HUD CDBG and HOME Grants: A Practitioner's Guide to Community Development Funding

Understanding HUD's Community Development Programs

The U.S. Department of Housing and Urban Development administers two formula-based block grant programs that together form the backbone of local community development and affordable housing investment across the country: the Community Development Block Grant (CDBG) program and the HOME Investment Partnerships (HOME) program. Between them, these programs channel roughly $5 billion annually to state and local governments, funding everything from sidewalk repairs and small business loans to new affordable housing construction and homebuyer assistance.

CDBG, authorized under Title I of the Housing and Community Development Act of 1974, is the older and broader program. It gives local jurisdictions wide discretion to address infrastructure, economic development, public services, and housing needs — provided activities primarily benefit low- and moderate-income residents. HOME, authorized by the Cranston-Gonzalez National Affordable Housing Act of 1990, is narrower in scope but deeper in housing impact. It is the largest federal block grant designed exclusively to create affordable housing for low-income households.

This guide covers how both programs work, who is eligible to receive and use the funds, what the key compliance requirements are, and how practitioners can position their jurisdictions and organizations for effective use of these dollars.

CDBG Program Structure and Funding

CDBG operates through two primary channels. The Entitlement Program distributes funds directly to metropolitan cities (generally those with populations of 50,000 or more), urban counties, and certain other designated communities. The State Program allocates funds to states, which then distribute them to smaller, non-entitlement communities through a competitive or formula-based process determined by the state.

Funding is allocated by formula. The statutory formula considers population, poverty levels, overcrowded housing, and age of housing stock. HUD calculates two formulas for each jurisdiction and applies whichever yields the higher amount.

For FY2026, Congress appropriated $3.3 billion for the CDBG Entitlement and State programs — level funding with FY2025. This held despite the President's budget request to eliminate the program entirely, a proposal that generated significant opposition from local governments nationwide. The program's survival reflects the deep reliance that municipalities and counties have on CDBG as flexible community development capital.

Beyond regular formula allocations, Congress periodically appropriates CDBG Disaster Recovery (CDBG-DR) funds following major disasters. These supplemental allocations can be enormous: in January 2025, HUD announced nearly $12 billion in CDBG-DR funds for states and territories affected by 2023 and 2024 disasters, including $1.4 billion to North Carolina for Hurricane Helene recovery alone.

The Three National Objectives

Every CDBG-funded activity must meet one of three national objectives. Understanding these objectives is essential — failure to document compliance is one of the most common monitoring findings.

Benefit to Low- and Moderate-Income Persons

This is the primary national objective, and at least 70 percent of a grantee's CDBG expenditures over a one-, two-, or three-year period (the grantee selects the period) must meet it. There are four ways to qualify:

Area benefit. The activity serves a geographic area where at least 51 percent of residents are low- and moderate-income (at or below 80 percent of Area Median Income). This is the standard approach for infrastructure improvements, parks, community facilities, and similar place-based investments. HUD publishes census-derived low/mod data by block group that grantees use to document area benefit.

Limited clientele. The activity benefits a specific group of people, at least 51 percent of whom are low- and moderate-income. Certain populations are presumed to qualify: abused children, elderly persons, battered spouses, homeless persons, severely disabled adults, illiterate adults, persons living with HIV/AIDS, and migrant farm workers. For non-presumed groups, you must document income eligibility of actual beneficiaries.

Housing. The activity involves housing occupied by low- and moderate-income households. This applies to owner-occupied rehabilitation, homebuyer assistance, and rental housing activities.

Job creation or retention. The activity creates or retains permanent jobs, at least 51 percent of which are held by or made available to low- and moderate-income persons.

Prevention or Elimination of Slums or Blight

Activities under this objective address conditions in a deteriorating area or an individual property that meets the definition of slum or blight under state or local law. Area-based blight activities require the grantee to designate a slum/blight area, document the conditions, and show that the activity addresses those conditions. Spot blight applies to individual structures and is limited to acquisition, clearance, relocation, historic preservation, and building rehabilitation — but only to the extent necessary to eliminate the blighting conditions.

