Size:  Minimum $4 million (however, typical loans are $15 million+)

Term: 40-year, fixed-rate term, plus 3-year interest-only construction period (bringing total loan term to 43 years)                             

Amortization: Up to 40 years, fully amortizing 

Maximum LTV: 85% for market-rate properties, 87% for affordable properties, 90% for properties with more than 90% low-income units                               

Minimum DSCR: 1.17 for market-rate properties, 1.15 for affordable properties

Rate Locks: After initial underwriting, 30 to 180 day rate locks are available for a fee of 1% of the loan amount, which is refunded at closing. 

Commercial Development Limits:  HUD 221(d)(4) properties can have some commercial space, however, this is limited to 25% of the net rentable area and 15% of the underwritten effective gross income of the property (up to 30% of underwritten EGI permitted in urban renewal areas under Section 220).

Third Party Reports: 

HUD 221(d)(4) loans require third-party reports, including: 

• Market Study

• Project Capital Needs Assessment (PCNA)

• Phase I Environmental Assessment

• Seismic Reports (only needed in specific areas)

• Architectural and Engineering Assessment

• HUD/FHA Approved Full Property Appraisal

Substantial Rehabilitation Requirements: 

In order to qualify for a HUD 221(d)(4) loan for substantial rehabilitation, the cost of the rehabilitation needs to:

• Be more than 15% of the property's replacement cost, post-rehabilitation

• Replace two or more major building systems (i.e. roofing, electrical)

• Cost $6,500 or more per unit (this will vary based on the area and is adjusted by the local HUD office

LIHTC Credits: 

If a property financed with a HUD 221(d)(4) loan has a specific number of affordable units, the developer may be able to qualify for low income housing tax credits (LIHTCs). In particular, HUD 221(d)(4) financed properties need to have a minimum of 40% of a building's units set aside for tenants earning less than or equal to 60% of the area median income (AMI) as defined by HUD. Or, instead, they can choose to allot 20% of the project's units for tenants earning less than or equal to 50% of the area median income.

BSPRA: 

BSPRA, or a builder sponsor profit risk allowance, is a transaction that provides the builder of a HUD 221(d)(4) new construction project with a small amount of equity, often known as "paper equity" in the property. This helps align the interests of the builder and the developer-- encouraging the builder to finish the project within the promised time and financial constraints. However, the main benefit of using a BSPRA is to reduce the amount of cash needed at closing, increasing a developer's leverage and freeing up funds to be used elsewhere. 

Green MIP Reduction: 

The typical MIP, or mortgage insurance premium for HUD 221(d)(4) loans is 0.65% for market rate projects, and 0.45% for Section 8 or LIHTC projects. However, if a developer decides to make their project energy efficient, has Energy Star Statement of Energy Design Intent (SEDI) performed, and scores at least 75 on it, they can qualify for a green MIP reduction, reducing their MIP to an incredibly affordable 0.25%. In order to maintain the green MIP reduction, the building must be re-certified every 12 months.  

Advantages:

• Long terms, up to 43 years (with 3-year, interest only construction period)

• Low interest rates

• Loans are assumable (with FHA®/HUD® approval)

• HUD 221(d)(4) loans are non-recourse

Disadvantages:

• Can take a long time to close (around 11-12 months with traditional application processing (TAP), or around 6-7 months with multifamily accelerated processing (MAP).

• Requires a significant amount of documentation, including third party reports such as environmental assessments, architectural and engineering reports, and market studies

• One-time and monthly MIP (mortgage insurance premium) fees are required

• Strict limits on cash distributions to owners

Size:  Minimum $1 million (some exceptions allowed on an individual basis)

Term: Minimum term of 10 years, maximum of 35 years, or 75% of the property's remaining economic life, whichever is less                              

Amortization: Up to 35 years

Maximum LTV: 83.3% for market-rate properties, 85% for affordable properties, 87% for rental assistance properties                

Minimum DSCR:  1.17x for market-rate properties, 1.15x for affordable properties

MIP:  HUD/FHA mortgage insurance premiums include a one time fee of 1% of the loan amount, due at closing, and an annual MIP fee of 0.60% of the loan amount (for market rate properties), or 0.45% of the loan amount (for affordable properties). HUD 223(f) properties can also qualify for a green MIP reduction to 0.25%, provided they score at least 75 on the Energy Star SEDI (Statement of Design Intent) examination. In order to maintain the reduction, the property must be re-certified every 12 months

Low Income Housing Tax Credits (LIHTCs): 

Like it's cousin, the HUD 221(d)(4) loan, HUD 223(f) loans allow developers to qualify for low income housing tax credits (LIHTCs), almost $8 billion of which are available from state and local government organizations. LIHTCs function as a 4% tax credit (a 30% subsidy) or a 9% credit (a 70% subsidy), which are roughly equivalent to 4% or 9% of a project's construction costs. HUD 223(f) borrowers are typically only eligible for the 4% credit, as the 9% credit is designed for new construction or substantial rehabilitation projects. 

Advantages:

• Long terms, up to 35 years

• Highly competitive interest rates

• Fully assumable (with FHA approval)

• Loans are non-recourse

• HUD 223(f) loans permit supplemental financing

Disadvantages:

• Somewhat longer closing times than comparable loans (i.e. Freddie Mac® or Fannie Mae® multifamily loans)

• Can require a lot of documentation, including appraisals, market studies, and environmental reports

• Requires the payment of a mortgage insurance premium (MIP), as a one-time fee at closing and on a monthly basis

• Like most other HUD multifamily loans, HUD 223(f) loans require replacement reserves and annual operational audits

• Owner distributions are limited to 2x a year