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.
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.
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 expand current structures on their property.
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 mandate that they be set at a minimum of $250/unit per year.
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 not typically apply to HUD 223(f) loans.
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 complete kitchen and bathroom. Independent living seniors housing properties are allowed, but assisted living properties are not. Student housing properties are permitted, but only if rented by the unit, not by the bed or room.
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 HUD firm commitment, which is usually around 30-45 days before closing. Rate locks typically cost between 0.5% and 1% of the total loan amount and are refunded at closing.
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 take about 135 days, or 4.5 months to from initial engagement to close. However, if complexities arise, the HUD 223(f) loan process could take 6 months or more.
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 affordable housing for very low-income elderly individuals across the United States by providing interest-free capital advances and rent subsidies to improve the affordability of the properties for their intended residents.
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 current HUD multifamily loans, including HUD 223(f) loans, in order to reduce interest rates, increase amortizations, and increase property cash flows, in order to reduce the risk for HUD that a borrower will end up defaulting on their mortgage.
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 application fee of 0.30% of the loan amount, and an FHA inspection fee, which is usually set at $30/unit.
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 purpose entity (SPE), which can either be a for profit or a non-profit entity.
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:
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 are negotiable for HUD 223(f) loans, lenders will typically insist on a lockout period of between 0 and 2 years.
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 partially amortizing, only a part of the principal will be paid off, leaving what's commonly known as a balloon payment. Fortunately for borrowers, HUD 223(f) loans are fully amortizing, which means that when the loan term is over (assuming the borrower does not default or refinance the loan), the entire principal will be paid off.
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, HUD provides mortgage insurance for a variety of different types of loans offered by private lenders, including HUD 223(f) multifamily acquisition and refinancing 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 4.75% (including MIP) for 35-year, fixed-rate, fully amortizing loans.