HUD FHA-221d4 Overview

HUD FHA 221(d)(4)

Multifamily Loan Program Overview

Section 221(d)(4) FHA apartment loans -- 221 (d)(3) for non-profits -- are available for the new construction or substantial rehabilitation of multifamily properties. Up to 90% of the HUD FHA replacement cost estimate and 40 year permanent fixed rate terms available.

Up to 90% leverage for for profit sponsors
Up to 100% leverage for non-profit sponsors
Up to 40 year fixed rate terms

One closing
Permanent rate lock at initial closing
Market rate or affordable projects

Construction Loan for Multifamily Properties Program Guidelines

Eligible Properties

The 221(d)(4) (for profit) and 221(d)(3) (non-profit) programs provide loans for the construction or rehabilitation of detached, semidetached, row, walkup, or elevator-type rental or cooperative housing containing 5 or more units. Independent living facilities may qualify as long as all services are optional and fees from services and meals are not included in underwritten rents.

The program is available for market rate rental housing or for properties accepting rental assistance, either tenant based or project based.

Commercial space permitted up to 10% of gross rentable square feet and a maximum of 15% of gross rental income.

Minimum Loan Size

$5,000,000 - Smaller loans considered on a deal by deal basis.

HUD FHA 221 (d)(3)

In 2013, HUD has suspended the Section 221(d)(3) program unless the subject property receives Low Income Housing Tax Credits (LIHTC). Without LIHTC the program would require positive credit subsidy which is Congressionally appropriated and higher Mortgage Insurance Premiums (MIP).

Statutory Mortgage

The (d)(4) and (d)(3) programs have statutory mortgage limits which vary according to the size of the unit, the type of structure, and the location of the project.

Prevailing Wage Standards

Contractors for new construction and substantial rehabilitation projects must comply with prevailing wage standards under the Davis-Bacon Act. Section 221(d)(3) mortgages require appropriated credit subsidy, which is limited.

Insured Mortgage Amounts

Maximum loan amount will be the lesser of:

1. A total percentage of eligible development cost, including as is value of land for new construction and as is value of property for substantial rehabilitation, as follows:

83.33% for market rate transactions
87% for affordable transactions
90% for projects with 90% or greater rental assistance
2. FHA mortgage statutory per unit limits adjusted for local high cost factor;
3. An amount that achieves a minimum debt service coverage, as follows:

1.20 DSC for market rate properties
1.15 DSC for affordable transactions
1.11 DSC for projects with 90% or greater rental assistance

Cost of offsite improvements, FF&E, marketing, construction contingency and operating deficit reserve excluded from loan amount.

Substantial Renovation

Cost of improvements must exceed:

1. $6,500 per unit (adjusted for local high cost factor);
2. 15% of the “as rehabbed” appraised value.
Replacement of 2 or more major building systems is required

Eligible Locations

All 50 states, Puerto Rico, U.S. Virgin Islands, Guam.

Fixed Rate Term

Actual construction period plus 40 years (fully amortizing with interest only payable during construction period).

Minimum DSCR

1.15 for affordable properties.
1.11 for project based rental assistance properties.

Minimum Occupancy

Underwritten to a maximum of 93% occupancy.

Prepayment Penalty

Negotiable - typically a two-year lock out followed by a step down premium (e.g. 8,7,6,5,4,3,2,1).


Non-recourse for most loans subject to standard carve-outs.


Yes, subject to lender approval.


1. Replacement reserves required in accordance with HUD guidelines;
2. Taxes and Insurance escrowed monthly (post construction);
3. Working Capital Reserve equal to 4% of loan amount (post in cash or LOC);
4. Operating Deficit Reserve equal to 3% of loan amount, or greater as determined by HUD at commitment (post in cash or LOC).

Mortgage Insurance Premium

Payable at Closing in an amount equal to 0.60% of the loan amount for each year of construction.

Fees and Expenses

1. HUD application fee of 15 basis points due with submission of pre-application and 15 basis points;
due with submission of firm application;
2. FHA Mortgage Insurance Premium due at closing;
3. Lender Financing and Placement fee up to 3.5% payable at closing;
4. Actual cost of Third Party Reports.

Third Party Reports

Appraisal, Market Study, Phase I Construction Cost Review, and Plans and Specs Review are required.

Sponsor Requirements

Experienced owner operators.
Minimum credit and financial capacity requirements.
HUD experienced development team highly recommended.

Application Process

Working with Crefcoa under Sections 221(d)(3) and 221(d)(4), sponsors are eligible for Multifamily Accelerated Processing (MAP). The first step of the process (Pre-Application) is to complete an initial due diligence package to be submitted to HUD. HUD reviews the Pre-Application package and will either invite the lender to apply for a Firm Commitment for mortgage insurance, or decline to consider the application further. If HUD determines that the Pre-Application package meets its minimum underwriting and eligibility requirements, a full underwriting package is completed and submitted along with a the Firm Commitment application to the local Multifamily Hub or Program Center for review. The application package is reviewed to determine whether the proposed loan is an acceptable risk. HUD will consider market need, zoning, architectural merits, strength of sponsorship, availability of community resources, etc. If the proposed project meets program requirements and is determined to be of acceptable risk, the local Multifamily Hub or Program Center issues a commitment to the lender for mortgage insurance.

What You Need to Know About the HUD 221(d)(4) Multifamily Loan Program

Program descriptions, highlights and underwriting guidelines are helpful when considering if an apartment loan program is right for you and your property. However, they don't always tell the whole story. Below is what you need to know about the Section 221(d)(4) apartment construction loan program that program guidelines and highlights don't tell you.

One closing
40 year fixed rate term
Higher leverage than traditional sources
Flexible prepay

Longer processing and closing times
Higher cost
Annual audited financial statements required
Annual inspections
Owner distribution restrictions


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