4% vs. 9% LIHTC: Which Path is Right for Your Project?

The Low-Income Housing Tax Credit (LIHTC) is the most important resource for creating affordable housing in the US. But not all credits are created equal. Understanding the strategic difference between the competitive "9%" credit and the as-of-right "4%" credit is the first step in any affordable deal.

The 9% Credit: High Value, High Competition

The 9% credit is the "gold standard." It is designed to subsidize approximately 70% of a project's development costs. Because it is so valuable, it is scarce.

• Allocation: Awarded by NJHMFA through a highly competitive annual cycle (Spring/Fall rounds).
• Scoring: Projects are ranked based on the Qualified Allocation Plan (QAP). Points are awarded for location (transit proximity), population served (seniors, special needs), and developer experience.
• Best For: New construction, smaller projects (under 100 units), and projects with very limited debt capacity (since the equity covers so much cost).

The 4% Credit: Volume & Scale

The 4% credit is less valuable on a per-dollar basis—covering about 30-40% of costs—but it is generally non-competitive.

• Allocation: "As-of-right" for projects that receive at least 50% of their financing from Tax-Exempt Private Activity Bonds (PABs).
• Volume Cap: While non-competitive, it is limited by the state's "Volume Cap" for bond issuance.
• Best For: Large scale preservation/rehab projects, large new construction deals (100+ units), and mixed-income projects where the market-rate units can cross-subsidize the debt service.

Strategic Comparison

2025 QAP Updates

For the 2025 rounds, NJHMFA has introduced key changes:

• Income Averaging: Not permitted for 9% deals this year. You must choose the 20% @ 50% AMI or 40% @ 60% AMI set-aside.
• Equity Pricing: If you don't have a hard commitment, NJHMFA will underwrite at $0.90.
• Inclusionary Review: Mandatory for all projects creating new affordable units.