Urgent Need

This is the most restrictive objective and is rarely used. It requires the grantee to demonstrate an existing condition that poses a serious and immediate threat to community health or welfare, that the condition is of recent origin (within 18 months), that the grantee cannot finance the activity on its own, and that other funding sources are not available. In practice, most urgent-need situations are addressed through CDBG-DR rather than regular CDBG allocations.

Eligible CDBG Activities

CDBG's strength is its flexibility. The statute authorizes a broad range of activities, which is why local officials value the program — it can address whatever community development priorities the jurisdiction identifies through its planning process. Major categories include:

Public facilities and improvements. Water and sewer lines, streets, sidewalks, community centers, parks, senior centers, homeless shelters, childcare facilities, and health clinics. The facility must be owned by a public entity or nonprofit and serve a predominantly low/mod area or clientele.

Housing. Rehabilitation of owner-occupied and rental housing, homeownership assistance (down payment and closing cost assistance), lead-based paint abatement, housing counseling, and new housing construction (though new construction is permitted only for certain types of housing and is relatively rare under CDBG compared to rehabilitation).

Public services. Employment training, health services, substance abuse services, childcare, fair housing counseling, senior services, youth programs, and crime prevention. Public services are capped at 15 percent of the grantee's annual allocation plus 15 percent of program income received during the prior year. This cap makes public service dollars particularly competitive and valuable.

Economic development. Loans and grants to businesses for job creation, microenterprise technical assistance and lending, commercial rehabilitation, and infrastructure to support economic development projects. Job creation activities must document that at least 51 percent of jobs are held by or available to low/mod-income persons.

Acquisition and disposition. Purchase of real property for eligible purposes — acquiring blighted properties, assembling land for affordable housing, or purchasing buildings for public facilities.

Code enforcement. Building code inspections and enforcement in deteriorating or deteriorated areas where such enforcement, together with other public or private improvements, is expected to arrest area decline.

Planning and administration. Up to 20 percent of the allocation (plus 20 percent of program income) may be used for general program planning and administration. This funds staff time for program management, financial oversight, environmental review, fair housing planning, and citizen participation activities.

HOME Program Structure

HOME funds are allocated by formula to participating jurisdictions (PJs) — states, cities, urban counties, and consortia of local governments that meet minimum allocation thresholds. To qualify as a PJ, a jurisdiction must receive an allocation of at least $500,000 (or $750,000 for consortia). Jurisdictions below those thresholds may join a consortium with a neighboring jurisdiction to qualify.

HOME is funded at approximately $1.5 billion annually, making it smaller than CDBG but exclusively focused on affordable housing production and preservation.

Eligible HOME Activities

Rental housing. New construction and rehabilitation of affordable rental units. This is the most common use of HOME funds. PJs may provide HOME funds to developers — both nonprofit and for-profit — to produce or rehabilitate rental housing affordable to households at or below 80 percent AMI, with additional targeting requirements for units within assisted projects.

Homebuyer assistance. Down payment assistance, closing cost assistance, and acquisition or rehabilitation assistance for first-time homebuyers (or those who have not owned a home in three years). Purchase prices must fall within HUD's published limits for the area.

Homeowner rehabilitation. Rehabilitation of owner-occupied units to bring them up to property standards and improve livability for low-income homeowners.

Tenant-based rental assistance (TBRA). Direct rental subsidies to eligible tenants, similar in concept to Housing Choice Vouchers but administered locally with HOME funds. TBRA can also cover security deposits.

Income Targeting

HOME has stricter income targeting than CDBG. For rental projects with five or more HOME-assisted units, at least 20 percent of the units must be occupied by households at or below 50 percent of AMI. All HOME-assisted units must serve households at or below 80 percent AMI.

Affordability Periods

HOME-assisted properties must remain affordable for specified periods. Under the 2025 final rule, newly constructed rental housing must maintain affordability for at least 20 years. Rehabilitation projects carry affordability periods of 5 to 15 years depending on the per-unit HOME investment. During the affordability period, rents on HOME-assisted units must not exceed HUD-published HOME rent limits.

