Federal Government Funding Sources
A number of Federal government funding sources are available to support the communities that are struggling to recover from the effects of foreclosure and abandoned properties:
Acquisition/Rehabilitation
Community Revitalization
Affordable Housing
Commercial/Mixed-use
Neighborhood Stabilization Program (NSP)
- The centerpiece of funding for many stabilization plans is the federal Neighborhood Stabilization Program (NSP), administered by the US Department of Housing and Urban Development (HUD).
- The first round of funding, NSP1, was $3.92 billion, allocated to local government participating jurisdictions through an analysis of foreclosure impact.
- The second round of funding, NSP2, is $2 billion, to be awarded through a competitive application process open to local governments and nonprofits, including consortia. For-profits were allowed to apply as part of a consortia with nonprofits and government.
- The allowable uses for both rounds include:
- Establish financing mechanisms for purchase and redevelopment of foreclosed homes (including soft-seconds, loan-loss reserves, and shared-equity loans for low- and moderate-income homebuyers).
- Purchase and rehabilitate properties that have been abandoned or foreclosed. Rehab may include improvements to increase energy efficiency or provide a renewable energy source.
- Establish land banks for homes that have been foreclosed.
- Demolish blighted structures.
- Redevelop demolished or vacant properties.
- Click here for more detail on the NSP program, including examples of how grantees are using the funds.
- For more information:
FHA 203(k) Rehabilitation Mortgage Insurance Program
- HUD’s primary program for the rehabilitation and repair of single family properties is the FHA 203(k) mortgage insurance program. Through this program borrowers can:
- Obtain one loan to finance the acquisition and rehabilitation of a property.
- Choose a long-term rate that is fixed or adjustable.
- Borrow an overall loan amount that is based on the projected value of the property once the work is completed.
- Take advantage of FHA insurance and immediate endorsement by HUD, which minimizes risk for the mortgage.
- For more information:
FHA Title I Home Improvement Loan Insurance Program
- The Title I program insures loans to finance the light or moderate rehabilitation of properties, as well as the construction of nonresidential buildings on the property. This program may be used to insure such loans for up to 20 years on either single or multifamily properties. The maximum loan amount is $25,000 for improving a single-family home or for improving or building a nonresidential structure.
- Loans on single family homes may be used for alterations, repairs and for site improvements. Loans on multifamily structures may be used only for building alteration and repairs. Title I can be used in connection with a 203(k) Rehabilitation Mortgage.
- In the FHA Title I program, HUD insures private lenders against loss on property improvement loans they make.
- The applicant must have a good credit history and the ability to repay the loan in regular monthly payments.
- For more information:
Community Development Block Grant (CDBG)
- The Community Development Block Grant (CDBG) program is a flexible program that provides communities with resources to address a wide range of unique community-development needs.
- Started in 1974, the CDBG program is one of the longest continuously run programs at HUD.
- The program provides annual grants on a formula basis to 1,209 general units of local and state government.
- Over a 1, 2, or 3-year period, as selected by the grantee, no less than 70 percent of CDBG funds must be used for activities that benefit low- and moderate-income persons. In addition, each activity must meet one of the following national objectives for the program:
- Benefit low- and moderate-income persons
- Prevent or eliminate slums or blight, or
- Address community development needs having a particular urgency because existing conditions pose a serious and immediate threat to the health or welfare of the community for which other funding is not available.
- For more information:
HOME Program
- HOME Funds represent another large Federal block grant for state and local governments. The purpose of the HOME program is to create affordable housing for low-income households.
- The HOME program reinforces the values and principles of community development:
- Its flexibility allows strategies to address local needs and priorities.
- It promotes consolidated planning to develop affordable housing that strengthens partnerships within the public and private sector.
- Its technical assistance activities build the capacity of nonprofit housing groups.
- Its requirement that local jurisdictions contribute 25 cents of every dollar, from non-Federal sources mobilizes local resources (this amount may decrease if the area has suffered a declared disaster).
- Eligible HOME fund activities include:
- Home purchase or rehabilitation financing assistance
- Development or rehabilitation of housing for rental or homeownership
- Site acquisition or improvement
- Demolition of dilapidated homes to make way for new HOME developments
- Contributions toward relocation costs
- Tenant-based rental assistance for up to two years
- Program planning and administration
- For more information:
Low-Income Housing Tax Credit (LIHTC)
- The Low-Income Housing Tax Credit (LIHTC), enacted by Congress in 1986, is an indirect Federal subsidy that helps to finance affordable rental housing projects for low-income households. LIHTC provides an incentive for private market investment in affordable rental housing.
- How it works:
- Federal housing tax credits are offered to housing developers working on qualified projects.
- Developers then sell their tax credits to investors, which helps them raise capital for their project and reduces the amount of debt they have to borrow
- Lower development costs allows the tax-credit property to be rented at a more affordable rate.
- Properties that stay in compliance with program requirements provide investors with a dollar-for-dollar tax credit against their federal tax liability every year for ten years.
- Tax credits are subtracted directly from the individual’s tax liability (as opposed to tax deductions which are subtracted from an individual’s taxable income).
- Tax credits are typically allocated to state agencies, such as State Housing Finance Agencies, which then award the credits to developers through a competitive process.
- For more information:
New Markets Tax Credit
- New Market Tax Credits (NMTC) increase investment in low-income communities. They are allocated through certified Community Development Entities (CDEs), which apply for them through the U.S. Treasury.
- How it works:
- CDEs use tax credits to raise capital from private investors.
- Private investors receive credit against their Federal income taxes for investing in the CDE.
- That credit amounts to 39 percent of the investment cost and is claimed over the course of seven years.
- CDEs use the investment funds to support low-income communities.
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