What is Underwriting?

What is Underwriting?

Underwriting is the process through which a lender determines if a borrower meets certain parameters. Underwriters mainly look at three C’s - credit, capacity and collateral. When it comes to HUD 221(d)(4) loans, potential borrowers must have excellent credit, as defined by their personal and business credit scores, as well as have a good borrowing capacity, as defined by their property’s DSCR.

What is Substantial Renovation?

What is Substantial Renovation?

As defined by HUD, substantial rehabilitation of HUD-assisted multifamily rental housing occurs when either the required repairs, replacements, and improvements involve the replacement of two or more major building components, or, when the cost of the repairs exceeds certain other thresholds.

What is Subsidized Affordable Housing?

What is Subsidized Affordable Housing?

Subsidized affordable housing is housing where residents receive rent assistance, but must pay at least 30% of their income for their rent and utilities. Examples include Section 8 Public Housing, Homeless Project-Based Units and HOPWA Facility-Based Housing.

What is Sponsor's Profit and Risk Allowance (SPRA)?

What is Sponsor's Profit and Risk Allowance (SPRA)?

Sponsor’s Profit and Risk Allowance, or SPRA, is no more than 10% of the total estimated cost of: architect's fees, carrying and financing charges, legal, organizational, and audit expenses. In contrast to Builder-Sponsor’s Profit and Risk Allowance (BSPRA), SPRA is used when there is no identity of interest between the mortgagor and general contractor. 

What is Single Room Occupancy (SRO) Housing?

What is Single Room Occupancy (SRO) Housing?

Housing consisting of single room dwelling units that are the occupants’ primary residences. HUD requires new construction, conversion of non-residential space and reconstruction SRO units to have either food preparation areas or bathrooms (or both).

What are Seismic Reports?

What are Seismic Reports?

Seismic reports assess the seismic risk (probability of an earthquake) of a particular property. These reports may include calculations of the PML (Probable Maximum Loss) and/or the SML (Scenario Expected Loss) based on projections consistent with current building codes. 

What are Replacement Reserves?

What are Replacement Reserves?

Replacement reserves consist of money set aside to replace building equipment and components which wear out over time. All HUD multifamily loans require replacement reserves, but these requirements vary with different loan types.

What are Rental Assistance Properties?

What are Rental Assistance Properties?

A rental assistance property is a property where low-income or very low-income tenants can qualify to receive monthly assistance. The most common rental assistance program offered by HUD is the Section 8 program, which offers vouchers to low-income tenants that will typically pay for a portion of their rent, and provides corresponding subsidies to property owners

What is a Recourse Loan?

What is a Recourse Loan?

If a loan is recourse, and a borrower fails to repay it, the lender can go after both the collateral as well as the borrower’s assets which were not used as collateral. In comparison, if a loan is non-recourse, a lender is not permitted to seize a borrower’s non-collateral assets.

What is a Pro Forma?

What is a Pro Forma?

Pro forma is a method of calculating financial results which emphasizes current or projected figures. Pro forma financial statements are commonly used to determine the potential viability of a real estate investment, as well as to show potential investors who may be interested in putting money into a project.

What is Prepayment?

What is Prepayment?

Prepayment occurs when a borrower pays off the balance of a loan before it matures. Prepaying FHA multifamily construction loans requires prior approval by HUD. Prepayment also typically requires that a borrower pay a specific prepayment penalty to their lender in order to compensate them for their financial loss.

What is a Non-Recourse Loan?

What is a Non-Recourse Loan?

If a loan is non-recourse, a lender can take possession of assets used as collateral to secure the loan. However, unlike a recourse loan, if money is still owed after selling the collateral, with a non-recourse loan, the lender cannot go after the borrower’s other assets or garnish wages. The lender must accept the loss.

What is MIP (Mortgage Insurance Premium)?

What is MIP (Mortgage Insurance Premium)?

A HUD mortgage insurance premium, or MIP, is paid annually, beginning at closing for each year of construction and then annually.

What are Multifamily Rentals?

What are Multifamily Rentals?

Multifamily rentals, also referred to multi-dwelling units (MDUs) are separate housing units contained in a single building or several buildings. Some examples include duplexes, triplexes, and apartment buildings. Another common example is a mixed-use building, which combines residential and commercial spaces in one structure.

What is Multifamily Accelerated Processing (MAP)?

What is Multifamily Accelerated Processing (MAP)?

MAP or Multifamily Accelerated Processing, is a system that establishes national standards for approved lenders to prepare, process and submit loan applications for FHA/HUD multifamily construction financing.

What is Market Rate Housing?

What is Market Rate Housing?

Market rate housing consists of non-subsidized properties that are rented or owned by those who pay market rate rents or who paid market value to purchase the property. This is in contrast to both affordable housing and subsidized affordable housing, as both of these types of housing types confer special benefits upon HUD 221(d)(4) loan borrowers.

What is Low-to-Moderate Income Housing?

What is Low-to-Moderate Income Housing?

Low-to-moderate income housing is housing designed for individuals and families whose incomes are low to moderate in comparison to prevailing incomes where they live. In general, offering low-to-moderate income housing is a requirement for a property owner’s participation in the HUD Section 8 program.

What is the Low Income Housing Tax Credit (LIHTC) Program?

What is the Low Income Housing Tax Credit (LIHTC) Program?

The Low Income Housing Tax Credit (LIHTC) program is a tax incentive designed to increase low-income housing availability. This tax credit can be claimed by developer-owners of LIHTC properties on their federal income taxes for up to ten years after the property’s completion and leasing up. The tax credit is available as long as the property adheres to LIHTC requirements. 

What is Loan-to-Cost Ratio (LTC)?

What is Loan-to-Cost Ratio (LTC)?

Loan-to-cost ratio, or LTC, compares a project’s financing to the cost of construction. Along with loan-to-value ratio, or LTV, LTC is one of the most important metrics that lenders look at when deciding whether to approve a HUD multifamily construction loan, like the HUD 221(d)(4) loan.