The 25 Percent Match Requirement

PJs must match every dollar of HOME funds expended (excluding administrative costs) with 25 cents from non-federal sources. Eligible match sources include cash contributions from state or local government, donated land or property, below-market-rate loans, donated labor and materials, infrastructure improvements funded by non-federal sources, and proceeds from affordable housing bonds. Match is tracked cumulatively, so a PJ can bank surplus match from strong years against future obligations.

HUD can grant partial or full match reductions to PJs experiencing fiscal distress or located in areas declared as federal disaster areas.

The CHDO Set-Aside

PJs must reserve at least 15 percent of their HOME allocation for housing owned, developed, or sponsored by Community Housing Development Organizations (CHDOs). CHDOs are nonprofit organizations with demonstrated capacity for housing development and meaningful community accountability. A PJ can also provide up to 5 percent of its allocation for CHDO operating expenses, separate from the 15 percent development set-aside. The 2025 final rule streamlined CHDO certification requirements, making it somewhat easier for nonprofits to qualify.

The 2025 HOME Final Rule

On January 6, 2025, HUD published a final rule updating the HOME regulations for the first time since 2013. The changes took effect for projects with HOME funds committed on or after February 5, 2025. Key provisions include:

Tenant protections. PJs must now require use of one of three standardized HOME tenancy addenda that establish baseline tenant protections in HOME-assisted rental housing — addressing lease terms, eviction procedures, and unit conditions.

Small-scale housing streamlining. For one-to-four-unit rental projects (including ADUs, duplexes, and triplexes), PJs may allow owners to re-examine tenant incomes every three years instead of annually, reducing administrative burden on small landlords.

Updated per-unit subsidy limits. The rule adjusts maximum per-unit subsidy calculations to reflect current construction costs.

Homebuyer property standards. Homebuyers now have six months (extendable to twelve) after acquisition to bring the property into compliance with PJ property standards, rather than requiring compliance at closing.

These changes are significant for practitioners. The tenant protection addenda require updates to existing lease templates and landlord agreements. The small-scale housing provisions create new opportunities for scattered-site rental development. Organizations administering HOME funds should review the final rule carefully and update their policies and procedures accordingly.

The Consolidated Plan and Annual Action Plan

Both CDBG and HOME funds are governed by the Consolidated Plan, a three-to-five-year strategic document that every participating jurisdiction must prepare and submit to HUD. The Consolidated Plan serves multiple functions: it is a needs assessment, a market analysis, a strategic plan, and an application for funding rolled into one document.

Consolidated Plan Components

Housing needs assessment. Analysis of housing problems (cost burden, overcrowding, substandard conditions) broken down by income level, tenure (renter vs. owner), household type, and race/ethnicity. HUD provides pre-populated data tables, but PJs should supplement these with local data.

Housing market analysis. Inventory of housing supply, assessment of market conditions, and identification of areas of racial or ethnic concentration and areas of low-income concentration.

Strategic plan. Goals, objectives, and outcome measures for the plan period. Each goal should identify the geographic area served, the need addressed, the funding source, and the anticipated accomplishments (e.g., 50 housing units rehabilitated, 200 persons receiving job training).

Anti-poverty strategy. Description of how the jurisdiction will use its resources to reduce poverty.

Annual Action Plan

Each year, the PJ submits an Annual Action Plan that details specific projects and activities to be undertaken with that year's funding. The Action Plan must be consistent with the Consolidated Plan's goals and priorities. It identifies the precise dollar amounts allocated to each activity and, for CDBG, indicates which national objective each activity will meet.

Citizen Participation

HUD requires a formal Citizen Participation Plan that outlines how the jurisdiction will solicit and respond to public input. Minimum requirements include public hearings, publication of the draft plan for a 30-day comment period, and access to records and information. Failure to follow citizen participation procedures can result in HUD rejecting the plan submission or imposing conditions on funding.

Submission Deadlines

The Consolidated Plan and Action Plan must be submitted to HUD at least 45 days before the start of the program year. For CDBG, failure to submit an Action Plan by August 16 of the program year results in automatic loss of the annual allocation — this statutory deadline cannot be waived.

