HUD 223(f) FAQs
Frequently Asked Questions for HUD 223(f) Loans
Special Purpose Entities (SPEs) in Relation to HUD 223(f) Loans
If you’re a HUD 223(f) loan borrower, in most cases, you will have to structure the legal entity that borrows the funds as a Special Purpose Entity, or SPE. The SPE will then own the project itself.
Can HUD 223(f) Loans Be Used for Student Housing?
If you want to purchase or refinance a student housing property, can you use a HUD 223(f) loan to do so? The answer is yes— but there are certain conditions you should know about, first.
Multifamily Accelerated Processing (MAP) and the HUD 223(f) Loan Program
If you want to get a HUD 223(f) loan , there are two ways in which you may be able to apply: through MAP, or Multifamily Accelerated Processing, or TAP, or Traditional Application Processing.
Do HUD 223(f) Loans Allow for Supplemental Financing?
If you already have a HUD 223(f) loan , but want to make additional upgrades to your property, a HUD 241(a) supplemental loan could be the perfect way to do it. HUD 241(a) loans can allow 223(f) loan borrowers to make energy efficient improvements, purchase necessary safety equipment, or even to
Escrows and Replacement Reserves for HUD 223(f) Loans
Like most other kinds of HUD multifamily loans, HUD 223(f) loans require monthly escrows. Taxes and insurance are escrowed monthly, as are required replacement reserves, which are established by a Project Capital Needs Assessment (PCNA). Replacement reserve amounts must follow HUD rules, which m
Can You Refinance an Existing HUD 223(f) Loan?
If you already own a property being financed with a HUD 223(f) loan, and you want to refinance in order to get a better interest rate or to reduce your monthly payments, HUD has a solution for you: a HUD 223(a)(7) refinance . HUD 223(a)(7) refinancing is specifically designed to refinance curre
Can You Get a Rate Lock on a HUD 223(f) Loan?
If you're an investor looking to take out a HUD 223(f) loan to acquire or refinance a multifamily property, it's to your advantage to know what interest rate you'll be paying as soon as possible. While early rate locks are not available for HUD 223(f) financing , rate locks are available at
Can HUD 223(f) Loans Finance Section 202 Properties?
HUD 223(f) loans can be used to acquire Section 202 properties, and they are subject to the same LTV and DSCR parameters as properties using other rental assistance properties, such as Section 8 . The HUD 202 program is specifically intended to help increase the supply of a
What Properties Are Eligible for HUD 223(f) Financing?
HUD 223(f) loans offer incredibly generous terms-- including 35-year, fully amortizing , fixed-rate financing, and nearly unbeatable leverage . But what kinds of properties can be financed with a HUD 223(f) loan ? In general, properties must have 5+ units, and each unit must have a co
Do Davis Bacon Wage Requirements Apply to HUD 223(f) Loans?
Davis Bacon wage requirements mandate that workers on projects that use federal programs, such as HUD multifamily mortgage insurance, are paid the prevailing wage for that area. These rules apply to certain HUD multifamily construction loans, such as HUD 221(d)(4) loans , but do n
Do HUD 223(f) Loans Permit Cash Out Refinancing?
Can you get cash out if you refinance a property with a HUD 223(f) loan ? The answer is yes-- but only under certain conditions. Specifically, HUD 223(f) loans only permit cash out when 80% of the property's value is greater than the existing debt plus any and all tra
How Long do HUD 223(f) Loans Take to Close?
How long does it take for a HUD 223(f) loan to close? The answer can vary-- based on factors including how long it takes to perform due diligence on the borrower, and how long it takes to produce essential third-party reports on the property. In the best case scenario, a HUD 223(f) loan will tak
Can HUD 223(f) Loans Be Used for Senior Housing Communities?
If you're interested in acquiring or refinancing a senior housing community, can you use a HUD 223(f) loan to do so? Well, it depends. Senior, or age-restricted communities, are defined by HUD as any development intended for residents 62 years and older, and, while age-restricted comm
Section 8 Housing in Relation to HUD 223(f) Loans
HUD's Section 8 program provides rental assistance payments to landlords across the U.S. in order to help low-income families find clean and safe affordable housing. As of the most recent statistics, nearly 5 million households across the country use the Section 8 program-- making it an essential
What are the Occupancy Requirements for HUD 223(f) Loans?
Many HUD multifamily loans have minimum property occupancy requirements, and HUD 223(f) loans are no different. HUD 223(f) financing typically requires a minimum of 85% occupancy for the last 6 months before closing.
Lockouts in Relation to HUD 223f Financing
Like many multifamily loans, HUD 223(f) loans have various prepayment provisions, which include certain prepayment penalties . One common prepayment provision is called a lockout, which prevents a borrower from repaying a loan at all for a specific period of time. While all prepayment provisions
Do HUD 223(f) Loans of $75 Million+ Have Different Requirements?
While there is technically no maximum size limit for a HUD 223(f) loan , loans above a certain size may have stricter requirements. For example, for HUD 223(f) loans above $75 million, requirements include: Affordable and Subsidized Properties: Maximum LTV of 80% and a minimum D
What are the Interest Rates for HUD 223(f) Loans?
If you're considering taking out a HUD multifamily loan, like the HUD 223(f) loan , it's essential that you know the interest rate you'll be charged. Fortunately, low interest rates are one of the major benefits of HUD 223(f) loans , and, as of Nov. 2017, they average around 4.10% to 4.
