HUD Multifamily Financing Guide

While HUD 223(f) loans are a highly effective way to acquire or refinance multifamily properties, HUD also insures other multifamily loans for a variety of different purposes. In this easy-to-read guide, we’ll look at how HUD 223(f) financing compares to HUD’s other types of FHA multifamily financing.

HUD 223(f) Loans

HUD 223(f) loans offer terms including:

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  • Loan Use: Acquisition or refinancing of multifamily properties with 5+ units

  • Loan Size: Minimum $1 million (exceptions may be made for smaller loans)

  • Leverage/LTV/DSCR:

    • Market-Rate Properties: 85% maximum LTV, 1.18x minimum DSCR

    • Affordable Properties: 87% LTV maximum LTV, 1.15x minimum DSCR

    • Subsidized Properties: 90% LTV maximum LTV, 1.11x minimum DSCR

  • Interest: Fixed-rate

  • Assumable: Fully assumable with FHA approval and a 0.05% fee

  • Prepayment: Typical 1-2 year lockout, followed by 8-1% declining prepayment penalty

  • Recourse: HUD 223(f) loans are non-recourse with standard bad boy carve-outs

HUD 221(d)(4) Loans

HUD 221(d)(4) loans are HUD’s flagship loan product for the construction or substantial rehabilitation of multifamily properties. HUD 221(d)(4) loans have terms including:

  • Loan Use: Construction or substantial rehabilitation of multifamily properties with 5+ units

  • Loan Size: Minimum $2 million (average loan is usually around $15 million)

  • Leverage/LTV/DSCR:

  • Interest: Fixed-rate

  • Assumable: Fully assumable with FHA approval and a 0.05% fee

  • Prepayment: Typical 1-2 year lockout, followed by 8-1% declining prepayment penalty

  • Recourse: HUD 221(d)(4) loans are non-recourse with standard bad boy carve outs

HUD 232 Loans

HUD 232 loans are specifically designed to finance healthcare facilities for seniors, including assisted living facilities and skilled nursing facilities. HUD 232 loans have terms including:

  • Loan Use: Construction or substantial rehabilitation of senior healthcare properties with 20+ units, including:

    • Assisted living facilities

    • Skilled nursing facilities

    • Intermediate care centers

    • Continuum of care facilities

    • Independent living units may be no more than 25% of all units

  • Loan Size: Minimum $2 million (average loan is usually around $15 million)

  • Leverage/LTV:

    • Skilled Nursing Facilities/Independent Living Units: 80% LTV (for profit), 85% LTV (non-profit) 

    • Assisted Living Facilities: 

      • New Construction: 75% LTV (for profit), 80% (non-profit) 

      • Purchase: 80% LTV (for profit), 85% LTV (non-profit) 

      • Substantial Rehabilitation: 80% LTV (for profit), 85% LTV (non-profit) 

        • Or, 90% of HUD eligible replacement costs (whichever is less)

        • For borrower owned properties, 100% of the existing mortgage debt or 90% of the “as is” market value of the property before rehabilitation (95% for non-profits)

        • For properties that will be bought and substantially rehabilitated, 85% of the purchase price of the property or 90% of the current market value of the property before rehabilitation (95% for non profits)

        • This applies to Skilled Nursing Facilities/Independent Living Units as well

  • DSCR: 1.45x minimum

  • Interest: Fixed-rate

  • Assumable: Fully assumable with FHA approval and a 0.05% fee

  • Prepayment: Typical 1-2 year lockout, followed by 8-1% declining prepayment penalty

  • Recourse: HUD 232 loans are non-recourse with standard bad boy carve outs

HUD 232/223(f) Loans

Like HUD 232 loans, HUD 232/223(f) are specifically designed to finance healthcare facilities for seniors, including assisted living facilities and skilled nursing facilities. HUD 232/223(f) loans have terms including:

  • Loan Use: Acquisition or refinancing of senior healthcare properties with 20+ units, including:

    • Assisted living facilities

    • Skilled nursing facilities

    • Intermediate care centers

    • Continuum of care facilities

    • Independent living units may be no more than 25% of all units

  • Loan Size: Minimum $2 million (average loan is usually around $15 million)

  • Leverage/LTV:

    • Purchase:

      • 85% of the acquisition price or appraised value, whichever is less(for-profits)

      • 90% of the acquisition price or appraised value, whichever is less (non-profits)

    • Refinance::

      • 100% of the cost to refinance or 85% of the appraised value, whichever is less (for-profits)

      • 100% of the cost to refinance or 90% of the appraised value (non-profits)

  • DSCR: 1.45x minimum

  • Interest: Fixed-rate

  • Assumable: Fully assumable with FHA approval and a 0.05% fee

  • Prepayment: Typical 1-2 year lockout, followed by 8-1% declining prepayment penalty

  • Recourse: HUD 232/223(f) loans are non-recourse with standard bad boy carve outs

HUD 223(a)(7) Refinancing

HUD 223(a)(7) refinancing is perhaps the easiest HUD multifamily loan to obtain. However, only properties that are already being financed with HUD multifamily loans are eligible. Unlike most other HUD loans, which require a full suite of third-party reports, HUD 223(a)(7) loans only require a PCNA (a project capital needs assessment). HUD 223(a)(7) refinancing terms include:

  • Loan Use: Refinancing loans for current HUD multifamily borrowers, including borrowers for:

    • HUD 223(f) loans

    • HUD 221(d)(4) loans

    • HUD 232 and HUD 232/223(f) are not eligible for traditional 223(a)(7) refinancing, but can use another variant of the loan, the HUD 232/223(a)(7) refinance

  • Leverage/DSCR: 1.11x (for-profits), 1.05x (non-profits)

