In general, FHA 223(f) loans take between 100 and 150 days (4 to 5 months) to close. The actual time frame depends on specifics of each deal. However, in the best case scenario, a HUD 223(f) loan will take about 135 days, or 4.5 months from initial engagement to close. However, if complexities arise, the HUD 223(f) loan process could take 6 months or more.

The HUD 223(f) loan process involves a few steps, including:

• Submitting an application to HUD
• Undergoing a review process
• Receiving a commitment from HUD
• Closing the loan

For more information, you can refer to the full checklist of requirements provided by HUD.

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

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 advantages of HUD 223(f) loans include:

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

The terms of HUD 223(f) loans are as follows:

The disadvantages of HUD 223(f) loans include:

• Somewhat longer closing times than comparable loans (i.e. Freddie Mac® or Fannie Mae® multifamily loans)
• Can require a lot of documentation, including appraisals, market studies, and environmental reports
• Requires the payment of a mortgage insurance premium (MIP), as a one-time fee at closing and on a monthly basis
• Like most other HUD multifamily loans, HUD 223(f) loans require replacement reserves and annual operational audits
• Owner distributions are limited to 2x a year

Additionally, HUD 223(f) loans have a variety of other drawbacks, including:

• HUD is a government agency, which translates into more time to process loans, usually 100 to 120 days, but sometimes longer.
• A borrower's rate won't be locked until HUD gives a commitment. This may take 3-4 months, which can lead to some uncertainty.
• There is a need to pay both initial and annual MIP (Mortgage Insurance Premiums).
• Additional HUD requirements include:
  • HUD property inspections
  • Annual audits (these often cost around $2,500)
  • Replacement reserve escrows (in addition to regular tax and insurance escrows)
• Restrictions include:
  • Cash out restrictions (including certain restrictions on cash out refinances)
  • Owner distribution restrictions (these are limited to 2x a year, once after the annual audit, and one time after a certification is signed by the borrower)
• HUD and FHA fees which increase the loan’s overall cost:
  • FHA inspection fees
  • Third-party reports
  • Title and recording fees
  • Financing fees
  • Legal fees