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HUD Section 202 Supportive Housing for the Elderly: Profile of the Program

The Supportive Housing for the Elderly Program is funded under Section 202 of the National Housing Act of 1959, as amended. Under Section 202, the U.S. Department of Housing and Urban Development (HUD) provides a Capital Advance to nonprofit organizations for the new construction or substantial rehabilitation of housing for very low income elderly persons. A capital advance is a zero interest loan that will not have to be paid back to HUD, provided that the project remains in operation for a 40 year term, serving very low income persons with disabilities. Section 202 projects also provide supportive services to residents, such as referrals to community organizations which provide services, transportation, and links to health related facilities in the community. A component of the tenant population may be considered as frail, i.e., elderly persons who are deficient in three or more of the "activities of daily living" such as eating, bathing, grooming, dressing and home management. Participation by a resident in a supportive service program offered by the Section 202 project is not a condition for occupancy.

Eligible residents: Under Section 202, an eligible household must be very low income, as defined by HUD, and include at least one person who is 62 years and older. Very low income, for example, in New York HMFA (as of FY 2014), for a one person household, is $29,400, and for a two person household is $33,600.

Eligible costs during construction: The Section 202 Capital Advance can cover construction costs, architect fees, engineering costs, soft costs (e.g., property insurance, taxes during construction, title and recording, attorney and consultants) and property acquisition (not to exceed a HUD-approved appraised value).

Eligible applicants: The nonprofit organization that applies and competes for the HUD Section 202 Capital Advance is the Sponsor. The Sponsor should have experience in providing housing and or services for very low income elderly. After being approved by HUD for funding, the Sponsor applicant must form a single asset not-for-profit corporation (the Owner Corporation), under Article XI of the New York State Private Housing Finance Law, to own and run the project. The Owner Corporation will also obtain tax exemption under IRC 501(c)(3). During the planning phase, construction period and ongoing operation of the 202 project, HUD looks to the Sponsor to stand behind the Owner Corporation and lend its experience to address issues that may arise and provide financial support, if necessary.

Housing operating expenses and subsidies: Housing expenses include the ongoing costs of housing management and administration, operations, maintenance and replacement reserve. Real estate tax exemption or abatement will be mandatory. Since the occupants are very low income, a subsidy is required to supplement rental income in order to cover the project’s operating expenses. Under Section 202, HUD provides a Project Rental Assistance Contract (PRAC) to the Owner Corporation which subsidizes the difference between tenant contributions to rent and an approved contract rent amount. Tenant contributions are at about 30% of annual adjusted tenant income and must cover 25% of the approved contract rent. The HUD subsidy will not exceed 75% of the contract rent. The PRAC contract has a five year term and is renewable, subject to HUD approval. If the project is to serve the frail elderly, then the project may provide up to $15 per unit/month from the HUD-approved operating budget to help cover the cost of a service coordinator.

Type of housing: Housing can be new construction or substantial rehabilitation. Under the 2004 NOFA, the size of the project can range from 5 units to 125 units.

Maximum Unit Size: 0 Bedroom - 425 sq. ft.; 1 Bedroom - 540 sq. ft.; 2 Bedroom - 800 sq. ft.

All housing projects must conform to HUD’s minimum property standards, as well as to Federal accessibility requirements and to building codes which are applicable to each area.

Development cost limits for FY 2010 for Section 202 funded projects: HUD will determine on a case by case basis if these cost limits apply to projects already in the pipeline:

Unit Size Elevator (FY 2010-Most recent NOFA)

0BR $54,447
1BR $62,414
2BR $75,896

Unit Size Non-Elevator (FY 2010-Most recent NOFA)
0BR $51,739
1BR $59,655
2BR $71,994

NOTE: These are national cost limits. HUD allows for regional differences in the cost of housing. Starting in FY2007, at the initial approval, or Fund Reservation stage, HUD calculates the Capital Advance for projects in NY City by multiplying the cost limits by 260%. For projects funded prior to FY2007, during HUD’s processing of a Firm Commitment application, limits can be increased from 240% to 260% subject to HUD approval. Also, additional funding may be added based upon approved costs in the project for common space (e.g., management office, shared activity space) and site improvements.

Financial Requirements: The Sponsor must make a commitment to cover any costs over and above HUD funding, plus start-up costs until HUD funding is available (just prior to start of construction) and contribute a Minimum Capital Investment (in an amount equal to one-half of one percent of the capital advance not to exceed $10,000).