Are HUD Multifamily Construction Loans Assumable?
If you take out an HUD loan to build a multifamily property and want to sell it, can the new owner simply take on your existing mortgage? The answer is yes-- as long as they get approval from the FHA.
Assumability of HUD Multifamily Construction Loans
The Importance of Loan Assumability
When many investors and developers consider taking out a HUD multifamily construction loan, like the HUD 221(d)(4) loan, they want to know the potential turnaround time of the project. In other words, how long will they have to wait before making a profit? Selling a multifamily development is one of the best ways to cash out, but if there is still large a mortgage on the property, it can make it unattractive to potential buyers-- especially if interest rates are high and they don't have the cash to buy the property outright.
One of the biggest benefits of the FHA 221d4 loan is its assumability, which allows qualified buyers to simply take on the mortgage of the original owner with the same interest rate. That can be an attractive proposition, especially if the original owner locked in a rate lower than the current market average.
HUD Multifamily Construction Loans are Assumable, But a Fee is Required
For HUD multifamily construction loans, like the HUD/FHA221(d)(4) loan, a 0.05% fee of the original FHA-insured loan amount is required to assume the loan. First, however, the new borrower must be approved by the FHA. So, it's important to consult with an HUD loan specialist if you're attempting to sell or buy a multifamily property and have the future owner assume the current loan. That way, you can better understand the moving parts of the process and ascertain the feasibility of the loan assumption.
To learn more about FHA 221(d)(4) loans, fill out the form below and a HUD loan expert will get in touch.
Is it possible to assume a HUD 221(d)(4) loan?
What are the requirements for assuming a HUD 221(d)(4) loan?
The requirements for assuming a HUD 221(d)(4) loan are full FHA approval and a fee of 0.05% of the original FHA-insured loan amount. This information is sourced from apartment.loans/hud-221-d-4-loans.
What are the benefits of assuming a HUD 221(d)(4) loan?
The HUD 221(d)(4) loan program offers many benefits to borrowers, including the ability to assume the loan. Assumption of a HUD 221(d)(4) loan allows the new borrower to take over the existing loan without having to go through the entire loan origination process again. This can save the borrower time and money, as they will not have to pay for appraisals, third-party reports, legal fees, and other costs associated with the loan origination process. Additionally, the new borrower will benefit from the same favorable terms of the existing loan, including the long-term fixed-rate, non-recourse, and high leverage.
For more information on the benefits of HUD 221(d)(4) loans, please visit www.hud.loans/hud-loans-blog/hud-221d4-benefits.
What are the risks associated with assuming a HUD 221(d)(4) loan?
The main risk associated with assuming a HUD 221(d)(4) loan is that the borrower must meet the same requirements as the original borrower. This includes credit score, debt-to-income ratio, and other financial requirements. Additionally, the borrower must pay a fee of 0.05% of the original FHA-insured loan amount. Source
How does the assumability of a HUD 221(d)(4) loan affect the value of a property?
The assumability of a HUD 221(d)(4) loan can be a huge benefit to both the borrower and the potential buyer. For the borrower, it can allow them to avoid paying a prepayment penalty if they want to sell the property in the first 10 years after taking out the loan. For the potential buyer, they will assume the original borrower’s interest rate, which can be especially beneficial in an environment of rising interest rates. In addition, they will be able to forego many, if not all, of the closing costs that can make HUD multifamily loans a somewhat pricey endeavor.
Overall, the assumability of a HUD 221(d)(4) loan can increase the value of a property by making it more attractive to potential buyers.
What are the steps involved in assuming a HUD 221(d)(4) loan?
Assuming a HUD 221(d)(4) loan involves the following steps: