Grants Vs. Loans for Affordable Housing: Which Is Best?

Affordable Housing Grants vs Loans

Grants vs Loans

We believe all communities should offer safe, affordable housing for residents. In fact, one of our core services is providing affordable housing for low-income households. We love helping individuals and families stay in their homes for years to come.

One of the ways we bring affordable housing to communities is by establishing a residential rehab program using Community Development Block Grant (CDBG) and Home Investment Partnerships Program (HOME) funds. The concept is simple: the home of an income-eligible household is repaired, allowing the family to stay in their house and enjoy a safe, decent housing unit.

Naturally, the implementation of such a program is anything but simple. Among the many decisions that need to be made – and reviewed periodically throughout the program’s lifespan – is the form of assistance that is provided. Should you offer grants or loans? If loans, do you charge interest? Do you make the loans repayable monthly or defer until the property is sold? Do you offer the same form of assistance to all eligible households or should you differentiate between the various eligible income levels?

The answer, of course, is that there really is no answer. There’s no one size fits all. Whether starting a new program or taking a hard look at an existing one, there are some basic questions you should ask. The answers to these questions will guide you in the right direction and help you determine which form of assistance will best meet your program’s goals.

Here are the questions you need to ask:

  • What are your rehab program’s goals? Do you want to help as many eligible households as possible or do you want to focus on households that need the most assistance?

  • What form of assistance does your current program use (if you have one) and how would you expect your community to react to any changes? If you’ve always given out grants, expect pushback from applicants if you tell them that the program has changed and the money will need to be repaid in the future. Some will view this as unfair while you may see it as necessary to the program’s survival in light of decreasing – or perhaps vanishing – HUD funding.

  • What resources do you have to manage the program? Going to amortized loans where homeowners make monthly payments requires a good deal of staff time on your part. Even if that’s the option that makes the most sense, do you have the staff and resources to make it work?

Similarly, the best choice for your program may be to offer multiple options. For example, those at less than 50 percent of Area Median Income receive a grant while those at 50-80 percent are given a loan. Or perhaps a portion of the rehab cost is a grant and another portion is designated a loan. Again, consider whether you have the staff to understand, explain and implement these complex variations.

After asking and answering these questions, you’ll want to evaluate the pros and cons of a grant versus a loan. The biggest determinant should be what will work in your community. Which option meets the needs of the residents and which one will be most readily understood, accepted and used in your community?

Here’s a breakdown of the pros and cons:



  • Easy to administer – you give away the money and you’re done.

  • Easy to explain to residents.

  • High rate of acceptance. After all, who doesn’t want free money?

  • Serves low-income households who are unlikely to be able to make additional monthly payments.


  • No funds being repaid – once the money is gone, it’s gone.

  • May be politically unpopular as people wonder why we are giving money away.

  • May provide a windfall profit should the owner sell shortly after repairs are complete.



  • Ensures future funding for additional rehabs, which is important in times of uncertain HUD funding (like now!).

  • Deferred payment loans are simple to administer. Just wait for a call from a title company when the property is sold. They’ll ask for a payoff letter and you’ll receive a check.

  • Can easily and accurately be described as the “fairest” option since no one is getting a handout or potentially realizing a windfall profit. A loan is more attractive to a public leery and weary of “giveaways” or “free money.”


  • For deferred payment loans, the program may have to wait many years for repayment. This results in an unpredictable cash flow.

  • For amortized loans requiring monthly payments, you’ll need staff time and skills to underwrite the loan and process payments.

  • Can be a hard sell to potential participants. Some individuals, especially seniors, are reluctant to put additional debt on their home.

Looking for more information? The United States Department of Housing and Urban Development (HUD) has a great training manual that offers guidance on many aspects of affordable housing, including how to design a rehab program with the best forms of assistance for your community.

Need an expert to provide guidance, design your housing rehab program and manage the process of securing and administering grants/loans? Contact us at and we’d be happy to help!


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