A HUD 221(d)(4) loan is a loan program that finances the construction and substantial renovation of properties with 5+ units. This can include traditional apartment buildings, mixed-use properties with a limited amount of commercial space, and even independent living projects for seniors. These loans offer leverage up to 85% of cost for market-rate developments, going even higher for affordable properties. They are fixed rate and fully amortizing for 40 years after an up to three-year, fixed-rate, interest-only period during construction. HUD 221(d)(4) debt is nonrecourse with standard carve-outs.

For more information, download our easy-to-read HUD 221(d)(4) loan term sheet.

The HUD 221(d)(4) loan program offers an incredible opportunity for multifamily investors and developers to access 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), these loans are also non-recourse, fully assumable, and offer high leverage.

In general, it’s extremely 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. This is especially the case since Fannie Mae and Freddie Mac do not provide financing for the construction of multifamily properties, only for property rehab, acquisition, and refinancing (and certain combinations thereof).

In most cases, multifamily investors and developers will have to take out an more 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. However, with a HUD 221(d)(4) loan, investors and developers can access the same long-term, fixed-rate financing for both the construction and post-construction period, all in one loan.

The requirements for a 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. Additionally, 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.

HUD 221(d)(4) loans are available for a variety of multifamily property configurations, including row homes, walkup apartments, detached, semi-detached, and elevator-type multifamily properties. This includes market rate and low-to-moderate income housing, subsidized affordable housing properties and multifamily, cooperative housing with a minimum of 5 units.

If you're interested in getting a low-cost, non-recourse, fixed-rate loan for a multifamily real estate development, a HUD 221(d)(4) loan could be a great option. But what kind of properties can you build or renovate with this kind of HUD multifamily loan?

The HUD 221(d)(4) loan process typically takes around 46 weeks, from initial concept to final close. For a MAP one-stage application, the process will take about 5-7 months. For a MAP two-stage application, the process is more likely to take around 8-10 months.

For more information, please see Typical Timetable for HUD 221(d)(4) Loans and How long does it take for an HUD 221(D)(4) application to be approved?

The maximum loan amount for a HUD 221(d)(4) loan is not limited. According to Apartment Loans, the minimum loan amount is $4 million, but exceptions are made on a case-by-case basis. Generally, most 221(d)(4) construction loans are $10 million and above. There is no maximum loan amount.