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Affordable Housing: Financing Gap Options

Affordable Housing: Financing Gap Options

Financing Gap Options for the Affordable Housing Program

With the decrease in equity pricing due to the uncertainty surrounding COVID-19 and the ever-rising construction costs, it’s becoming more and more important to find ways to fill your financing gaps as you develop your projects.

Two of the more common ways to fill this gap are financing through the Affordable Housing Program (AHP) or HOME Investment Partnership Program (HOME).

What is the Affordable Housing Program?

The Affordable Housing Program is an annual competitive application process administered by the eleven Federal Home Loan Banks located throughout the U.S. Through this program, developers partner with member banks to receive a forgivable grant to subsidize the acquisition, construction, or rehabilitation of an affordable rental project.

The grant is forgiven after 15 years assuming the rental project stays in compliance with the affordability restrictions it committed to in its approved AHP application.

The application process has a window of approximately a month with the submission deadline typically occurring during June through August of each year, depending on the bank, with awards being announced in early to late November of that year.

The maximum amount of AHP subsidy which can be requested varies depending on the bank you apply with, but typically ranges from $750,000 - $900,000 depending on the size of your project. The demand for the subsidy is very competitive and requires a well-planned application and a firm understanding of scoring and rules to submit a successful application.

Over the last 5 years, success rates for applications have ranged from 37% - 52%. This low success rate is due to the ever-growing demand for the limited funds available to fill these financing gaps.

HOME Investment Partnership Program

The HOME Investment Partnership Program is a federal program allocated by the U.S. Department of Housing and Urban Development (HUD) to participating areas in each state.

The Wisconsin Department of Administration, Division of Energy, Housing, and Community Resources administers the program for the state of Wisconsin.

One of the eligible uses of the HOME program is Rental Housing Development (RHD) which provides gap financing for affordable rental housing projects.

Funding through the RHD program is typically provided as a low-interest loan over 30 years with principal and interest payments deferred for the first three years. Payments are then made over the remaining 27 years subject to available project cash flow. The project must also stay in compliance with the related affordability restrictions as set forth in the application.

The RHD Program accepts general applications on the first Monday of June each year and a second funding round is held on October 15th for CHDO (Community Housing Development Organization) and nonprofit developers and those developers with housing projects that serve a targeted population.

Each developer may receive a maximum of two awards per year totaling up to $2,000,000. There is no award limit for CHDO applicants. Developers can expect to hear back on their award within 90 days of the respective application deadline.

Contact SVA to discuss which gap financing option would work best for your project and how we can help you put together an application that can succeed in these programs.

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Biz Tip Topic Expert: Chris Fearn, CPA

Chris Fearn, CPA

Chris is a Principal with SVA Certified Public Accountants with expertise in the real estate and nonprofit industries. In his role, he manages and performs audits for owners of affordable multifamily housing projects receiving Section 42 Low-Income Housing Tax Credits.

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