FHA 221(d)(4) Loans Glossary

Affordable Properties (also Subsidized Affordable Housing)

Properties that were constructed using tax subsidies to provide below-market rents for low-income people, seniors and/or individuals with disabilities.


Amortization (Amortizing) 

Paying off debt over a period of time on a fixed schedule in regular installments. For amortized loans, a large portion of the early monthly payments go toward interest. 



Valuing a property. Valid HUD 221(d)(4) appraisals can only be made by trained, authorized appraisers.


Architectural Report 

A report describing a property’s existing condition and code compliance. This includes the condition of the building, the site and the property’s systems. Most FHA 221(d)(4) architectural reports contain written descriptions and photographs which chronicle the onsite building inspection as well as relevant building codes and zoning ordinances. 



Subject to FHA approval along with a 0.05% fee (of the original loan amount), all FHA multifamily loans are fully assumable.


Basis Points

A common measurement to denote changes in interest rates and other financial percentages. 1% change = 100 basis points, and 0.01% = 1 basis point. Conversion:

  • To convert basis points into a percentage, multiply the basis points by 0.0001. For example, to convert 275 basis into a percentage, multiply 275 by 0.0001 which equals 0.0275 or 2.75% (0.0275 x 100).

  • The reverse calculation divides the percent (in decimal form) by 0.0001. For example, if a bond has risen 2.75%, divide 0.0275 (2.75% / 100) by 0.0001 to get 275 basis points.


Builder and Sponsor’s Profit and Risk Allowance (BSPRA)

10% of the estimated project cost. Since the mortgage calculation contains no builder profit, this allowance is used as a credit to the builder. Their profit (essentially “paper equity”) is then exchanged for a certain amount of ownership in the project. BSPRA is used where there is an identity of interest (joint custody or ownership) between the mortgagor and general contractor. It is expressly used to reduce cash at closing. 


Cooperative Housing (or Housing Cooperative)

A membership-based cooperative or corporation which owns real estate. It typically consists of one or more residential buildings. Cooperative Housing is a type of housing tenure, or the right to live in a certain residence. 


Davis-Bacon (The Davis-Bacon Act of 1931)

Established a requirement to pay local prevailing wages for public works projects. HUD’s Office of Labor Relations oversees Davis-Bacon compliance which is required by many HUD programs.


DSCR (Debt-Service Coverage Ratio)

The cash flow needed to pay current debts like  interest, principal, and lease payments. Used by lenders to determine loans on income properties. 


Elderly Developments

Properties designed for the elderly that may not contain services associated with retirement centers such as central kitchens and dining areas, and other non-shelter spaces. With HUD 221 (d)(4) projects, no non-shelter services is a mandatory condition for occupancy. Common use areas in non-shelter spaces (such as a clubhouse) are allowed to have modest equipment in a common use kitchen.


Engineering Report

An engineer and other specialists assess a property’s physical conditions and risks that may affect the property’s soundness and value. The report may include issues or flaws associated with the property.



When a third party holds assets (money, funds, securities) on behalf of two other parties until a transaction is completed. HUD 221(d)(4) escrow requirements include specific percentages of the loan amount to be set aside in order to guard against financial risk. 


Fair Housing Act

Prevents discrimination on the basis of race, color, ethnicity, national origin, religion, gender, familial status, or disability during the homebuying process.


Fair Market Rents (FMRs)

Rents in the local market’s middle of the price range. Used by HUD to set maximum rents for certain programs. 


FHA (Federal Housing Administration)

Created in 1934 by the National Housing Act, the FHA was set up to promote home construction and reduce unemployment. The FHA also operates a variety of loan insurance programs, like the FHA 221(d)(4) program that this website focuses on. Although the FHA insures lenders, it makes no loans and builds no properties. 


FHA Mortgage Insurance

Protects lenders against loan default and allows them to bear less risk. If a borrower defaults on a loan, the FHA pays claims based on requirements established by FHA.


FHA-Insured Loans

Mortgage loans backed with FHA mortgage insurance. (also HUDHELD).


