The Welsh government is putting £120m into the scheme that will give housing associations access to a total pot of £153m long-term funding.
Twenty housing associations are taking part in the scheme, with coverage across all 22 local authority areas in Wales.
Construction work on the first projects will start this year.
M&G Investments is providing the main new source of finance for Wales’s registered social landlords, because of the difficulties getting funding from the banks and building societies.
Wales’ housing minister Carl Sargeant said: ““It’s vital that the private and public sectors are supported in building new homes so that we can continue to work towards, and indeed exceed our target of providing 7,500 affordable homes during the term of this Welsh government. This scheme is just the beginning in my search for new ways of increasing housing supply in Wales."
Finance minister Jane Hutt added: “As budgets get tighter we have to consider all avenues of funding that are available to us to help us deliver our priorities."
Community Housing Cymru group chief executive Nick Bennett said: “With a number of housing associations not having previously used other types of borrowing (such as bonds), this has provided an opportunity to innovate. This partnership and the shared mutual interest in increasing housing supply means housing associations will provide the borrowing capacity and Welsh Government the source of revenue grant.”
One of the first affordable housing projects funded under the Welsh housing finance grant scheme is Bronte House, which is being developed by Linc Cymru to provide 38 apartments.
Further projects have already been approved at Tyddyn Pandy, in Caernarfon and Gwaun Helyg in Blaenau Gwent, with more set to be approved across Wales shortly.