Predevelopment loans are typically made to a sponsor who is in the planning and application stages of an affordable housing property. The loans are used to pay for market study, initial drawings, financing application fees and other items that are necessary to apply for and receive construction and permanent financing. As financing applications become more complicated and expensive, predevelopment loans help sponsors of affordable housing afford the up front costs necessary to begin the redevelopment process.
Construction loans are made after the financing sources have been approved and construction is ready to begin. The loans are made on a short term basis and are used to pay for construction related costs until the traditional financing is secured. In some cases, they are used to pay for construction related costs that are not covered by the traditional lender. Construction loans may also be provided if the loan to value ratio of the property is not high enough to allow the traditional construction lender to provide 100% of the needed construction financing.
LAND / INFRASTRUCTURE
Land loans are made to secure site control when a timing challenge exists between an expiration of a purchase contract and closing on the construction financing. Infrastructure loans are made to allow the sponsor of the affordable housing to prepare the site for the construction of the development so that they can achieve construction loan closing.
GAP FINANCING LOAN
Gap financing loans are made after the property has been constructed and placed in service. Gap financing loans are necessary when the total costs of the property exceed the available sources of financing. This most frequently occurs when sources of funds such as AHP, HOME, or Trust Funds are either delayed or not approved. It can also occur when a property's actual costs exceed budgeted costs or when unexpected costs arise such as additional construction requirements from local government agencies. Gap financing loans are only available if a realistic source of repayment is identified.
Permanent loans are made after construction is complete and the project is placed in service. Permanent loans will only be offered after conventional lenders have been given the opportunity to provide the financing. The need for these loans generally occurs with small projects in rural communities where the local lender is not able to provide a permanent loan. A contributing factor is that most permanent loans must have a fixed interest rate for at least 15 years and a 30 year amortization. Many small lenders are unable to offer fixed rate financing and 30 year amortization schedules.