Can HUD 223(f) Loans Finance Section 202 Properties?
HUD 223(f) Loans and the HUD Section 202 Program
The HUD 202 program is specifically intended to help increase the supply of affordable housing for very low-income elderly individuals across the United States. To do so, HUD provides capital advances "to finance the construction, rehabilitation or acquisition with or without rehabilitation" of properties that will house low-income seniors, and will also provide rent subsidies to improve the affordability of the properties for their intended residents. When HUD 223(f) loans are used to acquire Section 202 properties, they are subject to the same LTV and DSCR parameters as properties using other rental assistance properties, such as Section 8.
In practice, this means that HUD 223(f) loans for Section 202 projects have a maximum LTV allowance of 90%, and a minimum DSCR of 1.11x.
How Does the HUD Section 202 Program Work?
For eligible borrowers and properties, HUD provides interest-free capital advances, which do not have to be repaid, as long as the property serves the intended target population for a minimum of 40 years. Each unit must be offered to "any very low-income household comprised of at least one person who is at least 62 years old."
The HUD 202 program is only available for private, non-profit organizations that do not receive a majority of their funding from a public entity. Rental assistance contracts are approved for a 3-year period, and are then subsequently renewed based on funding availability.