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.
When it comes to developer fees for HUD 221(d)(4) projects, eligibility can vary significantly from project to project. Affordable developments, as well as those using the LIHTC program, can often qualify for a developer fee. Typically, these developer fees can be anywhere between 10 and 15% of the eligible project costs.
If you're considering getting an FHA multifamily construction loan to build an age-restricted or senior community, it's important to understand what this type of loan does and does not allow. First, let's define "senior community"-- in the eyes of FHA/HUD, that means any community for individuals 62 years and older.
If you get a HUD 221(d)(4) loan to create a multifamily development, can you refinance that loan later? The answer is yes, and you can do use the HUD 223(a)(7) program to do so. The program, which is designed specifically for current HUD multifamily and healthcare borrowers to refinance their projects, offers some pretty amazing terms.
A Capital Needs Assessment (CNA), sometimes referred to as a Physical Needs Assessment (PNA) is a type of report that can help owners and developers understand how much it will cost to maintain their project over time. That way, owner/developers, lenders, and property management can work together to develop a smart budget, and can also create estimates of the life of various systems in the building (i.e. plumbing, electrical, insulation, etc.)
While FHA MIP is usually less expensive than the private mortgage insurance one would pay on a privately-insured loan, it can still get expensive. Fortunately, HUD is now allowing investors and developers to reduce their MIP payments to 0.25%, provided they make energy efficient improvements to their project.
One of the biggest benefits of HUD 221(d)(4) loans for developers is the fact that they are non-recourse-- i.e., the lender cannot seize a borrower's personal property if they default on the loan. Instead, HUD multifamily construction loans are secured by collateral; in this case, the building and the property itself, which can be seized if the borrower defaults.
One of the most important of the third-party reports required in the HUD 221(d)(4) application process is the appraisal, during which a qualified property appraiser will examine the development project to determine it's potential value, income, and profitability. This information has been taken directly from the HUD Multifamily Summary Appraisal Report.
The Low-Income Housing Tax Credit (LIHTC) program, sometimes referred to as section 42, is a government initiative that encourages private investors to finance housing for low-income families and individuals. To do this, the LIHTC program provides an indirect federal subsidy in the form of a tax credit that a developer or investor can claim on their income tax return.
BSPRA, or Builder Sponsor Profit & Risk Allowance, is an additional 10% FHA 221(d)(4) loan credit, sometimes referred to as "paper equity," that can be added to the calculated replacement cost of the property. Specifically, BSPRA is calculated by taking 10% of the "hard costs" of the project, which does not including the land, and adding that to the total development costs.
The Federal Housing Administration (FHA), founded in 1934, is a U.S. government agency under the U.S. Department of Housing and Urban Development (HUD). The main purpose of the FHA is to insure residential real estate loans. While many of the FHA's loans focus on individual homebuyers, the FHA also provides loans for multifamily builders and developers, including it's popular HUD 221(d)(4) loan program.
If you're considering applying for a FHA/HUD 221(d)(4) loan to rehabilitate a multifamily property, it's important to realize that there minimum FHA/HUD multifamily project size limits that must be met. Otherwise, the project won't be considered large enough to be eligible for the loan.