Basic Facts About HUD 223(f) Financing 

Used for purchasing or refinancing multifamily properties, the HUD 223(f) program “insures mortgage loans to facilitate the purchase or refinancing of existing multifamily rental housing." As is the case with other FHA-insured mortgages, the program (also known as FHA 223(f)) consists of HUD-backed, non-recourse, fully assumable mortgages that insure and protect lenders from borrower defaults. 

Because they offer fixed interest rates, longer terms, and greater leverage, this program is ideal for anyone thinking of purchasing or refinancing a multifamily rental property. Below are some basic facts about FHA 223f loans:

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  • These HUD multifamily loans are fixed-rate, fully amortizing, 35-year loans that are also non-recourse and fully assumable.

  • Leverage of 85% LTV is available for market-rate properties. For subsidized properties, it can be up to 90%.

  • The project’s original financing can be either FHA-insured or a conventional mortgage (or mortgages).

  • Non-profit and for profit borrowers may apply.

  • Can be used for affordable housing, cooperatives, and subsidized multifamily properties in any class of market rate property. They can also be used for rental assistance properties (tenant-based or project-based with a required 30-day minimum lease).

  • Eligible properties must have a minimum of 5 residential units, each with a complete kitchen and bath. There is also a three-year stabilization requirement - substantial renovations must have been completed at least three years prior to application for HUD 223f mortgage insurance.

  • Properties needing significant repairs or rehabilitation are excluded. Before a project can be eligible, all critical repairs must be completed before endorsement. Eligible properties should need no more than one major system to be replaced. However, some non-critical repairs are permitted after endorsement which must be completed with a year of closing.  

  • Not every lender offers these types of mortgages, but only HUD-approved lenders.

  • HUD Multifamily loans can be financed with GNMA (Government National Mortgage Association - Ginnie Mae) Mortgage-Backed Securities.

  • There are no income-based restrictions for occupants of HUD 223(f) properties and no rent restrictions. The exception is any normal restrictions already in place for the property.

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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.