Can NSP funds be used to capitalize, as part of a rental project's development budget, one or more pre-funded reserves, including operating reserves, as well as lease up, debt service or replacement reserves?

Date Published: October 2012

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Yes, grantees may use NSP to fund an up-front deposit to a rental project's operating, lease-up, or debt service reserves when such a deposit is required by either a private lender on this project or by the grantee's written underwriting/lending policies.  This up-front deposit should be reasonable and cover only amounts necessary for the required initial deposit. Replacement reserves should be funded with cash flow from the project, not established at initial occupancy. See the NSP Policy Alert Guidance on Operating Deficit Reserves, Overhead Expenses, and Combined Loan to Value Ratios.

Tags: NSP Underwriting and Project Selection - Structuring Financial Assistance Models

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