Market Studies for HUD 221(d)(4) Loans

If you're serious about applying for a HUD 221(d)(4) loan, you'll need more than just a HUD multifamily appraisal for your project. You'll also need to hire a third-party contractor to complete a full market study. A market study, sometimes referred to as a valuation and market study, will examine a variety of the financial elements surrounding a potential FHA multifamily construction loan project to determine its economic viability. 

HUD Valuation Analysis 

The valuation analysis part of a HUD-approved market study examines factors including: 

• Analyzing property as "collateral and security for a long-term mortgage"

• Estimation of market value

• Examines market need

• Residential and commercial rents

• Calculates projected expenses and estimated income

Other Valuation Inquiries 

In addition to examining these general valuation factors, a HUD-approved market study will also ask: 

• What is the duration of the project's earning capacity? (i.e. will it improve or decline over time?)

• Can rents pay:

  • Operating expenses (generally management, maintenance, utilities, and advertising)

  • Debt service (mortgage payments, HUD Multifamily MIPs)

  • Sufficient escrow deposits for reserve accounts

Market Condition Analysis 

In addition to looking generally at the project itself, a market study examine the surrounding area to put the project in the proper economic and geographic context. 

Market Condition Study Variables 

Specifically, a market study will look at factors including: 

• Geographic boundaries of the market area

• General characteristics of the market area

• Specific market conditions

• Supply and demand estimate

• Estimated absorption time

In general, market studies must have an effective date of within 120 days of submitting a pre-application. 

To learn more about how to apply for a FHA 221(d)(4) loan for your multifamily project, fill out the form below and a HUD loan specialist will get in touch.