Fixed Rate Mortgage

Loans which require monthly payments at a fixed interest rate


Government National Mortgage Association (GNMA) Mortgage Backed Securities

Securities issued by Ginnie Mae (Government National Mortgage Association - GNMA) which insures payment from approved loan issuers on qualifying loans (like the FHA 221(d)(4) program loans). Ginnie Mae does not issue, sell or buy pass-through mortgage-backed securities. It also does not purchase mortgage loans. 



U.S. Department of Housing and Urban Development. Operates in the Executive Cabinet. Founded by President Lyndon Johnson in 1965, as part of his "Great Society" program. HUD develops and executes policies on housing, including insuring HUD multifamily construction loans, specifically with a view towards affordability and sustainability. HUD works to protect consumers and boost the economy.


HUD-approved Lender

A lender which has been approved by HUD to offer FHA 221(d)(4) and other FHA-insured home loans. Not every lender is HUD approved to make these loans. 



A formerly FHA-insured loan that is now owned by HUD.


Interest-only Fixed Rate

Fixed-rate mortgage which the borrowers pays only interest and nothing towards the principal.



An investment strategy using borrowed money to finance assets and increase returns. It can also refer to the amount of debt used in financing an asset.


Loan-to-cost Ratio (LTC)

Loan-to-cost ratio, or LTC, compares a project’s financing to the cost of construction.


Low Income Housing Tax Credit Program (LIHTC)

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. 


Low-to-moderate Income Housing

Individuals and families whose incomes are low to moderate in comparison to prevailing incomes where they live.  


Market Rate Property (Market Rate Housing)

Non-subsidized properties that are rented or owned by those who pay market rate rents or who paid market value to purchase the property. 


Multifamily Accelerated Processing (MAP)

Establishes national standards for approved lenders to prepare, process and submit loan applications for FHA / HUD multifamily construction financing.


Multifamily Rental (also Multi-dwelling Unit or MDU)

Multiple yet separate housing units contained in a single building or several buildings. One example is an apartment building.


MIP (Mortgage Insurance premium)

Paid annually, beginning at closing for each year of construction and then annually. MIP for HUD multifamily construction loans is:

  • 65 basis points for market rate properties

  • 45 basis points for Section 8 or new money LIHTC properties

  • 70 basis points for Section 220 urban renewal projects that are not Section 8 or LIHTC

  • 25 basis points for projects that qualify for the green MIP reduction program.


Non-recourse loans

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.



Paying off the balance of a loan before it matures. Prepaying FHA multifamily construction loans requires prior approval by HUD.


Pro Forma

A method of calculating financial results which emphasizes current or projected figures.



If a borrower fails to repay a loan, the lender can go after both the collateral as well as the borrower’s assets which were not used as collateral.


Rental Assistance Properties

Properties where low-income or very low-income tenants can qualify to receive monthly assistance.  


Replacement Reserves

Money set aside to replace building equipment and components which wear out over time. 


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. 


Single Room Occupancy (SRO)

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). If the property is an acquisition or rehabilitation, neither food preparation nor sanitary facilities are required in each unit. However, the building must have shared sanitary facilities.


Sponsor's Profit and Risk Allowance (SPRA)

Included in the Replacement Costs, SPRA is no more than 10% of the total estimated cost of: architect's fees, carrying and financing charges, legal, organizational, and audit expenses. Used when there is no identity of interest between the mortgagor and general contractor. 


Subsidized Affordable Housing

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


Substantial Renovation

As defined by HUD, substantial rehabilitation of HUD-assisted multifamily rental housing occurs in one of the following circumstances: 

  • “when the required repairs, replacements, and improvements involve the replacement of two or more major building components, or

  • “the costs of the rehabilitation exceed the greater of 15 percent (exclusive of any soft costs) of the property's replacement cost (fair market value) after completion of all required repairs, replacements, and improvements; or $6,500 per dwelling unit (adjusted by HUD's authorized high cost percentage); or 20 percent of the mortgage proceeds applied to rehabilitation expenses.”



The process through which a lender determines if a borrower meets certain parameters. Underwriters mainly look at three C’s - credit, capacity and collateral.