Low-Income Housing Tax Credit (LIHTC)

The Low-Income Housing Tax Credit, commonly referred to as LIHTC, currently finances 90 percent of all affordable housing construction in the United States. Section 42 of the Internal Revenue Code (IRC or the Code) is the federal regulation governing the tax credit program. The general process for receiving LIHTC is as follows:

1. Federal tax credits are allocated to state housing finance agencies by a formula based on population. In Mississippi, funding is allocated to the Mississippi Home Corporation (MHC).

2. Each state agency establishes its affordable housing priorities and developers compete for an award of tax credits based on how well their projects satisfy the state’s housing needs. The Mississippi Qualified Allocation Plan (QAP) sets forth Mississippi’s priorities for distributing credits.

3. Developers receiving an award use the tax credits to raise equity capital from investors in their developments.

4. The tax credits are claimed over a 10-year period, but the property must be maintained as affordable housing for a minimum of 30 years.

5. Credits can be recaptured for noncompliance, so maintaining close supervision over the properties throughout their lifecycle is important.

How Much Funding Can a Project Receive from LIHTC?

There are two versions of the LIHTC program, the competitive 9 percent program and the non-competitive 4 percent program. The percentages refer to the percentage of their investment an investor can claim as a tax credit each year for ten years. For developers, 9 percent credits provide about 70 percent of the cost of a project, and 4 percent credits provide around 30 percent of the cost. The amount subsidized is based on how much the project’s “eligible basis” is – generally speaking, its “hard” costs.

LIHTC alone does not typically fund an affordable housing development, even when paired with conventional debt. The primary reason for this challenge is caps on the amount of rent that can be collected (see the section on restrictions below). LIHTC can and should be paired with other financing sources.

Unlike other funding programs, under LIHTC, the developer does not need to repay the investor’s equity contribution like a loan. The investors are, instead, paid by the U.S. Treasury. In Mississippi, developers may earn as much as 15 percent of the development’s construction costs as a developer fee, although MHC may allow higher fees for certain types of projects. Many grants may require that a portion of the developer fee is deferred or contributed back to the project to cover professional fees for consultants, accountants, lawyers, etc. If you’re considering a joint venture partnership, discussions around the developer fee are a key part of negotiations. All types of entities should consider the pros and cons of a developer fee, which can ensure that staff time and other costs can be met and that you have funding for future pre-development.

Both for-profit and non-profit developers can be the general partner in a LIHTC project. LIHTC projects can be either new construction or rehabilitation projects. They must be rental projects at the outset, and most projects remain rental projects for the lifetime of the credit. Developers in Mississippi may design projects that convert to homeownership after 15 years, though this process is complex.

Multifamily and scattered site single family projects may both be funded with LIHTC, but it’s most common for the funding to be used for multifamily buildings. LIHTC projects have strict rent and household income restrictions. In a LIHTC property, the rent is set at 30% of the income limit for that unit. In properties with HUD and USDA rental assistance, the rent charged is 30% of a household’s actual income. In a LIHTC property, the rent is set at 30% of the income limit for that unit. The income limit for a unit is usually 50% or 60% of the area median income, but other circumstances may allow for higher income limits. Using a rent and income limit calculator may be helpful as you consider various project configurations. (Please see also Phase 2: Predevelopment and Planning: Assessing Financial Feasibility).

How is LIHTC Distributed?

The Mississippi Qualified Allocation Plan (QAP) sets forth Mississippi’s priorities for distributing credits, with the process managed by the Mississippi Home Corporation, the state’s Housing Finance Agency. The QAP outlines state and national program requirements such as housing type, rent restrictions, and limits on costs or fees per unit. It also outlines several categories of selection criteria for distributing credits.

Threshold Factors are criteria that an applicant must meet to even be considered. These threshold factors reflect the fact that developers should not apply for LIHTC until they have fully developed their project concept. Among other factors, developers must have site control, committed development financing and a current market study.

Underwriting Criteria establishes financial standards that a successful application must meet and set limits on fees, per unit costs and administrative expenses. These criteria also determine if a project qualifies for a “basis boost,” which allows certain projects to claim tax credits on a higher amount of their eligible costs. Projects can earn 30% basis boosts based on their location in certain designated federal areas (Qualified Census Tracts or Difficult Development Areas), or based on meeting state discretionary categories such as targeting certain populations or being in areas of high opportunity.

