HUD 221(d)(4) Loan Process
From start to finish, the average HUD 221(d)(4) process can take around 11-12 months, though this may be longer (especially if any unknown issues arise). However, the process could be shorter, especially if the property qualifies for the HUD Multifamily Accelerated Processing (MAP) system. In some cases, MAP may be able to cut down the process to as little as 6 months.
Stage 1: Initial Research to Pre-Approval
One of the first steps for any interested investor or developer is doing significant research on the HUD 221(d)(4) program-- and this website is a great place to start. At the very least, we recommend consulting our loan facts, checklist, developer requirements and fees guide, and our typical loan timetable.
Does my project qualify for HUD 221(d)(4) financing?
Before beginning the actual loan process, you should make sure your project qualifies for the loan. Eligible projects must:
Have a loan amount of more than $2 million (average loan is $15 million+)
Have 5+ units
Have a potential LTV of no more than:
85% for market rate properties
87% for affordable properties
90% for properties with 90% or more low-income units
Fill a market need and have an excellent chance of creating positive income
How do I get pre-approved for a HUD 221(d)(4) loan?
If you think your project fits within the general guidelines for HUD multifamily construction loans, you should begin working with your lender and other professional advisors to prepare a concept summary, and submit it to HUD. If HUD believes your project has potential, they will invite you to begin the pre-application process. At this point, you'll need to:
Hire third party contractors to complete:
Complete HUD questionnaires
Work with your lender to help them complete the underwriting process
At this point, usually about 3 months into the process, you and your lender will submit a pre-application to HUD, and you will need to pay a 0.15% approval fee.
Stage 2: The Firm Application Process
If your pre-application is approved (which may take some time), HUD will typically issue an Invitation Letter to Proceed With Firm Application about 5.5 months into the process. At this point, you'll need to:
Have an architectural and engineering report completed (around the 6 month mark)
Address any architectural or engineering issues that have arisen
Work with a licensed appraiser to create a draft full appraisal
Work with your lender to complete Firm Application underwriting (should be complete around the 7 month mark)
Pay 0.15% of loan amount as a Firm Application submission fee (usually around month 8.5)
Assuming you and your lender have done everything correctly, HUD will likely issue a firm commitment.
Stage 3: Rate Lock and Closing
The final stages of the HUD 221(d)(4) process involve locking everything into place, including your interest rate. Usually, this involves:
Working with your lender to receive a Lender's Funding Commitment
Locking your interest rate (typically requires 0.50% of the loan amount as a good faith deposit)
Working with your attorney to request title documentation and property surveys
Work with your lender to draft closing documents
Work with your lender and HUD (and your respective attorneys) to schedule a closing date
Close your loan (typically around the 11 to 12 month mark)
What happens after HUD 221(d)(4) closing?
After closing, the construction or rehabilitation process begins. Remember, for the duration of your loan, you'll need to: