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Below-market financing of affordable housing development overview

Below-market financing reduces the costs of servicing debt incurred in the development of rental or for-sale properties, thereby reducing the level of rents or sale prices needed for the development to be economically sustainable.

Below-market financing typically involves providing funds at a lower rate of interest (or with lower fees) than would be required from a market-rate funder. Compared with capital subsidies, below-market loans may have a much smaller impact on affordability on a dollar-for-dollar basis since the loans ultimately must be repaid. However, funds loaned out at a low interest rate can be recycled to help subsequent borrowers as the funds are repaid.

This section reviews some of the key considerations involved in creating and administering a below-market debt financing program.

Additional Resources

Administering agencies

Varies depending on the source of the funds, but may include the local department of housing and community development (for HOME and CDBG allocations or locally-generated funds), the state or local housing finance agency (for tax-exempt bond proceeds or housing finance agency reserves), or the regional Federal Home Loan Bank (for Affordable Housing Program funds or Community Investment Program advances).

Policy objectives

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