Building the Capital Budget

The Development or Capital Budget is used to project the total capital requirements of the project. It provides a detailed analysis of all development costs to be incurred to complete the project. 

These usually fall into two broad categories - hard and soft costs:

  • Hard costs include such terms as land acquisition, construction and rehabilitation work, and offsite improvements (such as sewers or utilities).
  • Soft costs include such items as architectural services, appraisals, engineering, legal costs, fees and permits, and rent-up costs.

Two important questions to ask in preparing or evaluating a development budget are:

  1. Is the budget complete? Does the budget include all of the costs that the developer/sponsor will incur to complete a fully operational project? This requires understanding the project in detail.
  2. Is the budget accurate and reliable? As a project gets closer to construction, it becomes possible to refine cost projections and budgets. By the time a project has an identified site, preliminary funding commitments and basic design, the development budget should be fairly refined.  

Learn more about Preparing the Supportive Housing Project Proforma, a financial plan for developing and operating the project. 

Learn more about Preparing a Supportive Housing Project Development Budget, including detailed descriptions of potential development costs. 

Sources of Capital Financing

In addition to understanding the costs that are part of capital budget, it is also important to understand the sources of financing that can be used to fund the budget. A significant portion of capital financing originates at the federal level, including funding administered by the U.S. Department of Housing and Urban Development (HUD). HUD sources generally flow to project sponsors in one of two ways:

  1. Through formula grants (including block grants), in which funds flow from HUD to a local government entity (usually a county or city, and sometimes a state) and on to individual project sponsors.
  2. Through competitive grants, which HUD awards directly to project sponsors.


Other significant sources of financing for housing development that originate at the federal level include the Federal Home Loan Bank's Affordable Housing Program, which is administered by its District Banks, and Low Income Housing Tax Credits, which are primarily administered by state housing finance agencies. These are both competitive programs.

In addition to administering federal block grant funds for housing development, most states have developed locally generated housing sources.

The Fund Source Analysis Worksheet will assist you in analyzing the sources of capital funding for your project.

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