Set-Asides establish percentages of the state’s total available tax credits that will be granted to different kinds of projects. Currently, MHC allocates all available credits between non-profit projects, developments with allocations under $275,000, rehabilitation projects and new construction projects.

Selection Criteria (Addendum A) assign points to various components of a project, with the resulting scores being used to rank applicants during each application cycle. Projects are scored on a wide range of criteria, including geographic location, project amenities and developer experience.

Applying for LIHTC can be difficult and time consuming, but there are strategies that can help. If your organization does not have LIHTC expertise in-house, there are a number of consultants with LIHTC experience that can not only provide the expertise needed but also build internal capacity and knowledge for future projects (See Getting Started under Partnerships).

New Markets Tax Credit (NMTC)

The NMTC Program is designed to incentivize community development and economic growth. While they do not directly fund housing, New Market Tax Credits can be stacked with LIHTC on mixed use projects to fund space for resident services, such groups such as healthcare-adjacent projects, childcare providers, libraries, etc.

New Market Tax Credits are accessed through Community Development Entities (CDEs). These projects can be very complicated and generally require the support of a New Market Tax Credit consultant.

HOME Investment Partnership Program

The Home Investment Partnerships Program (HOME) was created by Title II of the National Affordable Housing Act of 1990 and is the largest federal block grant to states and localities for low-income households. In Mississippi, HOME funding is administered for most of the state by MHC. The cities of Jackson, Gulfport and Hattiesburg administer their own programs.

Fifteen percent of each state’s HOME funding is reserved for CHDOs every year. MHC allows CHDOs to apply for up to $25,000 of operating support if they are currently completing a project that was awarded funding through the CHDO set-aside.

HOME funds can be used by for-profit and nonprofit groups. Some of the funding is set aside for use by Community Housing Development Organizations (CHDOs) (see below). CHDOs are nonprofit, community-based organizations with the ability to develop affordable housing. To be designated, CHDOs must meet specific federal criteria for structure, capacity, experience, and legal status.

What can the funding be used for?

The program is meant to expand the supply of affordable housing with a focus on rental housing for very low-and-low-income residents. HOME can be used for a variety of purposes, including acquisitions, rehabilitation, new construction and administrative and planning costs for Community Housing Development Organizations (CHDOs).

Nonprofits and for-profit entities may apply for funding for rental housing. Rental development funded with HOME must serve low- and very low-income households. Rent limits and income limits to determine eligibility for and compliance with the HOME program are announced annually by HUD. HOME funds can be used for homeowner rehabilitation or to develop or rehabilitate rental housing. Units of local government may apply for funding for homeowner rehabilitation. Rehabilitation projects must target low-income homeowners (those whose income is 80% or less of the Area Median Income) who have owned their homes for at least 15 years.

Priority is given to rental projects in designated areas that address the housing needs of extremely low-income households by targeting at least 10 percent of units for individuals experiencing homelessness or serious mental illness, with a documented need for affordable housing. The state chooses grantees and projects through a competitive process.

CHDOs

To receive CHDO funding, an organization must first successfully become certified as a CHDO by the state or participating jurisdiction managing HOME for their project area. This requires an organization to be a nonprofit, have housing as one of its activities, and to meet a series of regulations around the history of work in an area and board composition. The primary benefit of this designation is that CHDOs are eligible to use funds from a mandatory 15 percent set-aside of funding from HUD’s Home Investment Partnerships (HOME) program. CHDOs can apply for funding for homeownership and rental projects and may apply for funding to cover operating expenses associated with those projects. CHDOs are also one of two types of nonprofits that are eligible to apply for HUD Section 4 capacity-building funding through national intermediary organizations such as Local Initiatives Support Corporation, Enterprise Community Partners, and Habitat for Humanity that can help them build their capacity to develop and sustain affordable housing.

Housing Trust Fund

The Housing Trust Fund (HTF) program allocates funding to for-profits and nonprofits for the production, preservation, rehabilitation, or operation of rental housing, focusing on extremely-low income households, those making 30% AMI or less. Mississippi receives only $3 million per year for the HTF program (compared to $9.5 million for HOME in 2024) and the deeper affordability requirements mean projects need more subsidy per unit to pencil out. For those reasons, HTF funding typically acts as supporting leverage funding for projects more dependent on larger funding sources, like LIHTC or HOME. With HTF funding, those projects can set aside units for the lowest-income rental populations and those at risk of homelessness.

