What is the U.S. Department of Housing and Urban Development's (HUD) Role in Multifamily Loans?
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.
What is HUD?
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.
In 1965 the Department of Housing and Urban Development Act of 1965 created HUD as a Cabinet-level agency. However, HUD’s roots lie in two acts from the 1930s. The National Housing Act of 1934 created the FHA (Federal Housing Administration). A few years later, the U.S. Housing Act of 1937 was created to offer subsidies to local public housing agencies for low-income housing improvements. Finally, in 1965, the Department of Housing and Urban Development Act rolled several federal agencies into one — HUD.
Since then, HUD has played a huge role in FHA's multifamily financing strategy. HUD works with them to insure FHA multifamily construction loans in order to eliminate the need for borrowers to take on more expensive, privately insured mortgages. This helps create a larger amount of affordable housing around the U.S.
To learn more about The FHA 221(d)(4) loan Program and how it Can help finance your multifamily project, fill out the form below and a HUD financing specialist will get in touch.
What is the U.S. Department of Housing and Urban Development's (HUD) role in multifamily loans?
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. HUD works with the Federal Housing Administration (FHA) to insure FHA multifamily construction loans in order to eliminate the need for borrowers to take on more expensive, privately insured mortgages. This helps create a larger amount of affordable housing around the U.S.
HUD also provides mortgage insurance for a variety of different types of loans offered by private lenders, including HUD 223(f) multifamily acquisition and refinancing loans. These loans are designed to help borrowers acquire or refinance multifamily properties.
What types of multifamily loans does HUD offer?
HUD offers several types of multifamily loans, including the HUD 223(f) loan and the HUD 221(d)(4) program. The HUD 223(f) loan offers loan-to-value (LTV) ratios up to 85% and debt service coverage ratios (DSCRs) as low as 1.18x for market-rate properties, with higher LTVs and lower DSCRs for affordable properties. The HUD 221(d)(4) program is for apartment construction and substantial rehabilitation, but they can be significantly more risky. All HUD Apartment loans are non-recourse, fixed-rate, and fully amortizing over 35+ years.
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How do I apply for a HUD multifamily loan?
Applying for a HUD multifamily loan requires you to first provide your HUD office with a variety of information about your project, including a general description of the project, Form HUD-92013, “Application for Multifamily Housing Project,” the resumes of the owner, key principals of the project, location maps, site plans, photographs, environmental assessments, as well as a variety of other HUD forms and documents.
In addition to getting all your documentation and approval from HUD, you'll need to find an FHA licensed lender, usually before you begin the approval process. It’s important to keep in mind that the FHA/HUD only insures the loan, and is not actually responsible for loaning the borrower any money. Therefore, it's a good idea to discuss your project with multiple FHA licensed lenders, so you can understand more about process and the benefits and drawbacks of potential lenders.
What are the eligibility requirements for a HUD multifamily loan?
The eligibility requirements for a HUD multifamily loan depend on the specific loan program. Generally, HUD multifamily loan programs require a minimum credit score of 620 and are designed for borrowers with less-than-perfect credit. Additionally, only multifamily properties already encumbered by HUD-insured loans are eligible for HUD 241(a) Supplemental Financing. For more information, please visit 5 Myths about HUD-Insured Multifamily Loans and HUD 241(a) Supplemental Financing for HUD Multifamily Loans.
What are the benefits of a HUD multifamily loan?
HUD multifamily loans offer many benefits, including 35-year fixed rate terms, full amortization, and leverage up to 83.3% for market-rate apartment buildings or 87% for rental assistance properties. Additionally, HUD loans have few restrictions on borrower experience, unless you’re getting a construction loan, and their liquidity and net worth borrower requirements are far more flexible compared to even agency loans.
For affordable properties, HUD multifamily loans include increased LTV allowances, reduced DSCR requirements, and lower mortgage insurance premiums, or MIPs. They also fit well with the Low-Income Housing Tax Credit (LIHTC) program, which offers investors a dollar-for-dollar federal tax credit in order to encourage investment in affordable properties, and the Rental Assistance Demonstration (RAD) program, which allows properties using certain HUD legacy housing assistance programs to convert their properties to long-term Section 8 HAP (Housing Assistance Payment) contracts.
What are the risks associated with a HUD multifamily loan?