Tap to get financing
HUD 221(d)(4) Loans
Information
Loan Facts Terms, Qualifications & GuidelinesInterest RateTerm SheetHUD Multifamily LoansStatutory LimitProcessRefinanceHUD Multifamily Construction Loans
Application
Application ProcessChecklist
Knowledge base
HUD 221(d)(4) FAQsGlossary
Developers
General Contractor RequirementsDeveloper Requirements & Fees3rd Party Reports & GuidelinesAppraisal ProcessMarket StudyArchitectural and Engineering ReportsDavis Bacon WagesEnvironmental Assessments
About
About HUD 221(d)(4) LoanContact usLeadership
Forms
Typical Loan TimetableDetailed Operating Statement & Underwriting AnalysisEstimate of Replacement & Construction Costs
Get financing
Newly Published
Jun 14 at HUD 221(d)(4) Loans
What is Underwriting?
Jun 14 at HUD 221(d)(4) Loans
What are the Benefits of Non-Recourse Loans?
Jun 14 at HUD 221(d)(4) Loans
Market Rate vs. Affordable Properties in Relation to HUD 221(d)(4) Loans
Explore the Janover Network
Mar 24 at Multifamily Loans
The Best 3 Multifamily Loans for Affordable Housing in 2023
Mar 20 at Multifamily Loans
Multifamily Minute Reader Reflections: How Will Bank Failures Impact Multifamily?
Mar 17 at Commercial Real Estate Loans
Top 10 Commercial Real Estate Lenders of 2023
Was This Article Helpful?
Last updated on Nov 30, 2022
5 min read

Terms, Qualifications & Guidelines

HUD 221(D)(4) Terms and Qualifications Guide Everything you need to know about terms and qualifications for HUD/FHA 221(d)(4) financing.

Better Financing Starts with More Options Start Your Application and Unlock the Power of Choice. Click Here to Get Quotes →$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1M offered by a Credit Union at 5.1%Click Here to Get Quotes
In this article:
  1. HUD 221(d)(4) Terms, Qualifications & Guidelines
  2. Eligible Properties
  3. Commercial Space Limitation
  4. Eligible Borrowers
  5. Use of Proceeds (Substantial Rehabilitation)  
  6. Maximum Loan Amount  
  7. HUD’s Statutory Mortgage Limits  
  8. Leverage
  9. Escrows
  10. Fees & Expenses
  11. MIP (Mortgage Insurance Premium)
  12. Term & Amortization
  13. Interest Rate
  14. Recourse
  15. Assumability
  16. Prepayment
  17. Replacement Reserves
  18. Application
  19. Timing
  20. Get Financing

HUD 221(d)(4) Terms, Qualifications & Guidelines

Eligible Properties

Detached, semi-detached, row homes, walkup, and elevator-type multifamily properties are all eligible for HUD multifamily construction loans. This includes market rate and low-to-moderate income housing, subsidized affordable housing properties, and multifamily, cooperative housing projects with a minimum of 5 units.

Commercial Space Limitation

Commercial and/or retail space is limited to 25% of the property’s net rentable area and 15% of the property’s underwritten effective gross income (up to 30% of underwritten EGI permitted in urban renewal areas under Section 220).

Eligible Borrowers

Single-asset, bankruptcy-remote, nonprofit or for-profit entities are among the groups eligible for HUD 221(d)(4) financing. 

Use of Proceeds (Substantial Rehabilitation) 

Properties must meet one of the following requirements before qualifying as a substantial rehabilitation of a multifamily property. In particular, replacements, repairs, and improvement costs for an existing property must be more than:

  • 15% of the property’s replacement cost after of all work is completed OR

  • $6,500 per unit as adjusted by the local HUD office OR

  • The cost of replacing two or more buildings, regardless of project cost

Maximum Loan Amount 

This is determined by the lowest of the following:

  • 90% of the eligible development costs (100% for non-profit)

  • 1.11x Debt Service Coverage (1.05x for non-profit)

Get A Free HUD/FHA Multifamily Loan Quote

HUD’s Statutory Mortgage Limits 

For rehabilitation, add 90% of the “as is” value (100% for non-profit) plus 90% of the total development cost (100% for non-profit)

Leverage

Leverage is an investment strategy which uses borrowed money to finance an asset and increase the return. It also refers to the amount of debt used in financing assets. Borrowers use the asset to be purchased as collateral. Lenders often set limits on how much leverage is allowed. HUD multifamily construction financing offers the following leverage:

  • 83.3% LTC (Loan-to-cost Ratio)* or replacement cost, 83.3% of net operating income, or 1.20 Debt-Service Coverage Ratio (DSCR)** for market rate properties

  • 87% LTC or replacement cost, 87% of net operating income, or 1.15 DSCR for affordable housing properties

  • 90% LTC or replacement cost, 90% of net operating income, or 1.11 DSCR for rental assistance properties”

* The LTC (Loan-to-cost Ratio) compares a project’s financing to the cost of construction. 

** The DSCR is the cash flow required to pay current debts (interest, principal and lease payments). It is used by lenders to determine loans on income properties. 

