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Courtesy of Data.org
Fair Market Rent
Fair Market Rent is the rent amount, including utilities (except telephone), to rent privately owned, existing, decent, safe and sanitary rental housing of modest (non-luxury) nature with suitable amenities.
The Fair Market Rent rate established by Department of Housing and Urban Development (HUD) to be used as a basis for paying federal housing assistance programs like the Housing Choice Voucher Program (often called “Section 8”) 24 CFR Part 888. Fair Market Rent is determined by conducting a nationwide survey each year. FMR prices are gross rent prices which means they include utilities.
Fair Market Rent prices are set for each county and metro area across the country. Rates are set for zero-bedroom studios or efficiencies all the way up to 4-bedroom homes. To determine the Fair Market Rent for a home with more than 4-bedrooms add 15% for each additional bedroom. For example, a 4-bedroom home in Arlington, VA in 2017 is $2,855 / mo. Each additional bedroom would be $2,855 x 0.15 = $428.25. So Fair Market Rent for a 5-bedroom home would be $2,855 + $428.25 = $3,283.25 / mo.
Fair Market Rent (FMR) is defined as the 40th percentile of rents paid by recent movers (renters who moved in the last 24 months) in a given FMR area. This means FMR rent prices are slightly below the median price. The median rent would be the 50th percentile. Note that some FMR areas have been designated as 50th percentile regions as set forth in 24 CFR §982.503(e). In the 50th percentile regions the Fair Market Rent is the median. 50th percentile regions are noted throughout this site.
Determining Fair Market Rent
Fair Market Rent is determined by the Department of Housing and Urban Development (HUD) each fiscal year. The HUD conducts careful surveys each year to determine the distribution of rents paid by recent movers across the entire country.
The HUD’s survey methodology has been over the years to reduce any bias in the survey results. Data is collected primarily by Random Digit Dialing (RDD) phone surveys. Due to certain limitations and potential bias, the HUD now conducts their survey via phone and mail questionnaires. The HUD previously required 200 survey responses for each FMR area. They now only require 100 survey responses per area.
The HUD’s FMR survey is not restricted by the Do Not Call registry. Although some may object, this reduces sampling bias.
Fair Market Rent and Payment Standards
Payment standard is the maximum monthly assistance payment for a family assisted in the voucher program (before deducting the total tenant payment by the family). Total Tenant Payment (TTP) is the amount a family receiving housing assistance is required to contribute to rent and utilities.
Payment Standard = Fair Market Rent – Total Tenant Payment
The Public Housing Authority (PHA) in a given region is required to use the HUD Fair Market Rent prices as a guideline for determining payment standards. But the PHA is given some flexibility and are allowed to establish the payment standard amount in an area at any level between 90 percent and 110 percent of the published FMR.
The HUD Utility Allowance
The utilities allowance is the cost of a reasonable amount of utilities as determined by the Public Housing Agency (PHA). Utilities allowance is paid by the housing voucher program in addition of the base rent price. Covered utilities includes electric, gas, water, sewer, and garbage. The PHA determines the amount required to cover “reasonable utilities”. The allowance does not include telephone.
Renters are expected to pay a maximum of 30% of the monthly income on rent. This portion of contribution is called the Total Tenant Payment. The cost of gross rent (rent + utilities allowance) above a family’s maximum rent contribution is the amount of housing assistance paid by the HUD. Fair Market Rent prices are gross rent meaning FMR prices already include the utility allowance.
The HUD utility allowance will cover individually-metered utilities that measure the user’s actual individual or family consumption. The HUD allowance will not cover master-metered utilities where a utility is metered for an entire building which includes multiple units. In some cases, the PHA may install a checkmeter that measures individual consumption in a building with master-metered utilities.
The utility allowance can range from $10 to $200 per month. The allowance can depend on many factors include size of rental, efficiency of appliances, construction type, temperatures in the area, etc. Ultimate decision of utilities allowance is determined by your local PHA.
Calculating Fair Market Rent
Fair Market Rent Factors
Fair Market Rent is the 40th percentile of gross rent prices (rent plus utilities) for an acquitted rental property with a certain number of bedrooms in a given region.
Fair Market Rent is determined each year by the HUD and is used as a guide for providing federal rental assistance.
For example: The 2017 Fair Market Rent for a one-bedroom home in Rochester, NY is $737 per month. A two-bedroom in Rochester is $915 per month. Fair Market Rent for a studio or efficiency in Washington, DC is $1,440 per month.
Each FMR area has established rates for studios through four-bedroom homes.
Section 8 is the common name for the Housing Choice Voucher Program, a rental assistance program Department of Housing and Urban Development. (“Section 8” refers to the law establishing the program.)
Section 8 allows private and commercial property owners to rent their property for the established Fair Market Rent price to qualified lower-income tenants. Landlords receive payment through a combination of government vouchers and tenant contribution. (Tenant contribution is not to exceed 30% of total family income).
