Do FHA/HUD 221(d)(4) loans allow for commercial development?

Using FHA/HUD 221(d)(4) Loans for Commercial Development 

In today's market, many real estate developers want to mix both residential and commercial development into the same project. For example, a multi-story residential apartment building, which has a ground floor zoned for shops and restaurants. HUD multifamily construction loans such as the HUD 221(d)(4) loans can allow a developer to do this, but only in specific situations. 

FHA/HUD 221(d)(4) Loan Commercial Limits

While commercial space is allowed on projects using HUD 221(d)(4) loans, it must be limited to a relatively small amount of the property. Specially, it's limited to to 10% of the gross floor area of the project or 15% of the project's gross income, whichever is less. So, for example, if you had a ten story residential building, one story might be commercial, and the rest residential. 

Freddie Mac's Small Balance Loan (SBL) Program Allows for Higher Commercial Limits

While the FHA/HUD 221(d)(4) loan program may not work for developers who want to rent or lease a large amount of their building out for commercial purposes, another program, the Freddie Mac Small Balance Loan (SBL) program might. This program allows developers to use 40% of their building, or get 40% of the project's income from commercial uses. While the program's loans are capped at $5 million, more than 40% of the project can be approved for commercial use with an additional review. 


To learn more about FHA/HUD 221(d)(4) loans, fill out the form below and an HUD loan specialist will get In touch.