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HUD FHA 223(f) Apartment Loans

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HUD FHA Multifamily Loans
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Best Program For You
Which Program is Best
Which one of our apartment loan programs is best for you? By providing some basic information about yourself, your property and what you are looking for in an apartment loan, we can help you decide which one of our programs is best for you.
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HUD FHA 223(f) Apartment Loans Overview

HUD 223(f) apartment loans are available for the acquisition or refinancing of 5+ unit multifamily properties and are a great financing option for borrowers looking for maximum leverage and longer fixed rates and terms. There are no income or rent restrictions under Section 223(f) unless otherwise required by a project based HAP contract or other regulatory agreement. HUD FHA 223(f) insured mortgages are non-recourse with no market - economic or population - restrictions.
  • Loan sizes above $1 million - no maximum
  • 83.3% LTV for market rate apartments
  • 87% LTV for project based rental assistance
  • Up to 35 year fixed rate terms
  • 1.17 minimum DSCR
  • HUD insured mortgages are non-recourse
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HUD FHA 223(f) Multifamily Loan Program Guidelines

Eligible Properties
  • 5+ residential unit properties, including, detached, semidetached, row, walkup, or elevator-type rental or cooperative housing.
  • Properties must have complete kitchens and baths and have been completed or substantially rehabilitated for at least 3 years prior to the date of the application for mortgage insurance.
  • The program is available for market rate rental housing or for properties accepting rental assistance, either tenant based or project based.
  • Commercial area is permissible, but cannot exceed 20% of the net rental area, or 25% of the gross revenues.
  • Student housing properties that offer rents per room, not per unit, are ineligible.
  • 30 day minimum lease term required.
  • The property must meet a minimum three-year stabilization requirement (property must have been built and stabilized for three or more years before receiving a HUD insured mortgage). Properties with a project based affordability component (HAP Contract or other regulatory agreement) may apply for a waiver.
  • The loan may include repair costs not to exceed 15% of its value after repairs or no more than $6,500 per unit (except in high cost areas) - whichever is greatest. Repairs may not include replacing more than one major building system such as plumbing or electric.
Loan Term The lesser of 35 years or a maximum term not to exceed 75% of remaining economic useful life of the property.
Eligible Locations All 50 states, Puerto Rico, U.S. Virgin Islands, and Guam. No market - economic or population restrictions.
Loan Size $1,000,000 with no maximum.
Maximum LTV
  • 83.3% for market rate properties.
  • 87% for affordable properties.
Minimum DSCR 1.17. 1.15 for affordable properties
Minimum Occupancy Property must demonstrate a pattern of stable occupancy for 6-Months prior to application and maintained until closing.
Interest Only N/A.
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).
Guarantee Non-recourse subject to standard carve-outs.
Assumable Yes, subject to lender approval.
Supplemental Loan Available 12 months from date of closing of first loan.
Subordinate Debt Permitted up to 7.5% on an exception basis.
Rate Lock At commitment.
Cash Out Refinances Cash out allowed when 80% of value exceeds existing debt plus transaction costs, but only 50% of the net cash will be released at closing. The other 50% will be escrowed until completion, inspection and approval of the non-critical (immediate) repairs.
Escrows
  • Tax and Insurance Impounds: Required.
  • Replacement Reserves: Required - Monthly deposit required and amount depends on property condition.
  • Initial Deposit to Reserve Fund: Required - One time deposit may be required depending on property condition.
  • Critical and Non-Critical Repair Escrow: May be required for properties with life, safety, health or code related repair and/or maintenance concerns.
Fees and Expenses
  • Third Party Reports: appraisal, engineering report, environmental analysis and flood certification.
  • FHA Inspection Fee: 1% of repair costs or $30 per unit if repairs are less than $3,000 unit.
  • FHA Exam Fee: $3 per $1,000 of the loan balance.
  • Financing Fee: 1%-3% depending on loan size and loan complexity.
  • Permanent Placement Fee: 1%-2%.
  • First Year Mortgage Insurance Premium: 1% of loan amount for market rate properties and .25%-.35% for affordable properties.
    Monthly Mortgage Insurance Premium: .60% and .25%-.35% for affordable properties.
  • Borrower's Legal: Estimated at $10,000-$20,000.
  • Title & Recording Fees: TBD.
Sponsor Requirements
  • Experienced owner operators preferred.
  • Minimum credit and financial capacity requirements.
  • HUD experience preferred.
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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.
Advantages
  • 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
Disadvantages
  • 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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