What are the Pros and Cons of HUD 223f Loans?

Pros and Cons of HUD 223(f) Financing 

HUD 223(f) loans have a variety of advantages and disadvantages for investors and developers. While they allow great amount of leverage, have low interest rates, and are non-recourse, they can also require somewhat lengthy wait times and a significant amount of documentation. In this post, we'll review more of the benefits and drawbacks of HUD 223(f) loans

Advantages of HUD 223f Loans

  • Borrowers are allowed some of the highest LTV (loan-to-value) ratios available:

    • 85% - market-rate properties (the maximum for these type of properties)

    • 87% - affordable housing

    • 90% - project-based rental assistance properties (i.e. Section 8, Section 202)

  • Debt service coverage ratio (DSCR) set at generous minimums of:

    • 1.18x - market-rate properties

    • 1.15x - affordable housing

    • 1.11x - rental assistance or subsidized housing properties

  • Low, fixed-rate loans based on GNMA securities for up to 35 years. These low rates eliminate the risk of refinancing at a higher interest rate. Plus, borrowers won’t have to fear hefty balloon payments.

  • Longer amortization periods (35 years versus 30 years) offer lower monthly payments than other loans, freeing up more capital for property owners.

  • Loans are non-recourse and fully assumable.

  • No geographic restrictions - These loans are available for multifamily properties in all 50 states in the U.S. and several U.S. territories.

  • Funds are available for repairs and improvements.

  • Supplemental financing is available.

  • No financial capacity requirements.

  • No population requirements.

Disadvantages of HUD 223f Loans

  • 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


To learn more about FHA 223f loans, fill out the form below and a HUD lending expert will get in touch.