HUD Multifamily Loan Guide
While the HUD 221(d)(4) loan is a fantastic way for developers to build and rehabilitate multifamily properties, it's not the only multifamily loan product that HUD offers. First, we’ll recap the the details of the HUD 221(d)(4) loan. Then, we'll see how it stacks up against other HUD multifamily loan products.
The HUD 221(d)(4) is HUD's flagship loan for the construction and rehabilitation of large multifamily properties. With a variety of benefits and incredibly affordable terms, HUD 221(d)(4) loans have become the darling of investors and developers alike.
What are the benefits of HUD 221(d)(4) loans?
40-year loan term (+3 years construction, for a 43-year total)
Competitive, fixed interest rates
High LTV allowance (up to 90% for properties with significant rental assistance)
What are the requirements of HUD 221(d)(4) Loans?
Full scope of third party reports (environmental assessment, market study, appraisal, etc.)
Must undergo annual review
Bonded and licensed general contractor
Must be in compliance with Davis Bacon wage requirements
For property owners and investors who want to purchase or refinance a multifamily development, there's usually no better option than a HUD 223(f) loan. These loans are often seen as being limited to use by non-profits and for low-income housing projects. In reality, they're actually a lot more versatile and can be used for a variety of purposes.
What are the basics of HUD 223(f) loans?
In short, the HUD 223(f) loan might be the most effective way to buy a multifamily property. There are several reasons why 223(f) loans are so effective for purchase and refinancing, including:
35 year fixed-interest loan terms
Interest rates are highly competitive (though MIP is required)
87% LTV allowance for rental assistance properties
For developers and owners who currently own HUD multifamily financed properties, a HUD 223(a)(7) loan can be an incredibly effective way to refinance. HUD sees this refinancing process as an effective way to reduce default rates on HUD-insured loans.
What are the benefits of HUD 223(a)(7) refinancing?
Reduce borrower interest rates
Improve property cash flow
In addition, HUD 223(a)(7) is surprisingly streamlined; the only third-party report required is a PCNA (project capital needs assessment).
HUD 232/232(f) financing is specifically designated for established healthcare developments, such as skilled-nursing facilities. Unlike some HUD multifamily loans, HUD 232/223(f) does not allow for new construction. Instead, it's designed for the refinancing of healthcare properties, the purchase and/or renovation of healthcare properties, and various combinations of these purposes.
How can you qualify for HUD 232/223(f) financing?
Since HUD 232/223(f) financing is designed for a specific purpose, the guidelines are a bit narrower than other kinds of HUD loans. For example, properties must:
Be licensed skilled-nursing or assisted living centers (regulated by a state or local board)
Have been complete for at least 36 months
Have no more than 20% of the floor area occupied by commercial space
Have no more than 25% of the units designed for independent living
Accommodate 20 or more patients in need of skilled nursing care
What are the benefits of HUD 232/223(f) financing?
Like other HUD multifamily loans, HUD 232/223(f) loans offer a variety of features that make them particularly affordable and competitive for developers. These include:
High LTV purchase allowance of <85% of the acquisition price/appraised value (for non-profits) and <90% (for-profits)
High LTV refinance allowance of <100% refinance cost or 85% of the appraised value (for non-profits) and 90% of the appraised value (for-profits)
35- year maximum term
HUD 232 LEAN
The HUD 232 program is also available in a faster, more streamlined version. This is known as the HUD 232 LEAN program. Using approved lenders, this form of HUD 232 can go through HUD's MAP (Multifamily Accelerated Processing) process. In general, this reduces approval times and gets funds to developers significantly faster.
If you already have a multifamily property with a HUD-insured mortgage, but you want to make additional improvements or an expansion, HUD 241(a) supplemental financing could be the perfect choice. In many cases, this financing is used to make energy-efficient improvements or update safety equipment for existing multifamily developments.
What are the requirements for HUD 241(A) financing?
Borrower must put down 10% of the loan
Borrowers may need a full slate of third-party reports, including:
Davis Bacon wage requirements apply
Similar working capital and reserve requirements to HUD 221(d)(4) loans
Unlike HUD 221(d)(4) loans, which may take around 46 weeks to close, a HUD 241(a) loan can close in as little as 20 weeks. This makes it a fast and effective method to finance improvements to multifamily developments.