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.
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.
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.
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.
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.
The U.S. Department of Housing and Urban Development, otherwise known as HUD, is a U.S. government agency intended to make it easier for Americans to find housing at an affordable rate. Founded in 1965, the agency incorporated the Federal Housing Administration (founded in 1934) as one of it's sub-agencies.
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.
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 loan?