hud fha-223f Pros and Cons

HUD FHA 223(f)

Insured Mortgage Advantages and Disadvantages

The HUD FHA 223(f) insured mortgage program for apartment and multifamily properties is one of the best financing programs available. However, it's not the right choice for every sponsor or every property. Below is what you need to know that underwriting and programs guidelines don't tell you when considering a 223(f) apartment loan.

Highest LTV in the market
Eliminate refinance and interest rate risk with fixed rate terms up to 35 years
Low fixed rates based on GNMA securities
Non-recourse and assumable - makes for a great exit strategy especially in a rising rate environment
No defined financial capacity requirements
No geographic restrictions
No minimum population requirements
Supplemental financing available
Funds available for repair/improvement

Longer processing times - 120 days at a minimum (6-9 months is typical)
Higher fees - HUD and FHA fees add to the overall cost of the loan
Mortgage Insurance Premiums (MIP) - Initial and annual premiums
Annual audited operating statements required
Replacement reserve escrows required
HUD property inspections required
Owner distribution restrictions
Cash out restrictions

In General
Property condition is important to HUD, both during initial underwriting and over the life of the loan. In a way, they are your partner in the project. They control owner distributions and require annual inspections and financial statement audits. A replacement reserve escrow is established at closing and HUD can determine what and when you make repairs/improvements to the property. Lastly, the 223(f) loan is costly and is a long and tedious process. The program works best for newer or recently renovated properties with experienced sponsors and third party management. If you can work with all of the above, there is no better financing option available. The 35 year fixed rate term eliminates refinance and interest rate risk, the non-recourse feature eliminates personal and contingent liability and the cost, if amortized over the term of the loan, is typically less costly than having to refinance your loan every five or ten years.


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