Tap to get financing
HUD 221(d)(4) Loans
Information
Loan Facts Terms, Qualifications & GuidelinesInterest RateTerm SheetHUD Multifamily LoansStatutory LimitProcessRefinanceHUD Multifamily Construction Loans
Application
Application ProcessChecklist
Knowledge base
HUD 221(d)(4) FAQsGlossary
Developers
General Contractor RequirementsDeveloper Requirements & Fees3rd Party Reports & GuidelinesAppraisal ProcessMarket StudyArchitectural and Engineering ReportsDavis Bacon WagesEnvironmental Assessments
About
About HUD 221(d)(4) LoanContact usLeadership
Forms
Typical Loan TimetableDetailed Operating Statement & Underwriting AnalysisEstimate of Replacement & Construction Costs
Get financing
Newly Published
Jun 14 at HUD 221(d)(4) Loans
What is Underwriting?
Jun 14 at HUD 221(d)(4) Loans
What are the Benefits of Non-Recourse Loans?
Jun 14 at HUD 221(d)(4) Loans
Market Rate vs. Affordable Properties in Relation to HUD 221(d)(4) Loans
Explore the Janover Network
Mar 24 at Multifamily Loans
The Best 3 Multifamily Loans for Affordable Housing in 2023
Mar 20 at Multifamily Loans
Multifamily Minute Reader Reflections: How Will Bank Failures Impact Multifamily?
Mar 17 at Commercial Real Estate Loans
Top 10 Commercial Real Estate Lenders of 2023
Was This Article Helpful?
HUD 221(d)(4) Frequently Asked Questions
Last updated on Feb 19, 2023
2 min read

Do FHA/HUD 221(d)(4) loans allow 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, with a ground floor zoned for shops and restaurants. FHA/HUD 221(d)(4) loans can allow a developer to do this-- but only in specific situations.

Better Financing Starts with More Options Start Your Application and Unlock the Power of Choice. Click Here to Get Quotes →$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1M offered by a Credit Union at 5.1%Click Here to Get Quotes
In this article:
  1. Using FHA/HUD 221(d)(4) Loans for Commercial Development 
  2. FHA/HUD 221(d)(4) Loan Commercial Limits
  3. Freddie Mac®'s Small Balance Loan (SBL) Program Allows for Higher Commercial Limits
  4. To learn more about FHA/HUD 221(d)(4) loans, fill out the form below and an HUD loan specialist will get In touch. 
  5. Related Questions
  6. Get Financing

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. Specifically, it is limited to 25% of the property’s net rentable area or 15% of the the property’s underwritten effective gross income (up to 30% of underwritten EGI permitted in urban renewal areas under Section 220). So, for example, if you had a ten story residential building, two stories 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. 

Related Questions

What are the requirements for an FHA/HUD 221(d)(4) loan?

The requirements for an FHA/HUD 221(d)(4) loan include a full scope of third party reports (environmental assessment, market study, appraisal, etc.), annual review, a bonded and licensed general contractor, and compliance with Davis Bacon wage requirements.

In addition, borrowers must have a maximum LTV of 85% for market-rate properties, 87% for affordable properties, and 90% for properties with 90% or more low-income units. A bonded, licensed, and insured general contractor must also execute a GMP contract.

What types of commercial development are eligible for an FHA/HUD 221(d)(4) loan?

The types of commercial development eligible for an FHA/HUD 221(d)(4) loan are limited to 25% of the property’s net rentable area or 15% of the the property’s underwritten effective gross income (up to 30% of underwritten EGI permitted in urban renewal areas under Section 220). For example, if you had a ten story residential building, two stories might be commercial, and the rest residential. Learn more about HUD 221(d)(4) loan commercial limits.

What are the advantages of an FHA/HUD 221(d)(4) loan?

The FHA/HUD 221(d)(4) loan offers many advantages for multifamily investors and developers. These loans provide the industry’s longest-term form of fixed-rate construction and substantial rehabilitation financing, with terms of up to 40 years (43 years with the 3-year construction period). Additionally, these loans are non-recourse, fully assumable, and offer high leverage.

