What is Underwriting?
Underwriting is lender’s process of determining if a borrower meets their criteria for a loan. Underwriters usually consider three C’s - credit, capacity and collateral. When it comes to HUD 223(f) loans , lenders will also examine a borrower’s experience with owning and managing similar multifamil
What are Trended Rents?
Trended rents are rental rates that are based on market growth projections for inflation and other factors. Usually, historical market data is used to predict future rental growth of annual rents. While using trended rents may present a slightly more accurate version of a property’s future financial
What are Rental Assistance Properties?
Rental Assistance Properties and the HUD 223(f) Loan Program Rental assistance properties are properties where low-income or very low-income tenants qualify for monthly rental assistance. HUD is involved with several rental assistance property programs, including low rent apartments, in which HUD
What is Subsidized Affordable Housing?
Subsidized Affordable Housing and the HUD 223(f) Loan Program Using HUD’s subsidized affordable housing programs, tenants receive rent assistance for housing, but must pay at least 30% of their income towards housing costs (rent and utilities). Some examples include Section 8 Public Housing, HOPW
What are Replacement Reserves?
Replacement reserves consist of money earmarked for replacing building components and equipment which will wear out over the course of time. Replacement reserves are required for all properties funded with HUD multifamily loans , including those funded with HUD 223(f) loans .
What is a Single-Asset Entity?
A single-asset entity is typically a limited liability company (LLC) that owns real estate but has no other assets. Single-asset entities, or SAEs, are designed to limit liability for both borrowers and lenders. They are especially helpful to lenders, because, if a borrower personally declares bankr
What is Rental Assistance Demonstration?
Rental Assistance Demonstration and the HUD 223(f) Loan Program Rental assistance demonstration is a program which offers PHAs (public housing authorities) the power to “preserve and improve public housing properties” by addressing nationwide deferred maintenance backlogs. Certain HUD ‘legacy’
What is Prepayment?
Prepayment occurs when a borrower pays off a loan balance before maturity (the end of the loan term). If a borrower does this, they will often be prepayment penalty of a certain percentage of the loan amount. In the case of HUD 223(f) loans , there is usually a 0-2 year lockout period,
What is Substantial Renovation?
When it comes to HUD multifamily loans , such as the HUD 223(f) loan , substantial renovation of a property occurs when the required repairs and improvements of a HUD-assisted multifamily rental housing involve replacing two or more major building components. Alternatively, substantial renovation
What are Untrended Rents?
Untrended rents are projected rents that are not based on market-driven rent increases. In contrast to trended rents, untrended rents assume no growth in annual rents. While it's true that rents are growing in most areas in the United States, using untrended rents in projections is a safer and more
What are Recourse Loans?
Recourse Loans and the HUD 223(f) Loan Program If a loan is recourse and the borrower defaults (fails to repay the loan), the lender can seize both the collateral used to secure the loan and the borrower’s assets which are not used as collateral. Depending on how a loan is structured, this sometime
What are Tax Credits?
Tax credits are incentives that allow taxpayers to deduct certain amounts from the taxes they owe the government. When it comes to the HUD 223(f) loan program, the most common tax incentive program is the Low-Income Housing Tax Credit, or LIHTC . The LIHTC allows property owners to take a 10-year
What is Property Stabilization?
Property stabilization or stabilized occupancy is a projected range of occupancy for rental property. In other words, this is the expected occupancy that the project will have after being on the open market for a certain time period. Stabilized occupancy can also refer to the level of occupancy a pr
What is a Multifamily Rental (Multi-Dwelling Unit or MDU)?
Multiple yet separate housing units in a single building or several buildings. An apartment building is one example, while other common examples include duplexes, triplexes, quadplexes, and mixed-use properties. In general, HUD 223(f) loans are only available for multifamily properties with 5+ uni
What is a HUD-Held Loan?
HUD-held loans are loans that were originally insured by HUD , and are now owned by HUD itself. HUD-held loans are different than HUD-owned properties, as these are properties in which the title of the property is now held by HUD as the result of a borrower foreclosure.
What is Loan-to-Cost Ratio (LTC)?
Loan-to-Cost Ratio, or LTC, is a measure of leverage defined as project’s financing compared to its construction costs. LTC is important for some kinds of HUD multifamily financing , including HUD 221(d)(4) loans and HUD 232 loans , but is not a relevant factor for HUD 223(f) loans , since thes
What is Low-to-Moderate Income Housing?
Low-to-moderate income housing is subsidized housing intended for people whose incomes are low to moderate when compared to prevailing incomes. In general, all Section 8 housing must be intended for people with this income level. To determine what the rent limits are based on the low-to-moderate i
What are Non-Recourse Loans?
Non-recourse loans are typically loans secured by collateral (often real estate). However, if a borrower defaults, they cannot be held personally liable and lenders may not seize their personal property or garnish wages. Instead, the lender must accept a certain amount of loss.
What is Loan-to-Value Ratio (LTV)?
A loan-to-value or LTV ratio is a metric that compares the size of a loan to the value of the asset. Higher LTVs are generally riskier for lenders, and, for certain loans, can result in higher interest rates. When it comes to HUD 223(f) loans , HUD permits up to 85% LTV for market rate p
What is an Interest-Only Fixed Rate Loan?
