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
Amortization and HUD 223(f) Loans
When a loan is amortizing, each payment 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. In contrast, 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. In order to pay it off, the borrower will likely either have to pay in full, refinance the loan, or get a new loan. 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.
Amortization Example
Below is a sample payment schedule with selected dates, including how much you would pay towards the principal and interest until the loan is paid off. If you borrow $1 million for 40 years (480 months) at 4.5%, you pay off the loan according to this abbreviated amortization schedule. Notice how much of the early payments go towards interest.
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Related Questions
What is a HUD 223(f) loan?
A HUD 223(f) loan is a loan specifically designed to finance the acquisition or refinancing of existing multifamily properties. Loan terms are typically far more favorable than conventional loans, with fully amortizing terms of up to 35 years. The HUD 223(f) loan program also allows for more flexible underwriting guidelines and lower mortgage insurance premium than other government-insured loan programs. These loans can be used for both market-rate and affordable housing properties, making it a great option for a wide range of investors.
Source: https://www.multifamily.loans/multifamily-financing
Source: https://www.hud223f.loans/
Source: https://www.multifamily.loans/s/Janover-Ventures-HUD-223f-Term-Sheet.pdf
What are the benefits of a HUD 223(f) loan?
HUD 223(f) loans offer some of the best terms in the industry for the acquisition and refinancing of multifamily and apartment properties. These loans are non-recourse, offer high leverage, low interest rates, and lenient DSCR requirements.
The terms of HUD 223(f) loans are as follows:
Loan amount Terms Leverage Interest rates DSCR requirements $1 million, no set maximum Between 10 and 35 years Up to 87% LTV for market-rate properties, and 90% LTV for affordable properties and properties using rental assistance (HUD Mortgagee Letter 2025-03, January 8, 2025). Fixed for the life of the loan. Includes a mortgage insurance premium, or MIP. 1.15x for market-rate properties, and 1.11x for affordable and rental assistance properties. In addition, HUD 232/223(f) loans offer the following advantages:
- Low, fixed interest rates
- Loans are fully assumable (with FHA/HUD approval)
- HUD 232/223(f) loans are non-recourse, limiting risks for developers
What are the requirements for a HUD 223(f) loan?
HUD 223(f) loans have terms including:
- Loan Amount: Minimum loan amount of $1 million (exceptions can be made on a case by case basis)
- Loan Term: Minimum loan term of 10 years, and a maximum term of 35 years (or 75% of the property's remaining economic life)
- Leverage:
- Market rate properties: 87% LTV
- Affordable properties: 90% LTV (HUD Mortgagee Letter 2025-03, January 8, 2025)
- Interest Rates: Fixed for the life of the loan, set at commitment from market conditions on that day and inclusive of MIP; see current HUD 223(f) rates
- DSCR:
- Market rate properties: 1.15x minimum DSCR
- Affordable properties: 1.11x minimum DSCR (HUD Mortgagee Letter 2025-03, January 8, 2025)
- MIP: 0.25% upfront mortgage insurance premium and 0.25% annual MIP, flat for all property types, for applications submitted or amended on or after October 1, 2025. HUD eliminated the 2016 rate categories, including the Green MIP Reduction, in the same notice (90 FR 45789).
- FHA Application Fee: 0.30% of the total loan amount
- Cash Out: For 223f refinances, cash out is allowed under specific conditions. LTV must be at least 80% (including transaction costs in the loan amount). At that point, 50% of funds above 80% adjusted LTV are released, with the remaining 50% to be released after property rehab is complete.
- Repair Limitations: While the 223(f) program is not intended for substantial rehabilitation, loan funds may be used for repairs of up to $6,500/unit (more in high-cost areas), or 15% of the property value, or 20% of the mortgage. If the second or third calculation is used, repairs are limited to $15,000/unit (more in high-cost areas). No more than half of any essential structural component (e.g. roofing, HVAC) may be replaced.
In addition, properties being acquired or refinanced with a HUD 223(f) loan must:
- Be at least three years old (for new properties), or have had the last substantial renovation three years ago or more
What is the maximum loan amount for a HUD 223(f) loan?
HUD 223(f) loans have no maximum loan amount. However, the overall size of a HUD 223(f) loan cannot go beyond a specific per-unit limit set by HUD (and adjusted by project location).
Are HUD 223(f) loans fully amortizing?
Yes, HUD 223(f) loans are fully amortizing. When a loan is fully amortizing, it means that the entire principal will be paid off by the end of the loan's term. This is in contrast to partially amortizing loans, which leave a balloon payment at the end of the loan's term.
Below is an example of a payment schedule for a HUD 223(f) loan. If you borrow $1 million for 40 years (480 months) at 4.5%, you pay off the loan according to this abbreviated amortization schedule. Notice how much of the early payments go towards interest.
Month Payment Principal Interest Month 1 $5,955.83 $1,845.83 $4,110.00 Month 2 $5,955.83 $1,902.90 $4,052.93 Month 3 $5,955.83 $1,960.45 $3,995.38 Month 4 $5,955.83 $2,018.48 $3,937.35 ... ... ... ... Month 480 $5,955.83 $5,955.83 $0.00 In general, all HUD 232 loans are also fully amortizing. This means that borrowers will not have to face a balloon payment or be forced to refinance their loan at the end of the loan's term.