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Appendix E <br />What is "affordable"? <br />A variety of definitions are used to define "affordable" housing. The definitions refer <br />both to the portion of income spent on housing, as well as income levels and vary by <br />housing program. <br />Housing Costs <br />Affordable ownership: Generally, housing is considered affordable to a;particular <br />household if it does not cost more than 30% of household income. Banks sometimes <br />will make mortgages where the income to house payment ratio exceeds 30%, espe- <br />cially when the buyer's Income is high. <br />Affordable rental: The Minnesota Housing Finance Agency (MHFA) considers rental <br />housing affordable if it doesn't exceed 30% of household income. For Section 8 <br />properties, the tenant pays 30% of household Income, and Section 8 subsidizes the <br />difference between that and fair market rents. HUD used to define affordable as <br />25% of income. Now, some are urging that something more than 30% be considered <br />affordable — in the 40% range. <br />come Levels <br />HUD defines low or lower income as 80% of area median, very low income as 50% <br />of area median income and extremely low income as 30% of area median. These <br />definitions are used In most HUD rental programs. The median family income in the <br />Twin Cities metropolitan area In 2004 was $76,700. <br />Proaam Oualiflcations <br />The income that qualities a household for housing assistance varies. For example, <br />60% of median income is one of the income limits used in the federal tax credit pro- <br />gram. It is also used with tax exempt bonds for rental housing. The Metropolitan <br />Council has used 80% of median for affordable homeownership. This means that a <br />home was affordable In 2004 if it was priced at $193,700 or less (Le, the price that a <br />household earning 80% of median income could afford). MHFA also uses this income <br />level for its mortgage programs, but one of the largest state appropriated programs — <br />the Challenge program — has an income limit of 115% of median for homeownership <br />projects. <br />Some cities with affordable housing policies (for example Minneapolis and Saint Paul) <br />require developers who receive city financial assistance to include housing units af- <br />fordable to households at 50% of median income, and some affordable to those at <br />30% of median income, <br />