Loans for pre-development costs are available to certified CHDOs to ensure that they have access to funds for upfront, eligible project expenditures. Such "lines of credit" are often difficult for non profits to receive from private lenders, so the HOME Program provides this opportunity as part of its commitment to affordable housing development.
- The total of HOME funds used for CHDO project pre-development assistance cannot exceed 10 percent of the total amount of HOME funds reserved by the PJ for CHDO set-aside activities.
- Project pre-development assistance may be provided to CHDOs only in the form of a loan. The loan may be structured as an amortizing or non-amortizing loan. A CHDO that receives project pre-development assistance must repay the loan to the PJ from construction loan proceeds, other project income or it may be wrapped into the final HOME assistance package to the CHDO.
- As with all HOME monies, project development loans may not be used to pay CHDO staff or for other administrative costs. All costs must be related to a specific project that, if deemed feasible, would receive HOME funds for development.
- Project predevelopment loans may not exceed customary and reasonable project preparation costs.
The following types of pre-development loans are available to certified CHDOs:
1. Technical assistance and site control loans. These are:
- Used to establish the preliminary feasibility of a specific project.
- Used prior to gaining site control.
2. Seed money loans. These are:
- Used to cover pre-construction costs for a specific project.
- Used after the CHDO has site control, preliminary financial commitments, and a capable development team.
Example of a pre-development loan.
New Home City has designated 40 percent of its $1 million HOME allocation to five CHDOs for set-aside eligible projects. The PJ can determine if and how it will make its project-specific predevelopment loans to these CHDOs, provided that the total amount of the loans do not exceed 10 percent of its CHDO designation of $400,000, or $40,000. The PJ may make a single project-specific loan to one CHDO for any amount up to $40,000, or it may choose to divide the total amount available among all of the CHDOs it has designated.