What are the Application Fees for HUD 223(f) Loans?
While HUD 223(f) acquisition and refinancing loans offer incredible benefits to borrowers, they also come with a variety of fees. Some of the most common include lender application fees, which generally cost around $25,000 and include all required third-party reports and due diligence, an FHA
Green MIP Reduction for HUD 223(f) Loans
FHA mortgage insurance premiums, or MIPs , are one of the most important expenses that HUD 223(f) borrowers need to factor into their budget. For most HUD 223(f) borrowers, annual MIP is 0.60% of the loan amount for conventional properties, while affordable properties receive an reduced MIP of
What is the Department of Housing and Urban Development (HUD)?
The Department of Housing and Urban Development, otherwise known as HUD, is a cabinet department in the executive branch of the U.S. government, with the stated mission of helping address America's need for housing and enforcing fair housing regulations across the country. As part of its mission, HU
What Borrowers are Eligible to Take Out HUD 223(f) Loans?
If you're an investor or developer who wants to use a HUD 223(f) loan to acquire or refinance a multifamily property, you'll need to make sure you that your borrowing entity has the correct legal structure. In general, HUD 223(f) loans require that the borrower is a single asset, special pur
Are HUD 223(f) Loans Fully Amortizing?
When a loan is amortizing, it means that when a payment is made, it goes to both paying the loan's interest and paying off the principal. When a loan is fully amortizing, it means that the entire principal will be paid off by the end of the loan's term, while if a loan is
AMI: Area Median Income in Relation to HUD 223(f) Loans
Area Median Income , or AMI, is a statistic calculated by HUD that estimates the median annual income of households in a certain area. If you're a multifamily investor interested in using a HUD 223(f) loan to acquire or refinance an affordable property-- or you want to take advantage of
Do HUD 223(f) Loans Have Prepayment Penalties?
Like many types of multifamily financing, HUD 223(f) loans typically have prepayment penalties-- fees that are charged to the borrower if they attempt to pay off the loan early. HUD 223(f) prepayment penalties are negotiable, and can vary by lender, but often include a 0-2 year lockout
Are HUD 223(f) Loans Non-Recourse?
If you're an investor looking to purchase or refinance a multifamily property, it's essential to understand the status of a loan's recourse provision before making any important financial decisions. If a loan is full-recourse, it means that if a borrower fails to pay back the loan, the le
Do HUD 223(f) Loans Place Limits on Rehabilitation Work?
HUD 223(f) loans allow for rehab work up to $15,000 per unit, which is multiplied by a local cost factor , often between 190-270%. In addition, renovations are not permitted to replace more than 50% of any two major building components, such as electrical systems, plumbi
Are HUD 223f Loans Assumable?
Fortunately for borrowers, HUD 223(f) loans are fully assumable with lender approval and a 0.05% fee. In order to approve the loan for assumption, the FHA has to examine the new borrower's financial credentials to ensure that they have the financial strength to pay back the loan. To do so
Do HUD 223(f) Loans Allow for Commercial Development?
If you're a multifamily investor interested in purchasing or refinancing a property with a HUD 223(f) loan, you might be wondering if you're allowed to rent some of your space to commercial tenants-- and the answer is yes. HUD 223(f) loans allow for commercial development, albeit with somewhat stric
Are HUD 223(f) Loans Fixed-Rate?
When it comes to the acquisition or refinancing of a multifamily property, investors typically have two options: fixed-rate loans and variable-rate loans. Fixed-rate loans, like the HUD 223(f) loan , maintain the same interest rate througout the entire life of the loan product, while v
Market Rate vs. Affordable Properties in Relation to HUD 223f Loans
When purchasing or refinancing a building with a HUD 223(f) loan , investors and developers often need to decide whether to set rents low enough to have the property legally qualify as affordable housing, or to set rents at the going market rate. While market rate units typically provide more r
LTV: Loan to Value in Relation to HUD 223f Loans
When lenders are deciding whether to approve a loan, one of the most important factors they look at is LTV, or loan to value ratio. The higher a loan's LTV, the riskier it is for the lender, since there is little equity in the property that can be recovered if the borrower defaults. Developers and i
DSCR: Debt Service Coverage Ratio in Relation to HUD 223(f) Loans
Debt Service Coverage Ratio, or DSCR, is one of the most important metrics that lenders examine when determining whether to give a HUD 223f loan to a potential borrower. DSCR is designed to compare a property's annual cash flow and its annual debt service in order to assess the likelihood that a b
RAD: Rental Assistance Demonstration in Relation to HUD 223f Loans
The RAD (Rental Assistance Demonstration) Program gives PHAs (public housing authorities) the power to “preserve and improve public housing properties.” RAD also allows them to address the $26 billion dollar deferred maintenance backlog across nation.
What are the Pros and Cons of HUD 223f Loans?
HUD 223f loans have a variety of advantages and disadvantages for investors and developers. While they allow great amount of leverage, have low interest rates, and are non-recourse, they can also require somewhat lengthy wait times and a significant amount of documentation. In this easy-to-read FAQ
MIP: Mortgage Insurance Premiums in Relation to HUD 223f Loans
Before being approved for a HUD Multifamily loan, a borrower must have mortgage insurance. HUD-requires borrowers to pay MIP (Mortgage Insurance Premium) on FHA loans. This insurance policy is not to be confused with PIM (private mortgage insurance) which is required on some conventional mortgage lo