HUD 221(d)(4) Frequently Asked Questions
Content tagged with: HUD Multifamily Construction LoansClear filter
What are the Benefits of Non-Recourse Loans?
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.
Section 8 Housing and HUD 221(d)(4) Loans
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.
Developer Fees for HUD 221(d)(4) Loans
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.
Can You Refinance a HUD 221(d)(4) Loan?
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.
AMI: Area Median Income in Relation to HUD 221(d)(4) Loans
Area Median Income, or AMI, is a statistic published by HUD that estimates the median wealth of households in a specific area. AMI is used to determine qualification for a variety of housing programs, including Section 8 programs, as well as to determine eligibility for LIHTC credits.
Escrows and Replacement Reserves for HUD 221(d)(4) Loans
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.
CNA: Capital Needs Assessment in Relation to HUD 221(d)(4) Loans
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.)
Green MIP Reduction for HUD 221(d)(4) Loans
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.
HUD 221(d)(4) Loan Appraisals: What You Need to Know
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.
LIHTC: Low-Income Housing Tax Credits in Relation to HUD 221(d)(4) Loans
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.
What is the Federal Housing Administration's (FHA) Role in Multifamily Debt?
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.
BSPRA: Builder Sponsor Profit & Risk Allowance in Relation to HUD 221(d)(4) Loans
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.
Are HUD 221(d)(4) Loans Available for Age-Restricted Communities?
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.
What are the terms and amortization of HUD multifamily construction loans/financing loans?
During construction, HUD multifamily construction loans are fixed and interest only (for up to 36 months). This is followed by an additional 40 years of fully amortized, fixed-rate payments. Altogether, there is a maximum term of 43 years, including construction.
How do I apply for FHA multifamily construction loans/financing?
If you're interested in getting financing to construct or renovate a multifamily residential property, getting an FHA/HUD 221(d)(4) loan can be one of the most cost effective ways to do so. But, to get an FHA/HUD 221(d)(4) loan, you'll need to do significant preparation.
Does FHA multifamily construction financing place limits on rehabilitation work?
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.