"MHC just added a brand-new minimum set-aside option for 2026, but the compliance-certification section of the same QAP still only lists the old three tests, there's no rent/income table anywhere in the QAP itself, and my underwriter is asking what MHC's actual debt-coverage band is — where do I actually find the numbers that make this pro forma real?"
A new minimum set-aside option that the rest of the QAP hasn't caught up to
Section 1.1(1) of the 2026 QAP lists three minimum set-aside elections under IRC §42(g)(1): the "20/50 test" (20% of units at or below 50% AMI), the "40/60 test" (40% of units at or below 60% AMI), and, newly added for 2026, the "Average Income Test (AIT): 40% of the total residential units be rent-restricted and occupied by tenants whose income does not exceed the specific imputed income limitation designated for their unit, provided that the average of these designated limits across all qualifying units is no more than 60% of the Area Median Income (AMI)." MHC's own published "Executive Summary, 2026 QAP Proposed Revisions" confirms this is brand new to the 2026 cycle, not a restatement of prior policy: item 11 of that redline is headed "Added new MSA option," quoting the exact AIT language above as newly inserted text. Prior Mississippi QAPs offered only the 20/50 and 40/60 elections.
But two other parts of the same 2026 QAP were not brought into line with that addition. Section 8.3 (Certification and Review) still requires an owner to certify annually that the development meets "either (a) the 20-50 test under Section 42 (g)(1)(A)... OR (b) the 40-60 test under Section 42(g)(1)(B)... or (c) the 25-60 test under Section 42(g)(4) of the Code" — a reference to an older, different federal test structure that predates the modern Average Income Test and does not mention AIT by name. The Section 10 Definitions glossary has the identical gap: its "Minimum Set-Aside Test" and "Deep Rent Skewing Set-Aside" entries both still describe only "the 20-50 test, the 40-60 test, and the 25-60 test." An applicant electing AIT for 2026 should confirm directly with MHC's Compliance Division how the annual certification language in Section 8.3 will actually be applied to an AIT election, since the section as written does not describe it.
Rent restrictions and affordability period
IRC §42(g)(2) rent restrictions apply as expected — rent cannot exceed 30% of the income limit applicable to the unit — and the QAP requires a 30-year minimum affordability period: the 15-year federal compliance period plus an additional 15-year extended-use commitment under a recorded Land Use Restrictive Agreement (LURA), executed before Form(s) 8609 are issued. The election of minimum set-aside test is irrevocable "once the application has been received by MHC" and "must be consistent throughout the application and the application package."
Electing Deeper Targeting points (Selection Criteria item #9, worth 5 points) extends that commitment further: at least 15% of units must be set aside for households at or below 30% of area median gross income, defined by MHC as "the straight-line calculation of the 50% AMI" — explicitly not the 30% AMI figure HUD separately publishes in its Multifamily Tax Subsidy Project (MTSP) limits. That election requires a LURA committing to the 40-year (not 30-year) affordability period, and the QAP states plainly that "Applicants applying for deeper targeting points are automatically waiving their right to a qualified contract by agreeing to extend the affordability period for this income level for forty (40) years." It also requires a Letter of Commitment with an MHC-approved housing service provider (listed in Addendum L) obligating the owner to prioritize that provider's waitlist and the provider to supply up to 24 months of rental assistance and case management to referred tenants.
Where the actual rent and income numbers live — not in the QAP itself
Section 1.1(3) tells a reader that "the maximum allowable rent is based on the number of bedrooms and area median income as established annually by HUD (See Addendum G)" — but the QAP's own table of contents and body text show Addendum G is actually the "MAOI/CHOICE Referral Process & Resources" addendum, unrelated to rent or income figures. The addendum actually titled "Income and Rent Limits" is Addendum H — and in the 2026 QAP as posted, Addendum H consists of a single word: "[RESERVED]." No income or rent limit table of any kind appears anywhere in the roughly 150-page document.
This is consistent with MHC's own separately published Developer Guide, which does not describe MHC as maintaining its own limits at all: for the Housing Tax Credit program the Guide states "the income limit for a unit is usually 50% or 60% of the area median income" and points developers to a general rent-and-income-limit calculator; for the HOME program it states that "rent limits and income limits... are announced annually by HUD," directing readers to HUDExchange.info. The practical takeaway for underwriting a Mississippi deal: there is no MHC-hosted, MHC-specific rent or income limit schedule to look up — go directly to HUD's own published Multifamily Tax Subsidy Project (MTSP) income limits for Mississippi's counties, the same source every other LIHTC state ultimately relies on, since MHC does not layer its own calculation or publication on top of it.
