HUD 221(d)(4) Term Sheet

This term sheet is designed to help developers and owners understand the main components of the HUD 221(d)(4) loan

Basic Information

Eligible Properties

Eligible properties include market-rate properties, such as conventional apartments, multifamily affordable housing developments with 5+ units, and cooperative housing developments. These include detached, semi-detached, row, walkup, or elevator-type rental properties. 

Eligible Borrowers

Profit and non-profit entities are both eligible to take out HUD 221(d)(4) loans

Minimum Scope of Renovation Work

Renovation work must be considered 'substantial renovation' in order to qualify, meaning that it:

  • Will cost more than $15,000 per unit, adjusted by local cost factor (which is often 190%-270%)

  • Will replace more than 50% of at least 2 major building systems, including electrical, plumbing, structural, or mechanical.

Minimum Loan Amount

The minimum loan amount for this program is $2 million. However, the typical loan amount is $15 million+.

Maximum Loan Amount

In order to qualify, a HUD 221(d)(4) loan must also have: 

  1. Loan-to-value ratio (LTV) requirements (mentioned below).

  2. Minimum Debt Service Coverage Ratio (DSCR) requirements of:

    • 1.20×1 DSCR for market rate apartments.

    • 1.15×1 DSCR for affordable apartments.

    • 1.11×1 DSCR for apartments with 90% or greater rental assistance.

  3. FHA statutory per unit limits adjusted for local high cost factor (often 190%-270%)

Loan/Amortization Term

3 year interest-only construction loan, followed by 40-year fully amortizing loan (overall 43-year term.)

Loan To Value Ratio

  • 83.33% for market rate apartments.

  • 87% for affordable apartments.

  • 90% for apartments with 90% or greater rental assistance.

Debt Coverage Ratio

  • 1.20×1 for market rate apartments.

  • 1.15×1 for affordable apartments.

  • 1.11×1 for project based rental assistance apartments.

Prepayment Terms

Prepayment is subject to a 2 year lock-out period, followed by annual step down premiums of 8%, 7%, 6%, 5%, 4%, 3%, 2% and 1%.


HUD 221(d)(4) loans are non-recourse. However they are subject to standard "bad boy" carveouts. 

Third Party Reports

Required third party reports include a full property appraisal, a phase one environmental assessment (ESA), a market study, an architectural and engineering report, and a construction cost review. 

Rate Lock

30-180 day interest-rate locks are available. Earlier locks are also available during the approval process.  

Mortgage Insurance Premium (MIP)

Fees and Escrow

FHA Application Fee

0.3% of the loan amount due at application (1/2 due at Pre-application and 1/2 due at Firm Application). 

FHA Inspection Fee

0.5% of the loan amount due and payable at closing.

Replacement Reserves

A replacement reserve account is required to fund future repairs and maintenance. 

Escrow Requirements

Pre-construction: HUD-approved replacement reserve amounts, Working Capital Reserve of 2-4% of loan amount, and Operating Reserve of 3% is often required. 

Post-construction: Monthly escrow of taxes and insurance is required. 

Other Loan Features

Davis-Bacon Wage Requirements

Developers are required to pay the prevailing wages in their particular state in accordance with the Davis-Bacon Act. 

General Contractor Requirements

A bonded, licensed general contractor is required to execute a GMP contract. 

Additional Financing

Soft seconds and stock pledge financing is permitted (given it follows the proper regulations), but hard second liens are prohibited. 

To learn more about HUD 221(d)(4) financing for your multifamily development, fill out the form below and a HUD loan advisor will get in touch.