"THDA's QAP makes me pick an irrevocable minimum set-aside and file a 30-year pro forma at Initial Application — but where does it actually state the debt service coverage ratio or operating reserve THDA expects, and does electing the Average Income Test cost me anything in scoring?"
Minimum set-aside election: three federal tests, one QAP-specific rehab lock-in
Section 6.B.5 requires every Initial Application (other than one proposing rehabilitation of a prior Housing Credit Development) to elect one of three federal minimum set-asides: "a. The 20/50 Test; or b. The 40/60 Test; or c. The Average Income Test." All three are offered, including income averaging — but the election is irrevocable, and a rehabilitation deal doesn't get a fresh choice: "An Initial Application that proposes rehabilitation of a prior Housing Credit Development must elect the minimum set–aside elected in the Initial Application for the prior Housing Credit Development, except that where the 40/60 Test was initially selected, an Applicant may, concurrent with its submission of the Initial Application, submit a waiver request to THDA informing them of the development's intent to use of the Average Income Test" (Section 6.B.5). In other words, a prior 20/50 election locks a rehab deal into 20/50 permanently, and only a prior 40/60 election opens a narrow, THDA-approval-dependent door to switching to Average Income.
The real cost of choosing Average Income Test shows up in scoring, not in threshold eligibility. Section 17.A.2, "Meeting Housing Needs," awards up to 6 points to 20/50 or 40/60 electors who set aside an additional share of units at deeper income tiers (up to an additional 20% of units at 50% AMI for 40/60 electors, or an additional 20% at 40% AMI — or at least 10% at 30% AMI — for 20/50 electors). The QAP then closes the door on Average Income Test entirely: "d. Initial Applications in which the Average Income Test is elected are ineligible for these points" (Section 17.A.2.d). A developer choosing Average Income Test for its underwriting flexibility should model that trade-off explicitly against the 6 points forfeited, not treat the election as scoring-neutral.
| Election | Federal requirement | "Meeting Housing Needs" points available (Section 17.A.2) | Rehab lock-in rule |
|---|---|---|---|
| 20/50 Test | ≥20% of units at ≤50% AMI, rent-restricted | Up to 6 (deeper set-asides at 40% AMI or 30% AMI tiers) | Locked to 20/50 permanently on a rehab of a prior Housing Credit Development |
| 40/60 Test | ≥40% of units at ≤60% AMI, rent-restricted | Up to 6 (deeper set-asides at 50% AMI tiers) | Locked to 40/60, except a narrow concurrent waiver request to switch to Average Income Test |
| Average Income Test | ≥40% of units averaging ≤60% AMI, designated in 10% increments 20%-80% | 0 — expressly ineligible | A prior Average Income Test election is not addressed by the QAP's rehab lock-in text located this session |
2026 QAP, Section 6.B.5; Section 17.A.2.
Rent and income limits: THDA points to HUD's own published numbers, not a Tennessee-specific table
The QAP's introduction describes itself as containing "uniform resource locators to resources utilized by THDA in the application process, such as the Tennessee Growth Policy Act, Multifamily Tax Subsidy Project Income Limits, Qualified Census Tracts, designations of Difficult to Develop Areas, Fair Housing Act requirements, etc." (Section 1). That is THDA's own framing of how it handles income limits: by incorporating HUD's published Multifamily Tax Subsidy Project (MTSP) income limits by reference, rather than calculating and publishing a separate Tennessee-specific income or rent schedule inside the QAP itself. This research found no independent THDA-published rent or income limit table anywhere in the 2026 QAP's text.
Practically, that means a developer should pull the current HUD MTSP release for the property's specific county or HUD Metro FMR Area at underwriting and again at each subsequent compliance year, rather than relying on a prior year's cached figure or assuming THDA layers a Tennessee-specific adjustment on top of HUD's number — this research found no evidence of such an adjustment in the QAP text.
What the QAP does not say: no numeric DCR, no stated reserve minimum
A full-text search of the 2026 QAP for "debt service," "coverage ratio," "DSCR," "operating reserve," and "replacement reserve" returned no numeric requirement anywhere in the document. THDA's only stated standard is a discretionary financial-feasibility review: "THDA will only allocate an amount of Housing Credit necessary for the financial feasibility of a development and its viability as a qualified low–income housing development in accordance with Section 42(m)(2)... THDA may reject or require modifications to Initial Applications for Housing Credit when THDA determines that the proposed development is not financially feasible or does not need Housing Credit" (Section 11, opening paragraph). This is a genuinely confirmed absence, not an oversight in this research — flag it explicitly to a client rather than assuming a market-convention ratio (commonly 1.15x-1.20x in LIHTC underwriting generally) is a THDA rule. It isn't sourced anywhere in THDA's own QAP text; it comes from whatever the deal's actual permanent lender and tax credit investor require.
The QAP does require supporting exhibits at Initial Application — "Financial Feasibility" documentation showing the ownership entity can sustain the development on operating income, and "Lender and Investor LOIs [that] should demonstrate that there will be no shortfall of funds during the construction period" with permanent financing "structured and included" (Section 6.B.3) — but stops there. THDA is reviewing feasibility narratively and case-by-case, at its sole discretion, not against a bright-line ratio stated in the QAP.