40th Percentile, 50th Percentile, and the Median
The Fair Market Rent is the 40th-percentile price of rents in an area. Percentiles are closely related to the concept of the median. Median is a measure of central tendency, like average, but median controls for outliers. The 50th-percentile is the median. The HUD chooses the 40th-percentile (slightly below the median price) as the Fair Market Rent.
Note: Some FMR areas have been designated by the HUD as 50th-percentile regions. (50th-percentile regions noted though-out this site).
In order to find the 40th-percentile the HUD also needs to determine the 50th-percentile. Some landlords may be interested in finding the 50th-percentile (median) rent in there area even though it is not Fair Market Rent. The tools listed below show both the Fair Market Rent and the median rent.
Find the Fair Market Rent of your Unit
RentData.org provides three ways to find the Fair Market Rent of your unit.
Find your region by state,
Lookup your region by ZIP code, or
Search your region using the search bar at the top of the page and hitting “Go.”
Once you determine the Fair Market Rent of your home or apartment, you may be interested in renting your property to Section 8 tenants.
Fair Market Rent Definitions
There is a lot of terminology surrounding Fair Market Rents. Here we will define some of the most common terms and highlight common points of confusion.
In shared housing: Space available for use by the assisted family and other occupants of the unit. Also see “Private Space.”
Housing for an elderly person or people with disabilities that meets the minimum Housing Quality Standards.
A family whose head, spouse, or sole member is a person with a disability. It may include two or more persons with disabilities living together, or one or more persons with disabilities living with one or more live-in aides.
A family in which each member was displaced by governmental action, or whose dwelling has been extensively damaged or destroyed as a result of a disaster declared or otherwise formally recognized pursuant to Federal disaster relief.
The legal residence of the household head or spouse as determined in accordance with State and local law.
Family whose head is over the age of 62.
Fair Market Rent
The rent amount, including utilities (except telephone), to rent privately owned, existing, decent, safe and sanitary rental housing of modest (non-luxury) nature with suitable amenities. See more >
A family includes, but is not limited to, the following, regardless of actual or perceived sexual orientation, gender identity, or marital status:
A single person
A group of people living together with or without children.
Ultimately a family designation is determined by the relevant PHA.
The portion of rent and utilities paid by the family. See “Total Tenant Payment” (TTP).
The sum of the rent to owner plus utilities (other then telephone).
The maximum monthly assistance payment to a family assisted in the housing voucher program before deducting the Total Tenant Payment (or Family Share) paid by the family. See more >
Federal Housing Administration (FHA) Loans are home loans insured by the Federal Housing Administration. FHA insured loans are very attractive for number of reasons. Anyone can qualify for a FHA loan, but these loans are designed for and are most appealing to low- to middle-income families — especially first time home buyers.
FHA loans are loans insured by the Federal Housing Administration. The FHA is not a lender itself. You still need to go through a traditional FHA approved lender.
FHA loans allow hopefully homeowners with lower credit scores to secure home loans. Usually you can secure a home mortgage with a credit score not lower than 500. FHA insured loans also require lower down-payments usually as low as 3.5%. Traditional mortgage down payments can be upwards of 10%. Additionally FHA loans typically have lower fixed-rate interest rates. FHA insured loans represent a lower risk to the lending company so they are willing to offer more attractive rates.
FHA Loans seem great, but there is a downside. You must pay annual insurance premiums that are between 0.4% and 0.8% depending on the price of the home. Additionally, there are maximum loan limits the vary by region. Most FHA loan limits in rural areas are around $200,000 to $300,000. In more expensive urban areas the limits are as high as $600,000. These limits are reasonable but can still restrict you buying power.
Overall, FHA loans are very attractive to first time home owners, anyone with a lower credit score, and people with low- to middle-incomes. If you fit that description and are looking to buy a home, federally backed mortgage insurance may be right for you.
Learn more about FHA Loans on FHALoans.guide. Click here to lookup FHA Loan Limits in your area.
Qualifying for Section 8
If you are a landlord or property manager who has had trouble filling vacancies, finding qualified tenants, getting paid on-time, or are looking to maximize your income from rent, Section 8 might be right for you. Section 8 is a federal government housing assistance program designed to help low-income families afford housing by paying a portion of the rent. There are pros and cons to section 8 for a landlord.
In Section 8, the tenant pays you a portion of the rent and gies you a government issued voucher for the remainder of the rent. You (the landlord) then presents that voucher to your local Public Housing Administrator and get paid by the government.
Guaranteed pay on-time because it is paid by the HUD (a portion of rent usually comes from the tenant as well)
Pre-screened and qualified tenants. It is relatively difficult for a tenant to pass the Housing Authority’s screening so if a tenant is qualified for section 8 you will probably to fine renting to them.
More eligible candidates means higher demand and more likely to find a tenant.
Advertising by the HUD to eligible Section 8 tenants no the HUD Apartment Search portal.
Your income is capped at Fair Market Rent.
Fair Market Rent prices include utilities, so your maximum income is (Fair Market Rent – Utilities Allowance).
Non-section 8 tenants may not want to live in the same building as Section 8 tenants.
Frequent inspections and difficult to quality as a landlord.