SecProbe.io

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      July 7, 2005

Mail Stop 4561

By U.S. Mail and facsimile to (301)592-8145

Mr. Robert L. Harris
KH Funding Company
10801 Lockwood Drive, Suite 370
Silver Spring, MD 20901

Re:	KH Funding Company
	Amendment Number Two on Form SB-2
      Filed July 1, 2005
	File No. 333-124155

Dear Mr. Harris:

	We have reviewed your filing and have the following comments.
Where indicated, we think you should revise your document in
response
to these comments.  If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary.  Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.

      The purpose of our review process is to assist you in your
compliance with the applicable disclosure requirements and to
enhance
the overall disclosure in your filing.  We look forward to working
with you in these respects.  We welcome any questions you may have
about our comments or any other aspect of our review.  Feel free
to
call us at the telephone numbers listed at the end of this letter.

General

1. Please make sure that all agreements and previously filed
exhibits
are properly referenced.  We note that the "1998 Incentive Stock
Plan" is actually not the exact name of the document executed and
previously filed.

Summary of the Terms of the Offering, page 2

2. In the response to prior comment 11, KH Funding indicates that
it
will file a supplement to announce any rate change, that it will
give
written notice of any downward rate change and that the changes
will
be announced on the company`s web site.  Revise this section to
include this disclosure and to provide the web address of the
website
where the supplement will be posted.

Risk Related to Our Business, page 9

3. In the first paragraph of this section, KH Funding states there
is
no guarantee that the initial analysis of loans will reflect
actual
future results...  Please restate this to reflect the actual risk
to
investors.  The risk is not that KH Funding "can not guarantee"
the
analysis but that the analysis may be flawed and losses may be
incurred.

4. In KH Funding`s disclosure provided in response to our previous
comment 6, the company disclosed its intentions to increase its
purchases of sub-prime loans but does not discuss the risks
associated this increased exposure.  Please add disclosure related
to
the risk under a separate heading.

5. Please revisit our previous comment 7.  The Company`s
disclosure
regarding "Hard Collateral" still is not clear.  Please revise to
simplify the discussion of the security interest and
collateralization that the company holds to support its loans.

Legality Opinion of Whiteford, Taylor & Preston

6. Please update the first paragraph to reflect that the First
Supplemental Indenture has been executed.

7. Please delete the last sentence of the penultimate paragraph of
the opinion, or change "hereafter" to "thereafter."

Closing Comments

      As appropriate, please amend your registration statement in
response to these comments.  You may wish to provide us with
marked
copies of the amendment to expedite our review.  Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review.  Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.

We urge all persons who are responsible for the accuracy and
adequacy
of the disclosure in the filings reviewed by the staff to be
certain
that they have provided all information investors require for an
informed decision.  Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.

      Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that

* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as defense in any
proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.

	In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.

      We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.

      We direct your attention to Rules 460 and 461 regarding
acceleration of a registration statement.  Please allow adequate
time
after the filing of any amendment for further review before
submitting a request for acceleration.  Please provide this
request
at least two business days in advance of the requested effective
date.

Please contact Kathryn McHale at (202) 551-3464 or me at (202)
551-
3419 with any questions regarding these comments.

						Sincerely,

						Christian Windsor
						Special Counsel

cc:	Sonia Galindo, Esq.
	Scott Freed, Esq.
	Whiteford, Taylor & Preston LLP
	Seven Saint Pail Street, Suite 1500
	Baltimore, MD 21202

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