Interest-only fixed rate loans are loans in which the borrower pays only interest at a fixed rate and nothing towards the principal of their mortgage loan. Interest-only fixed rate loans are a component of certain HUD multifamily loan programs, such as HUD 221(d)(4) loans for the construction an
What is Leverage?
Leverage can be defined as the practice of financing assets with borrowed money. It also refers the amount of debt used to finance an asset. The asset is typically used as collateral for the purchase.
What is MAP (Multifamily Accelerated Processing)?
The MAP, or Multifamily Accelerated Processing program is a streamlined method and set of national standards for approved lenders to prepare, process, and submit loan applications for HUD multifamily financing. To be approved for MAP, all underwriters employed lender must attend a specialized HUD
What is a HUD-Approved Lender?
HUD-approved lenders are those that can offer HUD multifamily financing and other HUD-insured home loans to borrowers. In order to qualify to become a HUD-approved lender, a lender must meet specific requirements, including having a specific net worth, maintaining good credit, and having employees
What is an MIP (Mortgage Insurance Premium)?
An MIP , or Mortgage Insurance Premium, is an annual payment on a HUD mortgage, paid at closing, for each year of construction, and annually.
What are LIHTCs (Low-Income Housing Tax Credits)?
Low-Income Housing Tax Credits, or LIHTCs are federal tax incentive intended to increase the availability of low-income housing. LIHTC credits can be claimed for up to 10 years after the construction is completed and the property is leased up.
What is a Market-Rate Property?
Market rate properties are non-subsidized properties, for which residents pay market rate rents or purchase properties at market value. When it comes to purchasing market-rate properties with a HUD 223(f) loan , borrowers are permitted LTVs of up to 85%, and DSCRs as low as 1.18x.
What is the Federal Housing Administration (FHA)?
The Federal Housing Administration was created in 1934 by the National Housing Act, in order to promote home construction and reduce unemployment. The FHA operates a range of loan insurance programs, but builds no properties and makes no loans.
What is the Department of Housing and Urban Development (HUD)?
Founded by President Lyndon Johnson in 1965, the U.S. Department of Housing and Urban Development is part of the Executive Cabinet. HUD develops, oversees, and executes housing policies, specifically in regards to affordable and sustainable housing.
What is DSCR (Debt Service Coverage Ratio)?
DSCR is a metric used by lenders to determine loans on income-generating properties. It is the required cash flow for paying current debts (interest, principal, lease payments, etc.), plus a certain margin of safety. DSCR can be calculated by taking a property’s net operating income (NOI) and divid
What are GNMA (Government National Mortgage Association) Mortgage Backed Securities?
Ginnie Mae (Government National Mortgage Association - GNMA) guarantees payments on mortgage backed securities consisting of pools of government-insured loans, including HUD 223(f) loans . While Ginnie Mae guarantees repayment on the MBS, it does not issue, sell, or buy securities itself and does n
What is FHA Mortgage Insurance?
FHA mortgage insurance protects against loan defaults and decreases risk for lenders. In the event of default, the FHA mortgage insurance pays claims based on certain requirements. FHA mortgage insurance is available for both single-family homes, through programs such as the 203(b) and 203(k) in
Escrow in Relation to HUD 223(f) Loans
Assets in escrow are those held by a third party on behalf of two other parties prior to the completion of a transaction. Examples of things held in escrow are money, funds, and securities. When it comes to HUD 223(f) loans , a loan will typically require an escrow account to hold funds during the
Fixed-Rate Loans and the HUD 223(f) Loan Program
Fixed-rate loans are those loans with monthly payments at fixed interest rates . While FHA-insured mortgages for single family homes typically come in both fixed and adjustable-rate versions, FHA/HUD-insured multifamily loans, such as the HUD 223(f) loan , are always fixed-rate.
What are FHA-Insured Loans
FHA-insured loans are loans that are backed by FHA mortgage insurance (see also HUD-Held) mortgages). The FHA insures both single family home mortgages, through its 203(b) and 203(k) loan programs, and multifamily mortgages, through programs including the HUD 223(f) , HUD 221(d)(4) , and HUD 23
Commercial Mortgage Backed Securities (CMBS) in Relation to HUD 223(f) Loans
CMBS loans are commercial and multifamily real estate loans that are pooled into securities and sold to investors on the secondary market. CMBS stands for commercial mortgage backed security. These securities may consist of loans for properties such as hotels, apartment buildings, office buildings,
What is the Davis-Bacon Act?
Established under the 1931 Davis-Bacon Act, some public works projects must pay workers the local prevailing wages— not simply the minimum wage. Required by many HUD programs, it is overseen by HUD’s Office of Labor Relations Davis-Bacon compliance. Fortunately for borrowers, HUD 223(f) loans
What is Cooperative Housing?
Cooperative housing, also known as a housing cooperative, co-op, or housing companies, are membership-based cooperatives (or corporations) that own real estate. These usually consists of one or more residential buildings. Cooperative housing developments can be refinanced with a special variant of