HUD 221(d)(4) Loan Refinancing 

When homeowners want a better deal on their home loan or are having trouble paying their bills, they often decide to refinance their property. So why should multifamily developers think any differently? The answer: they shouldn't. In many cases, refinancing a multifamily development can be a smart business decision, reducing risk and increasing overall profitability. 

HUD 223(a)(7) Refinancing 

For developers and investors who want to refinance their HUD 221(d)(4) loan, the HUD 223(a)(7) refinancing program may be the most effective option. Those who refinance their multifamily property with the 223(a)(7) program can experience a variety of benefits. These include improved cash flow and better loan terms. 

Benefits of Hud 223(a)(7) Loan Refinancing 

Some of the major positives of refinancing a HUD 221(d)(4) loan with the 223(a)(7) program include: 

• Increased cash flow

• Reduced interest rates (potentially)

• Increase amortization

• Reduced chance of default

• Reduced cost of debt service

• Only a single third-party report is required, a project capital needs assessment (PCNA)

HUD 241(a) Loans 

While it's not exactly a traditional refinance, HUD's 241(a) supplemental loan allows developers and investors to get funds to make significant improvements to their current HUD-insured loan property. This can also improve long-term profitability by making a development more attractive, and thus more competitive in the current market. 

Requirements for HUD 241(a) Supplemental Financing 

• Borrower must put down 10% of the loan amount

• Full spectrum of third party reports required (full appraisal, environmental assessment, market study, seismic reports (if needed), etc.)

• Finance/permanent placement fee up to 3.5% of loan amount

• FHA Application Fee of 0.30% of loan amount

• FHA Inspection Fee of 0.50% of loan amount

Benefits of HUD 241(a) Loans 

Much like HUD 221(d)(4) loans, HUD 241(a) loans are: 

• Fixed-rate

• Assumable

• Non-recourse

• 20-week average closing

Other Refinancing Methods 

In addition to the HUD 223(a)(7) and HUD 241(a) programs, developers may also wish to look outside the FHA for recapitalization and/or supplemental financing. There are several options for this, the most popular being Fannie Mae®, Freddie Mac®, and life insurance company loans. 

Freddie Mac® Multifamily Financing Options 

Freddie Mac provides a variety of recapitalization and supplemental loan options, including both fixed-rate and adjustable rate options. The average Freddie Mac apartment loan offers: 

• Fixed interest rate starting around 3.90%

• 30 year maximum loan term

• Full assumability (for eligible new borrowers/mortgagors)

Freddie Mac Value-Add Loans 

Getting a full Freddie Mac apartment loan may not always be available or desirable for a multifamily property. So instead, some developers turn to the Freddie Mac Value-Add loan, which can help finance moderate property upgrades for multifamily developments. The Value-Add loan typically provides: 

• Floating interest rates

• 80% max LTV

• DSCR based on 7-year fixed-rate pricing

• $10,000- $25,000 per unit in financing

Freddie Mac Small Balance Loans 

Freddie Mac Small Balance Loans are another option for refinancing smaller multifamily developments. In particular, Small Balance Loans offer: 

• Loan amounts between $750,000 and $7 million

• 5, 7, and 10-year fixed interest-rate loan terms

• Interest rates between 3.90%- 4.98% (depending on loan term and market size)

• 1-3 year interest only periods (also depending on loan term and market size)

• Non-recourse financing with regular carve-outs (these may be waived for financially strong borrowers)

Fannie Mae Multifamily Small Loan Program 

Similar to Freddie Mac, Fannie Mae also offers a Multifamily Small Loan program. The Multifamily Small Loan program includes: 

• Loan amounts between $750,000 and $5 million

• Up to 30-year fixed-rate terms

• Non-recourse financing

• Up to 3% of closing costs financed

• Up to 80% LTV allowance for purchase and refinancing

Fannie Mae DUS Loan Program 

In addition to its Multifamily Small Loan program, Fannie Mae also offers its most popular multifamily financing program, the DUS platform. This platform offers: 

• Loans from $3 million (no maximum loan amount)

• 30-year fixed rate financing

• Mezzanine financing allowed

• Early/extended fixed interest-rate locks

• Up to 80% LTV allowance for purchase and refinancing

Life Insurance Company Loans 

For financially secure developers and owners looking to refinance a multifamily property to secure lower interest rates, a life insurance company loan could be the perfect fit. Life insurance company loans often offer:

• Incredibly low interest rates over long periods of time

• Non-recourse financing

This long-term stability allows developers to accurately estimate their debt service and cash flow years into the future. However, life insurance company loans may not be for everyone. Since most companies want no more than 70% LTV, your project will already have to be in a strong position (and have a decent amount of equity built up) in order to qualify. 

To learn more about HUD 221(d)(4) refinancing options, fill out the form below and a HUD refinancing expert will get in touch.