hud fha-221D4 overview

hud fha 221(d)(4)Less

hud fha 221(d)(4)

multifamily loan program overviewLess
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.

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.

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Up to 90% leverage for for profit sponsors

Up to 100% leverage for non-profit sponsors

Up to 40 year fixed rate terms

Up to 90% leverage for for profit sponsors

Up to 100% leverage for non-profit sponsors

Up to 40 year fixed rate terms

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One closing

Permanent rate lock at initial closing

Market rate or affordable projects

One closing

Permanent rate lock at initial closing

Market rate or affordable projects

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Construction Loan for Multifamily Properties Program Guidelines

Construction Loan for Multifamily Properties Program Guidelines

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eligible properties

eligible properties

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  • 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.

  • 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.

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minimum loan size

minimum loan size

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

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

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HUD FHA 221 (d)(3)

HUD FHA 221 (d)(3)

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  • 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).

  • 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).

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statutory mortgage limits

statutory mortgage limits

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  • 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.

  • 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.

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prevailing wage standards

prevailing wage standards

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  • 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.

  • 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.

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insured mortgage amounts

insured mortgage amounts

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Maximum loan amount will be the lesser of:

Maximum loan amount will be the lesser of:

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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:

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:

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  • 83.33% for market rate transactions

  • 87% for affordable transactions

  • 90% for projects with 90% or greater rental assistance

  • 83.33% for market rate transactions

  • 87% for affordable transactions

  • 90% for projects with 90% or greater rental assistance

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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:

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:

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  • 1.20 DSC for market rate properties

  • 1.15 DSC for affordable transactions

  • 1.11 DSC for projects with 90% or greater rental assistance

  • 1.20 DSC for market rate properties

  • 1.15 DSC for affordable transactions

  • 1.11 DSC for projects with 90% or greater rental assistance

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

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

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substantial renovation

substantial renovation

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Cost of improvements must exceed:

Cost of improvements must exceed:

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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

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

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eligible locations

eligible locations

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

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

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fixed rate term

fixed rate term

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

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

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minimum dscr

minimum dscr

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  • 1.20.

  • 1.15 for affordable properties.

  • 1.11 for project based rental assistance properties.

  • 1.20.

  • 1.15 for affordable properties.

  • 1.11 for project based rental assistance properties.

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minimum occupancy

minimum occupancy

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  • Underwritten to a maximum of 93% occupancy.

  • Underwritten to a maximum of 93% occupancy.

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prepayment penalty

prepayment penalty

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

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

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guarantee

guarantee

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

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

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assumable

assumable

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  • Yes, subject to lender approval.

  • Yes, subject to lender approval.

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escrows

escrows

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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).

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).

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mortgage insurance premium

mortgage insurance premium

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

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

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fees and expenses

fees and expenses

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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.

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.

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third party reports

third party reports

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

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

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sponsor requirements

sponsor requirements

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  • Experienced owner operators.

  • Minimum credit and financial capacity requirements.

  • HUD experienced development team highly recommended.

  • Experienced owner operators.

  • Minimum credit and financial capacity requirements.

  • HUD experienced development team highly recommended.

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application process

application process

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  • 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.

  • 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.

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what you need to know about the hud 221(d)(4) multifamily loan program?Less

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.

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.

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Pluses

Pluses

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One closing

40 year fixed rate term

Higher leverage than traditional sources

Flexible prepay

Non-recourse

One closing

40 year fixed rate term

Higher leverage than traditional sources

Flexible prepay

Non-recourse

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Minuses

Minuses

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Longer processing and closing times

Higher cost

Annual audited financial statements required

Annual inspections

Owner distribution restrictions

Longer processing and closing times

Higher cost

Annual audited financial statements required

Annual inspections

Owner distribution restrictions

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