conjunctive requirements, and release is discretionary with DHCD even once all three are satisfied.
- Treating the QAP's 15-plus-15-year Extended Use Period definition as the final word on how long affordability runs — DHCD's own LIHTC Program webpage separately claims a 40-year minimum covenant term, a discrepancy this research could not reconcile; check the specific project's own recorded Extended Low-Income Housing Covenant.
- Using the "Agency Estimate" utility allowance method — Maryland's own policy states DHCD has not implemented it, one of only three methods the 2008 federal regulations created.
- Assuming a sub-metering administrative fee can be set at whatever level a management company chooses — Maryland caps it at $5 per unit per month and requires it be excluded from the gross rent calculation entirely.
- Assuming DHCD's "LIHTC Income and Rent Limits" chart and its separate "Maryland Income and Rent Limits" chart are interchangeable — DHCD publishes both, annually, as distinct documents, and this research could not confirm which non-LIHTC funding sources key off which chart; verify against the specific funding source before setting rents on a layered deal.
- HUD
- LIHTC
- State QAPs
- IRS § 42
- Housing Finance Agencies