Learn About Fair Market Rents
Fair Market Rent (FMR) is how the Department of Housing and Urban Development (HUD) determines the payment standards of Section 8 rentals in a given area. Section 8 rent prices are calculated using gross estimates of rent in a given geographic area. These estimates consider the costs of shelter and all utilities except telephone.
Rent is set high enough to allow Housing Choice Voucher recipients to choose from a variety of neighborhoods. It is also set low enough to enable low-income families to afford it. To determine gross rental costs, HUD examines several important factors. These factors include location, quality, age, size and type of rental unit. These considerations allow HUD to understand the rental housing market in a given area. Furthermore, units that fall within FMRs are thoroughly inspected before being approved for Section 8 program. Continue reading below to gain a better understanding of Fair Market Rents and how they are calculated.
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Data Sourced from The U.S. Department of Housing and Urban Development's (HUD's) Office of Policy Development and Research (PD&R).
Discover How to Calculate FMR
HUD relies on multiple sources and utilizes several factors to calculate Fair Market Rent. To acquire the most accurate data, the Department of Housing and Urban Development acquires information from the following sources:
- American Housing Surveys (AHS) from the Census Bureau
- Random digital dialing telephone surveys
- Comparable market-rate units
When examining different units, HUD considers factors that typically affect rental prices. They include:
- Location – Physical location within the HUD housing market.
- Quality – Physical conditions of the property.
- Age – Age of the property.
- Size – Square footage of the property, sizes of bedrooms and number of bathrooms.
- Type – Properties that are not subsidized by the government or a non-profit agency.
In addition, the conditions surrounding the rental, on-site amenities, neighborhood crime rates and predator reports are all factored into FMRs. Certain components carry greater importance depending on the geographic area.
Utilizing the above components, HUD averages the data and produces the Fair Market Rents for a given geographic area. Then, these FMRs can be used to establish payment standards for the Housing Choice Voucher program as well as:
- Determine the initial rent amount for housing assistance payment (HAP) contracts in the Moderate Rehabilitation Single Room Occupancy (Mod Rehab) program.
- Establish initial renewal rents for expiring project-based Section 8 contracts.
- Calculate the maximum amount of rewards for Continuum of Care recipients.
- Calculate the maximum amount of rent a recipient may pay for a leased property.
- Establish rent ceilings for properties in the HOME Investment Partnerships program and the Emergency Solution Grants program.
FMRs are reestablished every fiscal year. Thus, rental prices may be updated each year around the month of October.
Learn About FMR Inspections
Although property can meet HUD financial standards, Section 8 beneficiaries cannot rent the property until it passes an inspection. There are many aspects to the inspection and each component must be approved. For a building to receive HUD approval, individual units and building amenities and features must pass the inspection. The building as a whole must meet the following criteria:
- Meet local building codes.
- All units must be in service during the inspection.
- There must be adequate water pressure provided to faucets, sinks, toilets, showers and tubs.
- All existing amenities are operational.
- There are no leaks in the plumbing system.
- There is adequate pest control and no sign of infestation.
- The foundation is in good condition with no signs of deterioration.
- Elevators are operational and up to date with state codes.
- Exterior walls are secured and sealed to prevent outside elements from entering.
- There is access for renters with disabilities.
- There is no mold or mildew.
Individual dwellings must meet many inspection checklist points in order to pass inspection. For a unit to meet requirements:
- All appliances are installed and working.
- All faucets, sinks, drains, bathtubs, showers, washing machines and toilets work without malfunction.
- Bedrooms have a window and adequate lighting.
- Heating or cooling systems are operational.
- Hallways, walls, floors, rugs and ceilings are regularly maintained.
- There are no electrical risks or hazards.
- Fire extinguishers are present in the dwelling.
- The air and water quality are adequate.
- There are operational smoke detectors.
There are many more requirements that Section 8 units must satisfy to pass inspection. Participating properties must pass the above requirements annually. Properties that do not pass inspection are given opportunity to make changes and undergo a second inspection.
Rentals are typically reviewed by a real estate assessment inspector. A property can receive one of the following assessments:
- Pass – The property is cleared for participation in the Section 8 program for the following year. However, it may still be assessed for Fair Market Rent adjustments based on neighborhood statistics.
- Fail – The property does not meet certain criteria on the checklist and the landlord must make the appropriate repairs or changes. The property will be re-inspected at a later date. However, the owner may challenge the assessment within a certain period of time.
- Undetermined – The property will be re-inspected at a later date to review an area that could not be assessed.
Find Out How to Determine FMR
Once the FMR is determined for a particular area, properties participating in the housing voucher or rental program will have a limited amount of time to submit a request for an exception flat rent to dispute any shifts in rent.
While the dispute is reviewed by HUD, local public housing authorities (PHA) can continue to follow their current flat rate rent schedule. If a submission for exception is incomplete, the PHA will be permitted to make to make adjustments to their FMR within 30 days.
PHAs that share a rental market may submit a joint waiver request if they do not believe that calculated FMR is reflective of the local market. Then, HUD may conduct a new market analysis for a flat rent exception. If a flat rent exception is not approved by HUD, the PHA must immediately alter its flat rent rate.
PHAs approved for flat rent exception are limited to a rent increase of 35 percent every year. In addition, properties cannot decrease their rents below a certain amount. Flat rents typically cannot be less than 80 percent of the Fair Market Rent or the Small Area Fair Market Rent.
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