AMI: Area Median Income in Relation to HUD 221(d)(4) Loans

AMI: Area Median Income in Relation to HUD 221(d)(4) Loans

Area Median Income, or AMI, is a statistic published by HUD that estimates the median wealth of households in a specific area. AMI is used to determine qualification for a variety of housing programs, including Section 8 programs, as well as to determine eligibility for LIHTC credits. 

Section 8 Housing and HUD 221(d)(4) Loans

Section 8 Housing and HUD 221(d)(4) Loans

Section 8 is a U.S. government housing program managed by HUD that allows for the payment of rental assistance subsidies to landlords across the country. Right now, more than 4.8 million households use some form of Section 8 program assistance. For projects using HUD 221(d)(4)  financing, having Section 8 rental assistance units can have a variety of financial benefits. 

Escrows and Replacement Reserves for HUD 221(d)(4) Loans

Escrows and Replacement Reserves for HUD 221(d)(4) Loans

If you want to apply for a HUD multifamily loan, part of the HUD 221(d)(4) process involves making sure you have enough money saved in escrow-- i.e., in a third-party account, to cover a variety of expenses.

Market Rate vs. Affordable Properties in Relation to HUD 221(d)(4) Loans

Market Rate vs. Affordable Properties in Relation to HUD 221(d)(4) Loans

One of the biggest questions that developers need to ponder before starting a HUD 221(d)(4) financed project is whether to include any affordable housing. Since a developer's goal is (naturally) to maximize profit, the obvious answer would be no. However, there are a variety of advantages to including at least some affordable units in a HUD multifamily construction loan project. 

Developer Fees for HUD 221(d)(4) Loans

Developer Fees for HUD 221(d)(4) Loans

When it comes to developer fees for HUD 221(d)(4) projects, eligibility can vary significantly from project to project. Affordable developments, as well as those using the LIHTC program, can often qualify for a developer fee. Typically, these developer fees can be anywhere between 10 and 15% of the eligible project costs.

Large HUD 221(d)(4) Loans: What You Need to Know

Large HUD 221(d)(4) Loans: What You Need to Know

While we mentioned in the loan facts section of this website that the minimum HUD 221(d)(4) loan is $2 million, and there is no upper limit, the reality can be a little bit more complex. While there technically is no financial ceiling for the program, particularly large loans are typically subject to stricter requirements, especially those involving DSCR and LTC

Are HUD 221(d)(4) Loans Available for Age-Restricted Communities?

Are HUD 221(d)(4) Loans Available for Age-Restricted Communities?

If you're considering getting an FHA multifamily construction loan to build an age-restricted or senior community, it's important to understand what this type of loan does and does not allow. First, let's define "senior community"-- in the eyes of FHA/HUD, that means any community for individuals 62 years and older. 

Can You Refinance a HUD 221(d)(4) Loan?

Can You Refinance a HUD 221(d)(4) Loan?

If you get a HUD 221(d)(4) loan to create a multifamily development, can you refinance that loan later? The answer is yes, and you can do use the HUD 223(a)(7) program to do so. The program, which is designed specifically for current HUD multifamily and healthcare borrowers to refinance their projects, offers some pretty amazing terms. 

CNA: Capital Needs Assessment in Relation to HUD 221(d)(4) Loans

CNA: Capital Needs Assessment in Relation to HUD 221(d)(4) Loans

A Capital Needs Assessment (CNA), sometimes referred to as a Physical Needs Assessment (PNA) is a type of report that can help owners and developers understand how much it will cost to maintain their project over time. That way, owner/developers, lenders, and property management can work together to develop a smart budget, and can also create estimates of the life of various systems in the building (i.e. plumbing, electrical, insulation, etc.)

HUD Seismic Assessments: What You Need to Know

HUD Seismic Assessments: What You Need to Know

One of the parts of the HUD loan application and approval process is getting a HUD seismic assessment, which is needed if your HUD 221(d)(4) project is located in seismic zones 3 or 4. Seismic zones 3 and 4 (based on 1997 UBC seismic zone maps) are generally located in areas including all of California, large amounts of Alaska and Hawaii, some Oregon, Washington, and Nevada, and a small amount of Tennessee, Kentucky, Illinois, and Arkansas. 

