Escrows and the HUD 221(d)(4) Loan Program
Escrow is 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. This includes required replacement reserves, which can vary by project, but usually amount to 4% of the total loan amount. A 3% operating deficit reserve is also required in order to help pay for unexpected expenses or periods of lower-than-expected occupancy.
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