What Borrowers are Eligible to Take Out 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 pur
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.
What is a Single Purpose Entity (SPE)?
A Single Purpose Entity, or SPE, also known as a special purpose entity is a legal entity created to fulfill a narrow, or specific objective, such as owning and operating an apartment building. Due to the fact that the SPE is a different entity from the borrower themselves, the entity can often remain profitable, even if the borrower faces dire financial issues, such as bankruptcy. Therefore, having an SPE owning the multifamily property protects both the lender and HUD in the case that the borrower runs into financial trouble. In addition to being an SPE, the borrower must be a single-asset entity (SAE). This simply means that the multifamily property should be the only asset that it owns.
How are Single Purpose Entities Structured?
While SPEs can have a variety of structures, they are most commonly structured as a limited liability company (LLC), or as a limited partnership (LP). A limited partnership has general partners, which control the partnership's financial activities, and have unlimited liability. It also has limited partners, which invest, but do not actively participate in the management of the partnership, and do not incur any liability. Both general partners and limited partners can themselves be corporations or LLCs in order to further reduce risk.
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What types of borrowers are eligible for HUD 223(f) loans?
Eligible borrowers for HUD 223(f) loans include non-profit borrowers, for profit borrowers, or public owners. These are typically single-asset entity (SAE) and bankruptcy-remote entities. HUD 223(f) loans can be used for a variety of purposes, including purchasing or refinancing a multifamily development.
For more information, please visit www.hud223f.loans/hud-223f-faqs/eligible-borrowers and www.hud223f.loans/terms-qualifications-and-guidelines and hud221d4.loan/hud-multifamily-loans.
What are the requirements for a borrower to qualify 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.
HUD 223(f) Loans: Terms, Qualifications and Guidelines: 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
HUD 223(f) Loans: 2021 HUD/FHA 223(f) Loan Terms and Requirements:
- 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)
- Market rate properties: 83.3% LTV
- Affordable properties: 85% LTV
- Rental assistance properties: 87% LTV, 90% LTV for properties with 90% or more rental assistance
- Interest Rates: Fixed, terms range from 4.10% to 4.75% (including MIP), as of Jan. 2019
- Market rate properties: 1.17x minimum DSCR
- Affordable properties: 1.15x minimum DSCR
- Rental assistance properties: 1.11x minimum DSCR
- MIP: 1% upfront mortgage insurance premium for all property types, then, annual MIP of:
- 0.65% for market rate properties
- 0.45% for affordable properties (typically must be Section 8 or new money LIHTC projects to qualify)
- 0.25% for Energy Star SED
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).
What types of properties are eligible for HUD 223(f) loans?
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
What is the maximum loan-to-value ratio for a HUD 223(f) loan?
The maximum loan-to-value ratio for a HUD 223(f) loan depends on the type of property. For market-rate properties, the maximum LTV is 83.3%. For affordable properties, the maximum LTV is 85%. For rental assistance properties, the maximum LTV is 87%.