Escrows

Certain funds are held by a third party in escrow until the final transaction is completed:

  • In accordance with HUD guidelines, replacement reserves are required.

  • After construction is completed, taxes and insurance are escrowed monthly.

  • Requires a working capital reserve account equal to 4% of the FHA-insured loan (paid either in cash or with an LOC (letter of credit)). The unused amount is later refunded.

  • Operating deficit reserves must be equal to 3% of the loan. Any unused amount is later refunded.

Fees & Expenses

The HUD application fee is 0.30% ($3 per thousand of the requested mortgage amount). The HUD inspection fee is 0.5% of the mortgage amount (for new construction - $5 per thousand of the mortgage amount; for substantial rehabilitation - $5 per thousand of the improvement costs). Borrowers are also responsible to pay for all third party reports like the HUD Multifamily Appraisal, Market Study and Phase 1 Environmental Site Assessment. 

MIP (Mortgage Insurance Premium)

An annual Mortgage Insurance Premium. Beginning at closing, it is paid for each year of construction and then each following year thereafter. MIP for multifamily loans is:

  • 65 basis points for market rate properties

  • 45 basis points for Section 8 projects or new money LIHTC properties

  • 70 basis points for Section 220 urban renewal non-Section 8 or LIHTC projects

  • 25 basis points for properties qualifying for a green MIP reduction

Term & Amortization

During the construction phase, HUD multifamily construction loans are both fixed-rate and interest-only for up to 36 months. After this, there is an additional 40 years of fully amortized, fixed-rate payments. Altogether, these HUD loans have a maximum term of 43 years.

Interest Rate

Interest rates fluctuate depending on market conditions. As a result, a definitive interest rate cannot be given.  

Recourse

All loans are non-recourse to the key principals, both during construction and during permanent financing. This is subject to standard carve-outs.

Assumability

All FHA 221(d)(4) loans are fully assumable, but are subject to FHA approval along with a 0.05% fee of of the original FHA-insured loan amount. 

Prepayment

10 years of call protection with a 2 year lockout. This is followed by a step down from 8%. If the loan is assumed, there is no prepayment penalty.

Replacement Reserves

HUD requires annual replacement reserves. This is money set aside to replace equipment and components which wear out over time. In some cases, HUD may waive this requirement if calculations exceed $500 per door. HUD requires the following replacement reserves equal to the greater of:

  • 0.60% of the total cost for new construction or 0.40% of the loan amount for substantial rehabilitation projects

  • $250 per unit per year

Application

FHA multifamily construction financing applications have either a two or one-stage process:

  • For market rate property applications, there is a two-step process, pre-application followed by the firm application.

  • For affordable and rental assistance properties, they may use MAP (Multifamily Accelerated Processing) one-stage processing.

Timing

Processing HUD 221(d)(4) financing applications typically takes from 5 to 7 months for a MAP one-stage application. Processing a MAP two-stage application can take between 8 to 10 months. Check out our typical loan timetable to learn more. 

TO LEARN MORE ABOUT HUD 221(D)(4) LOAN OPTIONS, FILL OUT THE FORM BELOW AND A HUD LOAN EXPERT WILL GET IN TOUCH.

In this article:
  1. HUD 221(d)(4) Terms, Qualifications & Guidelines
  2. Eligible Properties
  3. Commercial Space Limitation
  4. Eligible Borrowers
  5. Use of Proceeds (Substantial Rehabilitation)  
  6. Maximum Loan Amount  
  7. HUD’s Statutory Mortgage Limits  
  8. Leverage
  9. Escrows
  10. Fees & Expenses
  11. MIP (Mortgage Insurance Premium)
  12. Term & Amortization
  13. Interest Rate
  14. Recourse
  15. Assumability
  16. Prepayment
  17. Replacement Reserves
  18. Application
  19. Timing
  20. Get Financing

Getting commercial property financing should be easy.⁠ Now it is.

Click below for a free, no obligation quote and to learn more about your loan options.

Get financing →
Janover logo

HUD 221(d)(4) Loans is a Janover company. Please visit some of our family of sites at: Multifamily Loans, Multifamily Today, Commercial Real Estate Loans, SBA7a Loans, CMBS Loans, Apartment Loans, HUD Loans, HUD 221d4 Loan, HUD 232 Loan, HUD 223f Loan, HUD 223a7 Loan, SBA Express Loans, SBA 504 Loans, and OpportunityZones Help.

Janover Inc.

6401 Congress Ave
Ste 250
Boca Raton FL 33487

[email protected]

Site Information

Privacy Policy
Terms of Use

This website is owned by a private company that offers business advice, information and other services related to multifamily, commercial real estate, and business financing. We have no affiliation with any government agency and are not a lender. We are a technology company that uses software and experience to bring lenders and borrowers together. By using this website, you agree to our use of cookies, our Terms of Use and our Privacy Policy. We use cookies to provide you with a great experience and to help our website run effectively.

Freddie Mac® and Optigo® are registered trademarks of Freddie Mac. Fannie Mae® is a registered trademark of Fannie Mae. We are not affiliated with the Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA), Freddie Mac or Fannie Mae.

Copyright © 2022 Janover Inc. All rights reserved.