In comparison to other financing options, FHA/HUD 221(d)(4) loans are more cost-effective and efficient. For example, it’s difficult for investors and developers to find financing that will cover both the construction and post-construction period for a multifamily property, all in one loan. In most cases, multifamily investors and developers will have to take out an expensive bank loan, which will only permit up to 75% LTC in most cases. After, they’ll need to refinance into a permanent loan, which will often come in the form of CMBS financing, Freddie Mac, Fannie Mae, or even a HUD multifamily refinancing loan, such as the HUD 223(f) loan. Having to deal multiple closings can be expensive, as appraisals, third-party reports, legal, and other costs will be repeated twice in the span of a year or two.

For more information on HUD multifamily loans, please fill out the form here and a HUD lending expert will get in touch.

What are the maximum loan amounts for an FHA/HUD 221(d)(4) loan?

The minimum loan amount for an FHA/HUD 221(d)(4) loan is $4 million, and there is no maximum loan amount.

What are the interest rates for an FHA/HUD 221(d)(4) loan?

The interest rates for an FHA/HUD 221(d)(4) loan are fixed throughout the life of the loan. This means that investors and developers using HUD loans can rest easy knowing that their interest rates won't suddenly rise. As a result, estimating annual profit margins is significantly easier. The interest rates for FHA 221(d)(4) loans are incredibly competitive. For more information, please visit this page.

What is the repayment period for an FHA/HUD 221(d)(4) loan?

The repayment period for an FHA/HUD 221(d)(4) loan is 43 years, including a maximum 36 months for construction and an additional 40 years of fully amortizing, fixed-rate payments. HUD 221(d)(4) Construction & Rehab Loans and HUD 221(d)(4) Loans.

In this article:
  1. Using FHA/HUD 221(d)(4) Loans for Commercial Development 
  2. FHA/HUD 221(d)(4) Loan Commercial Limits
  3. Freddie Mac®'s Small Balance Loan (SBL) Program Allows for Higher Commercial Limits
  4. To learn more about FHA/HUD 221(d)(4) loans, fill out the form below and an HUD loan specialist will get In touch. 
  5. Related questions
  6. Get Financing
Categories
  • Commercial Development
  • FHA Multifamily Loans
Tags
  • Small Balance Loan
  • SBL
  • HUD 221(d)(4)
  • Multifamily Commercial Development
  • Freddie Mac SBL
  • FHA 221(d)(4) Loans
  • HUD 221(d)(4) Loan
  • Non-Recourse Loan

Getting commercial property financing should be easy.⁠ Now it is.

Click below for a free, no obligation quote and to learn more about your loan options.

Get financing →
Janover logo

HUD 221(d)(4) Loans is a Janover company. Please visit some of our family of sites at: Multifamily Loans, Multifamily Today, Commercial Real Estate Loans, SBA7a Loans, CMBS Loans, Apartment Loans, HUD Loans, HUD 221d4 Loan, HUD 232 Loan, HUD 223f Loan, HUD 223a7 Loan, SBA Express Loans, SBA 504 Loans, and OpportunityZones Help.

Janover Inc.

6401 Congress Ave
Ste 250
Boca Raton FL 33487

[email protected]

Site Information

Privacy Policy
Terms of Use

This website is owned by a private company that offers business advice, information and other services related to multifamily, commercial real estate, and business financing. We have no affiliation with any government agency and are not a lender. We are a technology company that uses software and experience to bring lenders and borrowers together. By using this website, you agree to our use of cookies, our Terms of Use and our Privacy Policy. We use cookies to provide you with a great experience and to help our website run effectively.

Freddie Mac® and Optigo® are registered trademarks of Freddie Mac. Fannie Mae® is a registered trademark of Fannie Mae. We are not affiliated with the Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA), Freddie Mac or Fannie Mae.

Copyright © 2022 Janover Inc. All rights reserved.