How HOME Funds Work in a LIHTC Capital Stack
HOME Investment Partnerships Program funds are one of the most widely used soft financing sources in affordable housing development — and one of the most complicated to layer with LIHTC. Understanding how HOME works, what it requires, and how it interacts with tax credit compliance is foundational for developers who rely on it to close capital stack gaps.
What HOME is
HOME is a federal block grant program administered by HUD that provides formula grants to states and localities for affordable housing activities. HOME funds flow to Participating Jurisdictions — states, cities, counties, and consortia — which then deploy them through their own programs and priorities.
In LIHTC transactions, HOME is typically deployed as a soft loan — a deferred, below-market, or forgivable loan that fills the gap between what tax credit equity and conventional debt produce and what the project costs. The terms vary by PJ: some deploy HOME as fully deferred loans with payment only from surplus cash flow; others structure repayment over the compliance period; some have grant components.
The compliance complexity
Using HOME in a LIHTC deal creates a layered compliance environment because each program has its own requirements — and they don't always align cleanly.
Income targeting. LIHTC requires that units serve households at or below specified AMI percentages (typically 50% or 60% AMI for 9% deals). HOME has its own income limits and targeting requirements, including a requirement that a specified percentage of HOME-assisted units serve very low-income households. Where these requirements overlap is straightforward; where they diverge requires careful unit-by-unit designation.
Rent limits. LIHTC sets maximum rents based on AMI and unit size. HOME sets separate maximum rent limits based on FMR and local median income. In most markets, LIHTC rent limits are lower and therefore control — but this should be verified for each market and unit type.
Affordability period. LIHTC requires a minimum 30-year affordability commitment (15-year initial compliance period plus a 15-year extended use period). HOME requires a minimum affordability period based on the level of per-unit investment — ranging from 5 years for rehabilitation up to 20 years for new construction with more than $40,000 per unit. These periods may not align, requiring attention to how the different compliance periods are managed over the life of the property.
Unit designation. Not all units in a LIHTC project need to be HOME-assisted. HOME funds can be targeted to specific units within the project, which affects which units carry HOME compliance requirements. This unit-by-unit designation needs to be documented in the HOME agreement and tracked through the compliance period.
The Participating Jurisdiction relationship
HOME funds are deployed at the discretion of Participating Jurisdictions, which have significant latitude in how they structure their programs, what deal types they prioritize, and what they require from developers.
This means HOME availability and terms vary enormously by geography. A PJ with a well-funded, actively-managed HOME program and an experienced housing staff is a different partner than a smaller PJ with limited HOME allocation and less capacity to underwrite and monitor complex LIHTC transactions.
Developers who are new to a market or new to a specific PJ should understand the PJ's program parameters, typical terms, application process, and capacity to move quickly enough to align with LIHTC credit rounds and construction financing timelines.
Practical implications for deal evaluation
When evaluating whether HOME is a realistic component of a capital stack:
Confirm the PJ's current HOME allocation and how much is available for new commitments. HUD publishes annual allocation data; PJ program staff can confirm current availability.
Understand the PJ's typical terms and deal timeline. Some PJs can issue commitment letters quickly; others have long review processes that may not align with your development timeline.
Verify compliance compatibility with the deal structure. If the deal has complex unit targeting or an unusual AMI mix, confirm with counsel how HOME and LIHTC compliance interact before building HOME into the capital stack.
HOME is a powerful tool when it's accessible and well-structured. It's a source of significant complexity when layered without attention to the compliance requirements it introduces.
Alpha Deal helps development teams model HOME and other soft debt sources in LIHTC capital stacks during early feasibility — so layered compliance requirements are visible from the beginning.