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
Fixed-Rate and Variable-Rate Loans and the HUD 223(f) Program
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. In contrast, variable-rate loans have interest rates that change throughout the loan's life. Variable-rate loans, which are also known as adjustable-rate or floating-rate loans, typically have an interest rate that's based on a specific index, such as the 1-year LIBOR index. Depending on the exact nature of the loan agreement, the loan then adjusts after a specific period, such as 1 month, 6 months, or 1 year.
The Benefits of Fixed-Rate Financing for Multifamily Developments
While variable-rate loans may start out with a lower interest rate than a comparable fixed-rate loan product, fixed-rate loans have many benefits in the long run. This is especially the case for multifamily investors who want to hold onto their property for a while. Perhaps most importantly, fixed-rate financing gives investors the ability to make accurate expense projections for years to come. In comparison, with variable-rate loans, investors can only determine their future interest payments within a certain range.
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 85% LTV for market-rate properties, 87% LTV for affordable properties, 90% LTV for properties using rental assistance. Fixed for the life of the loan. Includes a mortgage insurance premium, or MIP. 1.18x for market-rate properties, 1.15x for affordable properties, and 1.11x for 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 eligibility requirements for a HUD 223(f) loan?
Eligible Borrowers for 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 purpose entity (SPE), which can either be a for profit or a non-profit entity.
Eligible Properties for HUD 223(f) Loans: HUD 223(f) Loans Permit Nearly All Property Types. In general, to be eligible for HUD 223(f) financing, a property:
- Must have 5+ residential units
- Must have complete kitchens and bathrooms for each unit
- Can be row, walkup, detached, semi-detached, or elevator-type rental or cooperative housing
- Can be student housing, but multiple rents cannot be derived from one unit and rents need to be similar to comparable multifamily properties
- Can be market-rate, affordable, or rental assisted/subsidized (i.e. Section 8, Section 202)
- Cannot be an assisted living, skilled nursing, or memory care property (though independent living facilities for seniors are allowed)
- Must have all construction and major rehabilitation finished three or more years before beginning the HUD loan application process
Additional Hud Requirements and Items For Consideration:
- Loans greater than $75 million are subject to stricter DSCR constraints and more conservative leverage
- HUD 223(f) multifamily financing can be used with LIHTCs (Low-Income Housing Tax Credits)
- HUD 223(f) loans can be used for refinancing or purchasing Section 202, Section 236, and Section 8 funded properties
- A PCNA (Project Capital Needs Assessment) must be completed every 10 years
- Davis-Bacon prevailing wage rules are not applicable to repairs
To learn even more about the basics of submitting a file for consideration, visit the Apply Page of our website.
What is the maximum loan amount for a HUD 223(f) loan?
HUD 223(f) loans have no maximum loan amount. However, HUD may decide to impose even more restrictive LTV and DSCR requirements for loans above $100 million in order to reduce their risk. 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).Source Source Source
What is the interest rate for a HUD 223(f) loan?
The interest rate for a HUD 223(f) loan is fixed throughout the life of the loan and is determined by current rates and prevailing market conditions. For more information, please visit www.hud223f.loans/hud-223f-faqs/hud-223f-interest-rates and www.hud223f.loans/terms-qualifications-and-guidelines.
What is the repayment term for a HUD 223(f) loan?
The repayment term for a HUD 223(f) loan is 35 years. This term cannot exceed 75% of the property's remaining economic life.