    Interest: Fixed-rate

  • Assumable: Fully assumable with FHA approval and a 0.05% fee

  • Prepayment: Typical 1-2 year lockout, followed by 8-1% declining prepayment penalty

  • Recourse: HUD 223(a)(7) loans are non-recourse with standard bad boy carve outs

HUD 241(a) Loans

HUD 241(a) loans are a form of supplemental financing intended specifically for use by current HUD multifamily borrowers (much like HUD 223(a)(7) refinances. HUD 241(a) loans have terms including:

  • Loan Use: Refinancing loans for current HUD multifamily borrowers, including borrowers for:

  • Loan Size:

    • Up to 90% value for new construction projects (for-profit entities), or 95% (for non-profits)

    • An amount that will not surpass the insurable amount of the project as specified by HUD

    • Up to 90% net operating income (NOI), including the original HUD multifamily mortgage payments

  • Leverage/DSCR: 1.11x (for-profits), 1.05x (non-profits)

  • Interest: Fixed-rate

  • Assumable: Fully assumable with FHA approval

  • Prepayment: Varies, common options include:

    • 5-year lockout with a 5-1% declining prepayment penalty

    • 2-year lockout with a 8-1% declining prepayment penalty

  • Recourse: HUD 241(a) loans are non-recourse with standard bad boy carveouts

Featured
Special Purpose Entities (SPEs) in Relation to HUD 223(f) Loans
Special Purpose Entities (SPEs) in Relation to HUD 223(f) Loans

If you’re a HUD 223(f) loan borrower, in most cases, you will have to structure the legal entity that borrows the funds as a Special Purpose Entity, or SPE. The SPE will then own the project itself.

Multifamily Accelerated Processing (MAP) and the HUD 223(f) Loan Program
Multifamily Accelerated Processing (MAP) and the HUD 223(f) Loan Program

If you want to get a HUD 223(f) loan, there are two ways in which you may be able to apply: through MAP, or Multifamily Accelerated Processing, or TAP, or Traditional Application Processing.

Can HUD 223(f) Loans Be Used for Student Housing?
Can HUD 223(f) Loans Be Used for Student Housing?

If you want to purchase or refinance a student housing property, can you use a HUD 223(f) loan to do so? The answer is yes— but there are certain conditions you should know about, first.

Do HUD 223(f) Loans Allow for Supplemental Financing?
Do HUD 223(f) Loans Allow for Supplemental Financing?

If you already have a HUD 223(f) loan, but want to make additional upgrades to your property, a HUD 241(a) supplemental loan could be the perfect way to do it. HUD 241(a) loans can allow 223(f) loan borrowers to make energy efficient improvements, purchase necessary safety equipment, or even to expand current structures on their property.

Escrows and Replacement Reserves for HUD 223(f) Loans
Escrows and Replacement Reserves for HUD 223(f) Loans

Like most other kinds of HUD multifamily loans, HUD 223(f) loans require monthly escrows. Taxes and insurance are escrowed monthly, as are required replacement reserves, which are established by a Project Capital Needs Assessment (PCNA). Replacement reserve amounts must follow HUD rules, which mandate that they be set at a minimum of $250/unit per year.

Do Davis Bacon Wage Requirements Apply to HUD 223(f) Loans?
Do Davis Bacon Wage Requirements Apply to HUD 223(f) Loans?

Davis Bacon wage requirements mandate that workers on projects that use federal programs, such as HUD multifamily mortgage insurance, are paid the prevailing wage for that area. These rules apply to certain HUD multifamily construction loans, such as HUD 221(d)(4) loans, but do not typically apply to HUD 223(f) loans.

What Properties Are Eligible for HUD 223(f) Financing?
What Properties Are Eligible for HUD 223(f) Financing?

HUD 223(f) loans offer incredibly generous terms-- including 35-year, fully amortizing, fixed-rate financing, and nearly unbeatable leverage. But what kinds of properties can be financed with a HUD 223(f) loan? In general, properties must have 5+ units, and each unit must have a complete kitchen and bathroom. Independent living seniors housing properties are allowed, but assisted living properties are not. Student housing properties are permitted, but only if rented by the unit, not by the bed or room.

Can You Get a Rate Lock on a HUD 223(f) Loan?
Can You Get a Rate Lock on a HUD 223(f) Loan?

If you're an investor looking to take out a HUD 223(f) loan to acquire or refinance a multifamily property, it's to your advantage to know what interest rate you'll be paying as soon as possible. While early rate locks are not available for HUD 223(f) financing, rate locks are available at HUD firm commitment, which is usually around 30-45 days before closing. Rate locks typically cost between 0.5% and 1% of the total loan amount and are refunded at closing. 

How Long do HUD 223(f) Loans Take to Close?
How Long do HUD 223(f) Loans Take to Close?

How long does it take for a HUD 223(f) loan to close? The answer can vary-- based on factors including how long it takes to perform due diligence on the borrower, and how long it takes to produce essential third-party reports on the property. In the best case scenario, a HUD 223(f) loan will take about 135 days, or 4.5 months to from initial engagement to close. However, if complexities arise, the HUD 223(f) loan process could take 6 months or more. 

Can HUD 223(f) Loans Finance Section 202 Properties? 
Can HUD 223(f) Loans Finance Section 202 Properties? 

HUD 223(f) loans can be used to acquire Section 202 properties, and they are subject to the same LTV and DSCR parameters as properties using other rental assistance properties, such as Section 8. 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 by providing interest-free capital advances and rent subsidies to improve the affordability of the properties for their intended residents.

FHA multifamily acquisition and rehabilitation financing doesn't need to be as confusing and complicated as it was in the past. Click the button below to speak with a HUD 223f loan advisor and get a free quote today.