Term Sheet for HUD 221(d)(4) Loans
Term Sheet for HUD 221(d)(4) Loans Everything you need to know about terms and requirements for HUD 221(d)(4) loans.
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This term sheet is designed to help developers and owners understand the main components of the HUD 221(d)(4) loan. For a downloadable version of this sheet, click here.
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:
Loan-to-value ratio (LTV) requirements (mentioned below).
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.
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%.
Recourse/Liability
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)
0.65% for market-rate properties.
0.25-0.35% for affordable and subsidized properties.
0.25% MIP for energy efficient properties (Energy Star certification required).
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.
Download Our HUD 221(d)(4) Term Sheet