Utility allowances: the standard federal hierarchy, with THDA's own fees and clocks layered on
Utility allowance rules live in the QAP's compliance-monitoring section (Section 10.M) rather than its underwriting sections, but they directly drive the gross rent calculation a pro forma depends on. THDA follows the standard Treasury Regulation 1.42-10 mandatory hierarchy: an RHS-assisted building uses the RHS-prescribed allowance regardless of other subsidy; a building with any RHS-assisted tenant uses that same RHS allowance building-wide; a HUD-regulated building (with no RHS involvement) uses the applicable HUD utility allowance; and a building with HUD tenant-based rental assistance but no RHS or HUD regulation uses the applicable Public Housing Authority Section 8 Existing Housing utility allowance (Section 10.M.3).
| Situation | Required/available methodology | Cost / prerequisite |
|---|---|---|
| RHS-assisted building, or any RHS tenant assistance in the building | RHS-prescribed utility allowance (mandatory) | No fee |
| HUD-regulated building (no RHS involvement) | Applicable HUD utility allowance (mandatory) | No fee |
| HUD tenant assistance, no RHS/HUD-regulated status | PHA Section 8 Existing Housing utility allowance (mandatory) | No fee |
| None of the above apply — Applicable PHA Utility Allowance elected | Local PHA's own Section 8 utility allowance (or THDA's HUD Utility Schedule Model if THDA is the local PHA) | No fee; only elective method with no 12-month wait |
| None of the above apply — other elective methods | Utility Company Estimate, Agency Estimate, HUD Utility Schedule Model, or Energy Consumption Model | $200 THDA review fee each; requires 12 months of actual consumption data first; 90-day THDA review period (THDA "will attempt" a 30-day turnaround) |
2026 QAP, Section 10.M.3-4.
The 12-month data prerequisite is explicit: "No elective methodology, other than the Applicable PHA Utility Allowance, may be elected until at least twelve (12) months' worth of actual consumption data is available" (Section 10.M.4). Once a request is filed, "THDA's receipt of a request starts a 90-day review period... THDA will attempt to provide an approval or denial of the request within thirty (30) calendar days of its receipt of the request" (Section 10.M.4.f) — a target, not a guarantee. A developer planning to switch utility allowance methodology post-stabilization should build both the 12-month data-collection window and the up-to-90-day THDA review into the schedule, not just the 30-day aspirational figure.
30-year pro forma, 30-year Extended Use Period — no Tennessee scoring bonus for going longer
Section 6.B.4 requires a specific exhibit at Initial Application: "Financial Pro-forma - Include a 30–year pro–forma for the proposed development in the Initial Application." That 30-year modeling horizon sits inside a compliance structure with its own 30-year floor: the QAP's Extended Use Agreement definition requires the land use restrictive covenant to run "for a term of at least thirty (30) years (the 'Extended Use Period')" (Section 2, Definitions), layered on top of the federal 15-year Compliance Period. This research found no scoring points anywhere in the 2026 QAP for voluntarily extending the Extended Use Period beyond that 30-year floor — unlike some states that award points for a longer commitment, Tennessee's structure appears to treat 30 years as simply the required minimum, not a scored variable. Confirm this remains the case in any future QAP amendment before assuming it as a permanent design choice.
Where this goes wrong
- Assuming the Average Income Test is scoring-neutral — Section 17.A.2 makes 20/50 and 40/60 electors eligible for up to 6 "Meeting Housing Needs" points that an Average Income Test election forfeits entirely.
- Assuming a rehabilitation deal with a prior Housing Credit allocation can freely re-elect its minimum set-aside — it must carry forward the prior election, with only a narrow, THDA-approval-dependent waiver path from 40/60 to the Average Income Test, and no stated path at all for a prior 20/50 election.
- Presenting a market-convention debt service coverage ratio (e.g., "THDA requires 1.15x") as if it were sourced from the QAP — this research found no numeric DCR requirement anywhere in the 2026 QAP; the ratio a Tennessee deal needs to pencil to is set by its lender and investor, not by THDA.
- Assuming THDA publishes its own Tennessee-specific rent and income limit tables — the QAP incorporates HUD's Multifamily Tax Subsidy Project Income Limits by reference rather than restating a number; always pull the current HUD release for the specific area at underwriting and at each compliance year.
- Requesting an elective utility allowance methodology without 12 months of actual consumption data already in hand — the QAP bars every elective method except the Applicable PHA Utility Allowance until that data exists.
- Assuming THDA's utility allowance review always closes in 30 days — the QAP's own language only says THDA "will attempt" that turnaround inside a formal 90-day review period; build the longer window into a compliance or refinance schedule.
- Assuming Tennessee rewards a longer Extended Use Period with scoring points the way some other states do — this research found no such bonus in the 2026 QAP; the stated floor is a flat 30 years with no scored upside for exceeding it.
- Treating the required 30-year pro forma and Lender/Investor LOI exhibits as automatically satisfying THDA's feasibility standard — the QAP gives THDA sole discretion to reject or modify an application it doesn't independently find feasible, regardless of what the applicant's own pro forma shows.
- HUD
- LIHTC
- State QAPs
- IRS § 42
- Housing Finance Agencies