Financing for Affordable Housing Development
Local Funding Availability for Affordable Housing
- Montgomery County uses various local and state funding sources to support the new development and preservation of Affordable Housing.
Federal Grant Funding
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More info about Federal Grant Funding
PILOTS and Rental Agreements
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For more information about PILOTS and Rental Agreements
DHCA encourages innovative approaches to projects that meet one or more of the following preference criteria. When evaluating which projects will receive County funding, DHCA will review each application based on the aggregate solutions to the following County priorities. These priorities are not provided in hierarchical order; all will be considered project-by-project.
- Income level served - Projects that include units serving households earning 50% or less of the Area Median Income (AMI). DHCA encourages applicants to identify options that include units dedicated to households earning less than 30% of AMI, including units dedicated to serving formerly homeless households.
- Preservation—Projects that preserve existing affordable housing that are at risk of losing relative affordability or being removed from the market.
- Production - Projects constructing new units or expanding the number of units under affordability restrictions above and beyond inclusionary zoning minimums.
- Family-sized units - Projects providing family-sized units of three (3) or more bedrooms (not applicable to some housing types such as senior housing or special needs housing).
- Mixed-income housing - Projects that include a diverse housing stock affordable to renters of multiple income levels. The range of income levels may vary between developments.
- Senior housing—Providing quality, affordable housing for the 62-year-old and older population.
- Proximity to transit – Development that promotes walkability and bike-friendly land use with easy access to mass transit.
- Green building standards – Align with the County’s sustainable design and construction goals for rehabilitation design and construction.
- Permanent supportive housing—Provides housing stability through long-term leasing and supportive services to households with at least one member with a disability.
- Racial equity – Providing housing to everyone, mainly where such housing can be supported to overcome historical disparities in that area of the County.
- Readiness to proceed—A project’s readiness to proceed will be crucial to awarding funding. Readiness includes site control and necessary plan approvals with Maryland National Capital Park and Planning.
- The project should be in the process of securing other financing or have a clear timeline for acquiring additional funding sources necessary to complete the project.
- Preference will be given to projects that can demonstrate closing within twelve (12) months of receiving a commitment for funding or, in the case of applicants applying for tax credits, twelve (12) months from the award of tax credits.
- Community benefits – Providing development features that enhance the community in projects requesting more than $ 5 million. Community benefits are specific to the needs of each area of the County and should be tailored to the particular impacts of the project. The addition of community benefits by a development should be provided at no additional cost to the County. Examples of community benefits include, but are not limited to, Boys and Girls clubs, community engagement spaces, community gardens, and resident services.
- Homeownership – Providing affordable homeownership opportunities to low-income or moderate-income households above and beyond inclusionary zoning mandates.
DHCA provides flexible financing to meet public purpose objectives; however, some general guidelines are provided for all loans.
- Purpose—Funds may be used for new construction, acquisition, or rehabilitation. DHCA is generally not a resource for predevelopment costs. Developers should seek other resources for predevelopment funding.
- Loan Terms - The Director sets Loan terms based on the project's needs. The desired or targeted interest rate is 3%. However, the rate can be established depending on the project’s purpose and financing, along with the requirements of the other financial partners.
- Repayment—The prepayment of the principal and interest of County financing will depend on the underwriting process and the requirements of the senior financing participants, as appropriate. Loan repayment is generally structured to meet a Project’s financial requirements of senior financial partners, as applicable, along with the Property’s ability to pay.
- Equity Contribution—While not required, cash equity from the owner/sponsor/parent company (excluding deferred developer fee) is expected to be included as a source of funds. An equity contribution of 10% is an expected goal for each project.
- LIHTC Consideration—Prior approval of Low-Income Tax Credits (LIHTC) does not guarantee acceptance of County funding. For projects proposing to use tax credits, preference will be given to projects with at least 50% of the developer’s fee deferred and paid from the project’s cash flow, provided sufficient cash flow is available and subject to the requirement of senior lenders.
- Physical Needs Assessment—If other lenders or investors have not required a physical needs assessment, DHCA staff, at its discretion, may hire a third-party firm, at the borrower's expense, to provide one to verify that the planned rehabilitation scope of work is sufficient for the project.
- Local Priority - The County may require properties receiving County funding to contact appropriate County agencies regarding any vacant units and give preference to residents of Montgomery County or people working in Montgomery County.
- Right of First Refusal—The County will require properties receiving County funding to give the County the right to purchase the property if it is sold. The County may include language in its loans stating that if the borrower accepts a signed bona fide third-party contract at any time, it has the right to match the contract at a pre-established price. This is included in documents and the law.
Disbursement of Funds
- For new construction projects, DHCA will seek an agreement with the senior lender and other financial partners to disburse funds during the construction and rehabilitation process and schedule. While a pari-passu disbursement schedule is desired, DHCA will work with financial partners to achieve a mutually agreeable schedule.
- A DHCA construct manager/ inspector and other lender-approved inspections are required for DHCA construction/rehabilitation disbursements.
- DHCA will require regular releases of liens and current title bring-downs as part of the construction/rehabilitation payment approval process.
- Federal Compliance—Projects receiving federal funding must comply with specific guidelines and requirements established by those programs.
- Other Requirements—The director may establish other requirements to protect the interests of DHCA and Montgomery County.
- Limited tenant termination – A landlord must not evict a tenant from a rental unit, notwithstanding the expiration of the tenant’s lease or rental agreement, so long as the tenant continues to pay the rent to which the landlord is entitled for the rental unit; provided that the nonpayment of a late fee shall not be the basis for an eviction except for one of the following reasons:
- A breach of lease or causing damage to a rental unit or another area of the property, and refusing to pay for damages or correct the breach of the lease within 30 days after receiving notice from the landlord;
- Disturbance of the peace of other tenants even after receiving notice from the landlord;
- Engaging in illegal activity on the property; and
- Refusal without reasonable cause to allow a landlord onto a leased premises to make repairs or inspect the property.
Projects will be underwritten to determine financial feasibility. The applicant must demonstrate that the county's financing is necessary for the project. Factors will include, but are not limited to:
- A pro forma analysis of the property’s projected financial performance over the first 20 years of the proposed loan, including rental income (within affordability guidelines), expenses, and deposits to reserves.
- The project's ability to support any must-pay debt.
- The project's appraised value is based on the current condition of the property and the proposed design or condition after completion.
- Debt coverage with a Debt Service Coverage (DSC) of 1.0 and the loan-to-value ratio should not exceed 100% based on valuation using the property's projected value based on market rents without restrictions. DHCA will value exceptions based on the feasibility of the property’s ability to manage the debt and the security of the debt.
- The terms and conditions of any senior debt (if applicable).
- Leveraging other resources to the County funds, targeting a 3:1 leverage ratio.
- The repayment of the County debt.
- A review of the last three (3) years of independently audited financials for the applicant.
Please contact Lawrence Cager ([email protected]) for additional information about County funding opportunities. We look forward to working with you if you pursue an affordable housing development in Montgomery County.