Compliance and Reporting

IDIS Reporting

Both CDBG and HOME activities must be set up, funded, and reported in HUD's Integrated Disbursement and Information System (IDIS). IDIS is the official system of record for drawing down funds and reporting accomplishments. Within 90 days of the program year end, all activity data must be current.

The Timeliness Test (CDBG)

HUD applies a timeliness test to CDBG entitlement grantees: the ratio of undisbursed funds in the line of credit to the most recent annual grant must not exceed 1.5. Grantees that fail the test may be required to submit a workout plan, and persistent untimeliness can result in reduced funding or a hold on the line of credit. Effective project pipeline management — having activities ready to proceed and drawing down funds consistently — is the key to passing the timeliness test.

Environmental Review

Every CDBG and HOME activity is subject to the National Environmental Policy Act (NEPA). The responsible entity (the grantee or PJ) must complete an environmental review before committing funds to a specific project site. The level of review depends on the activity: exempt activities (planning, administration) require minimal documentation; categorically excluded activities (minor rehabilitation, equipment purchase) require a checklist; and activities with significant environmental impact require a full Environmental Assessment. Importantly, no funds may be committed and no choice-limiting actions may be taken until the environmental review is complete and HUD (or the state for state-administered programs) has issued a Release of Funds.

Davis-Bacon and Labor Standards

Construction contracts of $2,000 or more funded with CDBG or HOME require compliance with the Davis-Bacon Act, which mandates payment of locally prevailing wages to construction workers. This affects project budgets and requires monitoring of contractor payrolls. Grantees must conduct pre-construction conferences, collect weekly certified payrolls, and conduct on-site interviews with workers to verify compliance.

Fair Housing

Every CDBG and HOME grantee certifies that it will affirmatively further fair housing. This means not only avoiding discrimination but taking proactive steps to overcome patterns of segregation and promote inclusive communities. HUD evaluates fair housing compliance as part of its monitoring process, and grantees with unresolved fair housing issues may face conditions on their funding.

Monitoring and Audits

HUD's Office of Community Planning and Development conducts periodic monitoring reviews of CDBG and HOME grantees. Reviews examine financial management, program compliance, beneficiary documentation, and progress toward goals. Grantees receiving $750,000 or more in federal awards in a year are also subject to the Single Audit requirement under 2 CFR Part 200. Subrecipients must be monitored by the grantee, and grantee monitoring policies are themselves a subject of HUD review.

CDBG Disaster Recovery: A Separate but Related Program

CDBG-DR is not a standing program — it is funded through supplemental appropriations after presidentially declared disasters. When Congress appropriates CDBG-DR funds, HUD allocates them to affected grantees based on unmet disaster recovery needs and publishes a Federal Register notice with program rules, waivers, and requirements specific to that allocation.

CDBG-DR funds are more flexible than regular CDBG in some respects (HUD typically waives the public services cap and certain other restrictions) but come with additional requirements including action plan amendments, quarterly reporting, and expenditure deadlines.

Recent CDBG-DR activity has been substantial. The December 2024 Disaster Relief Supplemental Appropriations Act provided approximately $12 billion for 23 states and one territory affected by 2023-2024 disasters. For communities recovering from hurricanes, wildfires, floods, and other catastrophes, CDBG-DR is often the largest single source of federal recovery funding outside of FEMA.

Communities in disaster-prone areas should familiarize themselves with CDBG-DR requirements in advance. Having a pre-disaster recovery plan, strong CDBG administrative capacity, and established relationships with HUD regional staff accelerates access to CDBG-DR funds when a disaster strikes.

Practical Strategies for Effective Program Administration

Build a Strong Project Pipeline

The most common administrative problem for CDBG grantees is untimely expenditure. The fix is not spending faster on whatever is available — it is maintaining a pipeline of well-planned, ready-to-proceed projects. Conduct a needs assessment annually, not just on the Consolidated Plan cycle. Identify projects that can move quickly (housing rehabilitation, public service contracts) alongside longer-term capital projects.

