HUD 221(d)(4) General Contractor Requirements

For general contractors interested in the FHA 221(D)(4) loan program, the requirements for applying for FHA multifamily construction loans or FHA multifamily financing for substantial multifamily property rehabilitation include: 

 

Property Information

  • The name of the project

  • The property address or location

  • A loan request

  • Brief narrative describing the project

  • Details of commercial spaces (if any)

  • An estimate construction timeline through stabilization

  • The purchase price of the existing property and the settlement date (if property has not yet been purchased)

  • Photos

  • Any completed third party reports such as market studies, HUD appraisals, environmental assessments, etc.

  • The value of the site (if different from the purchase price)

  • Offering memorandum (for purchases only, if available)

  • Breakdown of types of units

  • As-is value (for rehabilitations only)

 

Financial Information

  • A pro forma through a year (12 months) of stabilization

  • Both hard and soft construction costs

  • A Section 8 contract (if applicable)

  • Planned repairs for the next year (12 months)

 

Sponsorship

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  • Borrower’s name/ entity name

  • Management company name and relevant experience

  • The names and experience of major principals

  • Schedule of real estate owned (major principals)

 

There are also additional HUD requirements and other items for consideration:

  • An initial operating deficit account to cover operating shortfalls prior to stabilization.Typically, equal to

    • the greater of underwriter's estimate or an appraiser's, OR

    • 4 months of debt service (garden apartments), OR

    • 6 months of debt service (elevator buildings).

  • HUD requires a 4% working capital deposit on all new construction projects (4% of the loan amount). For substantial rehabilitation, HUD requires 2% of the loan amount. This amount could be either cash or a letter of credit.

  • After either 12 months from final endorsement or six months of break-even occupancy (whichever is later), unused working capital and initial operating deficit escrows are released.

  • Projected stabilization must be achieved within 18 months of receiving the property’s certificate of occupancy.

  • A qualified ‘arms-length’ supervisory architect must be retained by the borrower during construction.

  • Upon construction completion, a cost certification for both the general contractor and owner are required.

  • The general contractor must:

    • execute a GMP contract

    • provide a 100% performance and payment bond (either cash escrow or a letter of credit is acceptable)

    • have a liquidity position equal to a minimum of 5% of the project’s construction contract as well as all unfinished construction work.

  • Loans greater than $40 million could be subject to more conservative DSRC and leverage requirements.

A maximum 93% underwritten occupancy for market rate properties and 95% for 90% rental assistance properties.


TO LEARN MORE ABOUT FHA 221(D)(4) MULTIFAMILY LOAN OPTIONS, FILL OUT THE FORM BELOW AND A HUD LOAN EXPERT WILL GET IN TOUCH.