Mississippi HB530 Construction Loan Fund

The HB530 Construction Loan Fund finances the construction of affordable single family residential housing units for homeowners. Through this program, MHC provides low-interest construction loans to developers for the construction of owner-occupied homes, which are repaid when the homes are sold. Eligible borrowers include nonprofit corporations, partnerships, for-profit corporations, public housing authorities, planning and development districts, and limited equity cooperatives, while individuals are excluded.

The HB530 program has income and sales price thresholds that are much higher than other affordable housing programs. To be able to purchase a home built through the HB530 program, a homeowner must have an income at or below $122,000 and the home sales price may not exceed $332,000, as of 2025.

Program priorities focus on projects that involve collaborations between nonprofit and for-profit entities, empower lower-income families through various self-sufficiency initiatives, access secondary mortgage markets with a commitment of funds for two years or less, address elderly needs, target specific economically distressed areas, and ensure long-term affordability through enforceable provisions lasting two years or more. If you have not previously worked with MHC, you will be limited to developing four homes at a time with this funding, and one must be pre-sold to reduce risk.

Mississippi Affordable Housing Development Fund

The Mississippi Affordable Housing Development Fund (MAHDF) is a revolving loan fund that can be used for construction, rehabilitation, pre-development, site control, and site development of owner-occupied or rental housing. Eligible borrowers include nonprofit corporations, partnerships, for-profit corporations, public housing authorities, planning and development districts, and limited equity cooperatives. Loan rates are below market and amortization is negotiable to meet the development’s needs.

The eligibility of pre-development, site control, and site development activities makes MAHDF a unique funding source. MAHDF loans are ideal to be paired with other funding sources to fill gaps.

USDA Rural Development

USDA’s Rural Housing Service offers a number of programs that provide development financing for single and multifamily properties. You can determine whether your project location is “rural” and find income limits with USDA’s eligibility mapping tool.

USDA Multifamily Programs

The housing Government-Sponsored Enterprises (GSEs) have played a significant role in the mortgage market over many years. The main housing GSEs include the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home Loan Bank System (FHLBank System), which is made up of 12 Federal Home Loan Banks (FHLBanks).

The GSE’s have their own products for homeownership

• Freddie Mac
• Fannie Mae

Federal Home Loan Bank Affordable Housing Program

By law, each Federal Home Loan Bank must establish an Affordable Housing Program (AHP), and must contribute 10 percent of its earnings to its AHP. AHP funds finance the purchase, construction, or rehabilitation of owner-occupied housing for low- or moderate-income households, as well as the purchase, construction, or rehabilitation of rental housing where at least 20 percent of the units are affordable for and occupied by very low-income households. The AHP leverages other types of financing and supports affordable housing for special needs and homeless families, among other groups. They have a competitive program and a homeownership set-aside.

The Federal Home Loan Bank of Dallas is the primary Federal Home Loan Bank serving Mississippi. In addition to general AHP, the Bank also has specific programs that fund down payment assistance, home repair and disaster recovery.

The program dollars can be used for single family and multi-family homeownership and rental projects. Funds are allocated on an application basis, which prioritizes affordability. Each program has specific requirements and restrictions. You must work with a member bank to apply for AHP funding. Should you be interested in pursuing this funding, you should first identify a member bank that could support your application. If your bank is a member of another Federal Home Loan Bank, you may apply to that FHLB for AHP financing as well. Many banks operating in Mississippi are members of the Atlanta Federal Home Loan Bank, for example.

Other Financing Mechanisms

Beyond direct funding for development, variance requests and rental assistance can improve the financial feasibility of your project.

Zoning or density variance requests can be made to local planning authorities to allow exceptions to standard zoning rules, such as increasing the number of allowable units, reducing required parking, or exceeding height limits. These variances can help maximize the use of a site and increase revenue potential without increasing land costs.

Rental assistance are subsidies provided to help tenants afford rent, such as Housing Choice Vouchers or project-based rental assistance. Rental assistance, or vouchers, can ensure a stable stream of rental income for the property while keeping units affordable to low-income households. A local or regional Public Housing Authority can execute a Housing Assistance Payments (HAP) contract with a developer to designate the number of rental assistance vouchers that will support a property.