Invest in Subrecipient Capacity

Many CDBG and HOME activities are carried out by subrecipient organizations — nonprofits, housing authorities, and community development corporations. A subrecipient that cannot manage federal funds, meet reporting deadlines, or document beneficiary eligibility creates risk for the grantee. Conduct pre-award assessments, provide technical assistance, and include clear performance benchmarks in subrecipient agreements.

Document Everything from Day One

HUD monitoring findings overwhelmingly stem from documentation gaps rather than programmatic failures. Establish beneficiary income verification procedures, environmental review checklists, procurement files, and financial tracking systems before committing funds. The time to establish documentation protocols is during program year planning, not during a monitoring visit.

Leverage Funds

Both CDBG and HOME are most effective when combined with other funding sources. CDBG infrastructure funds paired with Low-Income Housing Tax Credits (LIHTC) can make an affordable housing project financially viable. HOME funds layered with state housing trust fund dollars and private financing stretch the per-unit subsidy further. Describe your leveraging strategy in your Consolidated Plan — HUD views it favorably, and it reflects sound stewardship of limited resources.

Engage Citizens Meaningfully

The Citizen Participation Plan is a regulatory requirement, but meaningful engagement goes beyond checking a box. Schedule public hearings at accessible times and locations, provide materials in relevant languages, use community surveys and focus groups to identify priorities, and report back to residents on how their input shaped the plan. Jurisdictions with robust citizen engagement processes tend to have stronger plans and fewer political conflicts over funding decisions.

Frequently Asked Questions

Can nonprofit organizations apply directly for CDBG funds?

Nonprofits cannot apply directly to HUD for CDBG Entitlement funds. CDBG is a formula grant to local and state governments. However, nonprofits can receive CDBG funds as subrecipients of an entitlement grantee or state grantee. The typical path is responding to a Request for Proposals issued by your local government during its annual action plan process. For the State CDBG program, some states allow nonprofits to apply as co-applicants with local governments. Check your state's method of distribution for specifics.

What is the difference between CDBG and HOME, and can a project use both?

CDBG is a broad community development program that funds housing, infrastructure, economic development, and public services. HOME is exclusively an affordable housing program. They can absolutely be used together on the same project. A common combination is using CDBG for site acquisition or infrastructure and HOME for housing construction or rehabilitation. When layering the programs, both sets of requirements apply — so the project must meet CDBG national objectives and HOME affordability and income targeting rules simultaneously.

How are CDBG income limits determined, and where do I find them?

HUD publishes CDBG income limits annually, derived from Area Median Income (AMI) estimates by metropolitan area and non-metropolitan county. Low-income is defined as at or below 80 percent of AMI; very low-income is at or below 50 percent. The limits are published on HUD USER (huduser.gov) and the HUD Exchange, typically effective in late spring each year. You must use the current published limits when determining beneficiary eligibility — using outdated limits is a common monitoring finding.

What happens if a grantee fails the CDBG timeliness test?

If the ratio of undisbursed funds in the grantee's line of credit to its annual grant exceeds 1.5, the grantee is considered untimely. HUD will typically require a corrective action plan explaining how the jurisdiction will accelerate expenditures. Continued untimeliness can result in HUD withholding the annual allocation until the grantee demonstrates improved performance. In extreme cases, HUD can reprogram the funds. The best prevention is proactive pipeline management: have projects ready to fund at the start of each program year and draw down funds consistently rather than in large, infrequent batches.

What changed in the 2025 HOME final rule that practitioners need to act on?

The January 2025 final rule — the first major HOME regulatory update since 2013 — introduced mandatory tenant protection addenda for HOME-assisted rental housing, streamlined CHDO certification, created small-scale housing provisions for one-to-four-unit projects, updated per-unit subsidy limits, and extended the timeframe for homebuyers to meet property standards. Participating jurisdictions should update their HOME program policies, subrecipient agreements, and lease templates to incorporate these changes. The rule applies to projects with HOME funds committed on or after February 5, 2025.

Navigating CDBG and HOME effectively requires both strategic planning and attention to regulatory detail — Granted helps community development practitioners find, track, and apply for these and other federal funding opportunities.