Rents, income limits, and the operating pro forma — Vermont

Minimum set-aside: no dedicated menu section, but all three federal options are stated as the threshold

Rather than a separate section labeled "minimum set-aside," the QAP states the federal election directly inside its Occupancy and Rent Restrictions threshold requirement: "The proposal must meet the basic occupancy and rent restrictions as allowed in the Code, which are: 1. At least 20% of the units must be restricted to tenants at or below 50% of Area Median Gross Income (AMGI); 2. At least 40% of the units must be restricted to tenants at 60% of AMGI; or, 3. Average Income Test as allowed under the Code as amended through the Consolidated Appropriations Act of 2018" (§3.2). VHFA has adopted a companion "VHFA Average Income Policy" and a separate "Average Income Worksheet" for applicants electing that third option, both published on VHFA's Forms and Documents page rather than embedded in the QAP text itself.

The QAP separately imposes a Mixed-Income threshold tied to project size, independent of the minimum set-aside election: no requirement under 20 units, 5% market-rate units for 20–49 units, and 10% market-rate units for 50 units or more (§3.3). Market-rate units under this test are defined as "those not income restricted or else are restricted to households above 60% Area Median Gross Income and are not included in eligible basis" — meaning a mixed-income Vermont deal keeps its market units entirely outside eligible basis, not blended in at a reduced credit rate.

Income and rent limits: VHFA publishes its own county table, not just a pointer to HUD

Unlike states that simply redirect developers to HUD's raw Multifamily Tax Subsidy Project (MTSP) limits, VHFA publishes its own annual "Income Limits & Rents" schedule, organized by county, with HUD's 30/50/60/80/100/120% figures and Vermont's own 20 VSA-referenced HERA hold-harmless ladder built directly into the document. The 2026 edition, effective May 1, 2026, spells out the hold-harmless rule for every placed-in-service window back to before 2008: for example, "Projects placed in service on or after 4/1/2025 but prior to 5/1/2026 are eligible for Hold Harmless and use the greater of FY2025-FY2026 HUD income limits," continuing that same placed-in-service ladder in unbroken succession back to the original 12/31/2008 HERA cutoff, and "Projects placed in service on or after 5/1/2026 must use the current HUD income limits."

Underwriting: a sliding minimum debt coverage ratio keyed to how deep the rents actually go

VHFA's Underwriting Standards (revised October 2024, effective January 2025) do not use one blanket DCR minimum — they set four separate floors depending on the project's subsidy layering and rent depth:

Two additional rules apply across all four categories: "Ratios must be based on the lesser of the underwritten or actual rents," and — more unusually — there is a ceiling as well as a floor: "the average DCR over the 15-year compliance period may not exceed 1.45 for projects using 9% Housing Credits, and will be capped at an amount to be determined on a deal-by-deal basis for 4% Housing Credits." Projects must otherwise "maintain an annual DCR above 1.00 during the entire 15-year compliance period," though VHFA "may allow projects to have a DCR below 1.00 if it can be demonstrated that project reserves or a debt service sinking fund will support operations."

A separate, threshold-level market check applies before underwriting assumptions are even relevant: new construction projects "must be in primary housing markets with a vacancy rate of 5.0% or less, as demonstrated by the Market Study" (§3.11) — a screening gate on whether the project can apply at all, distinct from the 5% vacancy assumption used inside the pro forma itself.

Reserves: four required types, not just a replacement reserve

VHFA requires four distinct reserve accounts, two tied to lease-up and two maintained for the life of the property. "Residential Lease-up Reserves should initially be funded at a minimum of 2-4 months of all operating expenses, including debt payments, deposits into other reserve accounts, and all operating costs," with VHFA setting the exact figure within that range based on the market study's absorption data. Commercial space without a signed lease at closing must carry a lease-up reserve equal to 6 months of commercial expenses. For the life of the property: "Operating Reserves should be established after construction completion and cover a minimum of 4 months of scheduled debt service and estimated operating expenses, including replacement reserves and real estate taxes," and "Replacement Reserves are required in the amount of $400 per unit per year, or the amount recommended by the Capital Needs Assessment" — whichever is higher.

Two additional constraints shape how these reserves show up in a 15-year proforma: "Reserves must remain positive for at least 15 years in the proformas," and distributions of surplus cash are gated by benchmarks in the project's VHFA Regulatory Agreement or, absent one, by VHFA's separate Replacement Reserve – Surplus Cash Distribution Policy. Separately, "[i]ndividual projects are not generally permitted to establish sinking or debt coverage reserve accounts" without specific VHFA approval — a proforma that capitalizes an ad hoc debt-service sinking fund without that approval is modeling a structure VHFA does not, by default, allow.

Utility allowances: five methods, tenant-paid only, and no allowance for sub-metering

VHFA's rule is a straightforward pass-through requirement with a real exclusion: "If utilities are paid directly by the tenant, applicants must include the utility allowance in the gross rent," but "telephone, cable TV, and internet costs are not included," and — the trap — "utility allowances are not available if tenant payments for utilities are made by or through the owner. This includes sub-metering, where the owner pays the utility company and bills the tenant for the usage." A sub-metered arrangement, however administratively convenient, does not generate a utility allowance credit against gross rent under Vermont's rule.

Where a project does qualify for an allowance, the source is funding-specific rather than one statewide default: Rural Development units use the RD schedule, Section 8 project-based units use HUD's schedule, and Section 8 voucher units use the local public housing authority's schedule. For all other units, an owner may choose among five options: the local PHA schedule, a utility company estimate, an Agency-provided utility cost estimate, HUD's Utility Schedule Model, or an unrelated qualified professional's energy consumption model. VHFA's own Program Materials page separately links to utility-provider-specific allowance schedules (Burlington Electric Department, Green Mountain Power, Montpelier Housing Authority, and the Vermont State Housing Authority) rather than a single unified statewide chart — a developer should confirm which schedule actually applies to the project's specific utility provider and funding mix rather than assuming one default source covers every Vermont deal.

Commercial space, master leases, and Subsidy Layering Review

"Commercial income from commercial space may not exceed 20% of the projected revenue for a project using federal tax credits." Property management fees, which flow through the operating pro forma's expense line, "may be between 4-8% of total Net Income," and VHFA separately issues an annual memo on current per-unit management and operating cost trends that applicants are expected to benchmark against.

Projects with new or adjusted Project Based Rental Assistance commitments — whether from a new award, a re-syndication, or a refinance — trigger a HUD Subsidy Layering Review, which VHFA generally conducts on HUD's behalf through its own delegated authority. Applicants relying on any Section 8 or RAD subsidy layer should build the SLR review into their financing timeline rather than treating it as a formality that runs in parallel with tax credit underwriting.