Underwriting: debt-service coverage band, pro forma assumptions, and reserves
| Assumption / requirement | MHC standard |
|---|---|
| Vacancy rate assumption | 7% per year |
| Income growth assumption | 3% per year |
| Expense growth assumption | 4% per year |
| Cash flow, years 1–15 | Must be non-negative every year, or the development is not financially feasible |
| Debt service coverage ratio | Acceptable range of 1.15 to 1.30 (15-year average); above 1.30 requires a higher mortgage or lower tenant rents, below 1.15 is infeasible outright |
2026 QAP, Section 5.5 (15-Year Development Pro Forma); Attachment FF-5, Debt Service Underwriting Criteria.
Reserve requirements are mandatory for every application, not just larger deals. Replacement reserves are set by construction type — $300/unit for Rehabilitation, $250/unit for New Construction-Elderly, $300/unit for New Construction-Family — must increase 4% annually, and may only be spent on defined capital improvements (system replacements exceeding $5,000 for developments of 24 units or fewer, or $10,000 for larger developments), with prior written MHC approval required for any withdrawal during the extended-use period. Operating reserves must equal six months of the development's first-year operating expenses (inclusive of the replacement-reserve calculation), must remain funded at least through the third year of the credit period following Form(s) 8609 issuance, and can then convert to a Letter of Credit if the syndicator and MHC both agree in writing. A development fails financial feasibility outright if either reserve requirement isn't met.
Administrative expenses carry an unusual floor as well as a ceiling: MHC "will require a minimum expense per unit of $2,700," and "if a development fails to meet the minimum expense per unit, the development will not be considered financially feasible for an allocation of tax credits" — a floor that must be maintained throughout the compliance period, not just at application. Separately, MHC caps total "intermediary costs" (developer fees, syndication fees, attorney fees, design professional fees, consultant fees, and organizational costs) at 40% of total development cost, reducing the credit amount proportionally if that ceiling is exceeded.
Utility allowances: MHC defers to the standard federal source hierarchy
Mississippi does not run its own utility-allowance methodology or calculator. The Required Documents list simply instructs applicants to "provide the applicable annual utility allowance from Rural Development, HUD, the local PHA or the local utility company" — the standard federal source hierarchy under Treasury Regulation §1.42-10, with no Mississippi-specific overlay. If the utility allowance hasn't changed from a prior year, the applicant can submit documentation from the provider confirming that instead of a new estimate. As with rent and income limits, a Mississippi deal's utility allowance work is a matter of picking the correct federal source for the site, not consulting an MHC-published table.
One narrow technical note applies to Native American housing: assistance under the Native American Housing Assistance and Self-Determination Act (NAHASDA) "is not taken into account in determining whether a building is federally subsidized for purposes of tax credits," so a NAHASDA-assisted building can still access 9% credits, provided it follows the deeper-targeting rules that otherwise apply to HOME-financed developments.
Where this goes wrong
- Assuming Section 8.3's annual certification language ("20-50 test... 40-60 test... or the 25-60 test") describes every available minimum set-aside option — it doesn't mention the Average Income Test at all, even though Section 1.1(1) added AIT as a real election for the 2026 QAP.
- Looking for a Mississippi-specific rent or income limit table inside the QAP — Addendum H (Income and Rent Limits) is marked "[RESERVED]" with no content, and the in-text cross-reference in Section 1.1(3) actually points to the wrong addendum letter (G, which is the MAOI/CHOICE referral resource, not rent limits).
- Using HUD's separately published 30% AMI (extremely-low-income) MTSP figure for the Deeper Targeting set-aside — MHC defines its own 30%-of-area-median-gross-income threshold for that item as a straight-line half of the 50% AMI figure, not HUD's published 30% AMI number, and the two can differ.
- Treating MHC's debt-service-coverage requirement as a simple minimum — it's a band (1.15 to 1.30), and a development whose 15-year average net cash flow pushes the ratio above 1.30 is treated as over-subsidized and must reduce rents or increase the mortgage, not just avoid falling below 1.15.
- Assuming the $2,700-per-unit administrative expense figure is a cap — it is stated as a floor; a development underwritten below it is not considered financially feasible for an allocation at all.
- Assuming a Mississippi utility allowance requires an MHC-specific calculation — MHC simply requires the standard RD/HUD/PHA/utility-company source hierarchy, with no state-specific overlay documented anywhere in the QAP.
- Treating the Deeper Targeting election as a simple scoring add-on — it automatically waives the development's right to a qualified contract and extends the affordability period to 40 years, a materially longer commitment than the QAP's general 30-year floor.
- HUD
- LIHTC
- State QAPs
- IRS § 42
- Housing Finance Agencies