Green MIP Reduction for HUD 221(d)(4) Loans

Green MIP Reduction for HUD 221(d)(4) Loans

While FHA MIP is usually less expensive than the private mortgage insurance one would pay on a privately-insured loan, it can still get expensive. Fortunately, HUD is now allowing investors and developers to reduce their MIP payments to 0.25%, provided they make energy efficient improvements to their project. 

Where do I find a HUD Multifamily Center?

Where do I find a HUD Multifamily Center?

If you're interested in getting a HUD 221(d)(4) loan, you'll likely have to do a lot of communication with your local HUD multifamily center. While your lender may do much of the coordination and communication with you (and/or for you), it may still important to for you to reach out your local HUD multifamily center with questions or concerns about the HUD multifamily construction loan process. 

What are the Benefits of Non-Recourse Loans?

What are the Benefits of Non-Recourse Loans?

One of the biggest benefits of HUD 221(d)(4) loans for developers is the fact that they are non-recourse-- i.e., the lender cannot seize a borrower's personal property if they default on the loan. Instead, HUD multifamily construction loans are secured by collateral; in this case, the building and the property itself, which can be seized if the borrower defaults. 

HUD 221(d)(4) Loan Appraisals: What You Need to Know

HUD 221(d)(4) Loan Appraisals: What You Need to Know

One of the most important of the third-party reports required in the HUD 221(d)(4) application process is the appraisal, during which a qualified property appraiser will examine the development project to determine it's potential value, income, and profitability. This information has been taken directly from the HUD Multifamily Summary Appraisal Report

What are the Pros and Cons of HUD 221(d)(4) Loans?

What are the Pros and Cons of HUD 221(d)(4) Loans?

What are the pros and cons of HUD 221(d)(4) loans? It's a great question, since these HUD multifamily construction loans are incredibly attractive to a variety of developers and investors. 

LTV: Loan-to-Value Ratio in Relation to HUD 221(d)(4) Loans

LTV: Loan-to-Value Ratio in Relation to HUD 221(d)(4) Loans

Loan-to-value ratio (or LTV) is an assessment of risk that lenders use to determine the viability of a loan. Loans with higher LTVs are considered riskier, and therefore often have higher interest rates. Lenders believe that borrowers who have loans with higher LTVs have a greater likelihood of defaulting on their mortgages because of the lack of equity within the property. However, a higher LTV allowance means that investors and developers can get a sizable loan with less cash down. 

LIHTC: Low-Income Housing Tax Credits in Relation to HUD 221(d)(4) Loans

LIHTC: Low-Income Housing Tax Credits in Relation to HUD 221(d)(4) Loans

The Low-Income Housing Tax Credit (LIHTC) program, sometimes referred to as section 42, is a government initiative that encourages private investors to finance housing for low-income families and individuals. To do this, the LIHTC program provides an indirect federal subsidy in the form of a tax credit that a developer or investor can claim on their income tax return. 

MIP: Mortgage Insurance Premiums in Relation to HUD 221(d)(4) Loans

MIP: Mortgage Insurance Premiums in Relation to HUD 221(d)(4) Loans

Just like a borrower who takes out a private real estate loan has to pay private mortgage insurance (PMI), a developer who takes out an FHA multifamily construction loan has to pay a mortgage insurance premium (MIP). While the FHA doesn't make a profit on its loans, it still has to protect itself against unforeseen losses, such as a borrower defaulting on their mortgage. 

BSPRA: Builder Sponsor Profit & Risk Allowance in Relation to HUD 221(d)(4) Loans

BSPRA: Builder Sponsor Profit & Risk Allowance in Relation to HUD 221(d)(4) Loans

BSPRA, or Builder Sponsor Profit & Risk Allowance, is an additional 10% FHA 221(d)(4) loan credit, sometimes referred to as "paper equity," that can be added to the calculated replacement cost of the property. Specifically, BSPRA is calculated by taking 10% of the "hard costs" of the project, which does not including the land, and adding that to the total development costs.

LTC: Loan-to-Cost Ratio in Relation to HUD 221(d)(4) Loans

LTC: Loan-to-Cost Ratio in Relation to HUD 221(d)(4) Loans

When looking at traditional, single-family residential loans, loan-to-value ratio (LTV) is often one of the most important factors to examine. However, when we look at HUD multifamily construction loans, like the HUD 221(d)(4) loan, and other similar types of financing, loan-to-cost ratio (LTC) also becomes an important factor.