To qualify for a HUD 221(d)(4) loan for multifamily construction, the borrower/developer must have requisite experience and financial credentials, and the project must be approved by HUD. Eligible borrowers include:

• Nonprofit cooperatives
• Builder-sellers
• Investor-sponsors
• Profit-motivated sponsors
• Limited distribution mortgagors
• General mortgagors

In addition, HUD considers the suitability and financial feasibility of the project itself, something borrowers will have to demonstrate throughout the HUD 221(d)(4) application process.

To be eligible for HUD 221(d)(4) financing, developers must have requisite experience and financial credentials, and HUD must approve the project. Eligible borrowers include: Nonprofit cooperatives, Builder-sellers, Investor-sponsors, Profit-motivated sponsors, Limited distribution mortgagors, and General mortgagors. In addition, HUD considers the suitability and financial feasibility of the project itself, something borrowers will have to demonstrate throughout the HUD 221(d)(4) application process. Requirements for the 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.

The HUD 221(d)(4) loan program offers developers several advantages, including long terms of up to 43 years (with a 3-year, interest-only construction period), low interest rates, assumability (with FHA/HUD approval), and non-recourse loans. Additionally, HUD 221(d)(4) loans can be used with the federal government's Low Income Housing Tax Credit (LIHTC) program for affordable properties, which can save developers and investors significant amounts of money by giving them a 10-year tax deduction (provided the property qualifies). The FHA 221(d)(4) loan is also often used to create housing for moderate-income families, the elderly, and handicapped residents who have been priced out of the rental apartment market, although there are no income limits for the FHA's multifamily financing program. Lastly, FHA MIP for HUD 221(d)(4) loans is 0.65% for market rate properties, 0.45% for Section 8 or LIHTC properties, 0.70% Section 220 urban renewal projects, and ultra-low 0.25% green MIP is available for Energy Star approved energy-efficient development projects.

HUD 221(d)(4) loans offer 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. While there’s nothing necessarily wrong with this, 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.

The benefits of HUD 221(d)(4) financing for developers include:

• Long-term fixed-rate financing
• Non-recourse financing
• Fully assumable financing
• High leverage
• No need to refinance into a permanent loan

Developers interested in applying for HUD 221(d)(4) financing must demonstrate their suitability and financial feasibility throughout the HUD 221(d)(4) application process. This process includes providing financial statements, tax returns, and other documents to prove the developer's financial credentials. Additionally, the project itself must be approved by the US Department of Housing and Urban Development (HUD).

The criteria for HUD 221(d)(4) financing approval 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.