The requirements for assuming a HUD 223f loan are outlined in the HUD 223(f) Loan Checklist. Generally, the borrower must be a single asset, special purpose entity (SPE), which can either be a for profit or a non-profit entity. Additionally, the borrower must have the financial capacity to assume the loan and must meet the requirements of the lender. The lender may also require additional documentation and information from the borrower.

Assuming a HUD 223(f) loan has several benefits, including:

• Low, fixed interest rates
• Loans are fully assumable (with FHA/HUD approval)
• Non-recourse, limiting risks for developers

Yes, there are restrictions on assuming a HUD 223f loan. In order to approve the loan for assumption, the FHA examines the new borrower's financial credentials to ensure that they have the financial strength to pay back the loan. To do so, they perform due diligence, which is why they charge a small fee of 0.05% of the original loan amount in order for the loan to be assumed by the new borrower. Additionally, 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 (for renovated properties).

The process for assuming a HUD 223f loan is based on FHA approval along with a 0.05% fee of the original FHA loan amount. The FHA examines the new borrower's financial credentials to ensure that they have the financial strength to pay back the loan. To do so, they perform due diligence, which is why they charge a small fee of 0.05% of the original loan amount in order for the loan to be assumed by the new borrower.

HUD provides a full checklist of requirements for 223(f) loans. However, much of the checklist and process is managed in-house.

The costs associated with assuming a HUD 223(f) loan are dependent on specific loan circumstances. In general, borrowers are responsible for:

• Nonrefundable HUD application fee of 0.3% of the loan principal
• FHA inspection fee of 0.5% paid from loan proceeds
• Lender application fees applied to due diligence activities and third-party reports, including credit reports, appraisals, plan reviews, and market studies
• Good faith deposit (rate lock and commitment): between 0.5% and 1% of loan amount paid at commitment and refunded at closing
• Initial replacement reserves
• Standard borrower closing costs

In addition, borrowers should be aware of the following cons associated with HUD 223(f) loans:

• May take longer to process than privately insured multifamily financing (sometimes 100+ days)
• Rate locks aren't issued until a borrower gets a commitment from HUD, which leads to uncertainty
• Mortgage insurance premiums (MIPs) must be paid initially, and then on a monthly basis
• Owners can only get distributions two times a year
• Third-party reports and lender application fees can be expensive (often $25,000 to apply). Reports included in this fee may be time consuming, and usually include:
  • Appraisal
  • Project Capital Needs Assessment (PCNA)
  • Market study
  • Phase 1 Environmental Assessment
• Properties must undergo required annual operational audits
• Replacement reserves are required