FHA INSURED COMMERCIAL REAL ESTATE INVESTMENT LOAN

Some of the most competitively priced financial instruments with the most aggressive terms in the industry are FHA-insured multifamily loans. For inexperienced borrowers, lenders, and intermediaries, arranging FHA debt can be a daunting path to navigate due to its inherent complexities, but we pride ourselves on our FHA multifamily strength and as such are a market-leader. From $1MM to $100MM+ HUD - insured multifamily loans lead the industry in terms but require the right team for execution quality to match product strengths.

fha Multifamily

Multifamily Loan Options Include:

  • LTVs from 80%

  • Competitive fixed rates

  • Amortizations from 30 years

  • Non-recourse

  • 45-day closings

  • Amounts from $1MM to $100MM+

  • Purpose: Purchase, Refinance, Renovation, Construction, and Multi-Family Developments

  • 650+preferred credit score

  • Location: USA only


What you need for an Initial Quote?

Use these items to quickly find out if you qualify for your desired LTV, LTC, loan amount etc. This will only give a very broad picture but will also give a relatively fast positive/negative indication as to the feasibility of the loan in question. You will be able to upload your documents during the application process. Or you can email your supporting documents to: debora@dejozoc.om

• Trailing 12 months, month-by-month operating statements (P&L).

• Current rent roll.

• Indication that borrower net worth is greater than the loan amount and borrower liquidity is greater than 10% of the loan amount. If otherwise, a discussion would be required along with a PFS (personal financial statement)

HUD 221(d)(4) Loans for New Construction and Substantial Rehabilitation

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

HUD 223(f) Loans for the Acquisition and Refinancing of Multifamily Properties

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

HUD 223(a)(7) Refinancing Loans for Existing HUD Multifamily Borrowers

Size: Loans permitted up to 100% of "eligible transaction costs", including the existing debt principal, replacement reserves, prepayment penalties, and a project capital needs assessment (PCNA)

Term: Loan can increase by a period of 12 years, but new loan term cannot exceed the original loan term: 40 years for HUD 221(d)(4) and HUD 232 loans and 35 years for HUD 223(f) and HUD 232/223(f) loans

Amortization: Up to 40 years, fully amortizing

Minimum DSCR: 1.11x for for-profits, 1.05x for non-profits

MIP: Mortgage insurance premiums for HUD 223(a)(7) loans are 0.55% of the loan amount per year, or 0.45% if the property is utilizing low income housing tax credits (LIHTCs).

Advantages:

  • Allows term increase of up to 12 years

  • Fast processing; closing can occur in as little as 60 days

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

  • HUD 223(a)(7) loans are non-recourse

Disadvantages:

  • Still requires one third-party report, a project capital needs assessment (PCNA)

  • Requires an FHA application fee of 0.30% of the loan amount

  • Requires borrowers to pay both an initial, one-time MIP (mortgage insurance premium) and pay MIP each month.

HUD 241(a) Supplemental Loans for Current HUD Multifamily Borrowers

Size: HUD 241(a) loans are limited by the smallest of the three options below:

  • For-profits: 90% of the value of a new construction project, Non-profits: 95% of the value of a new construction project

  • The maximum insurable amount of the project, as calculated by the FHA®

  • 90% of the property's net operating income (NOI), including payments for the original loan

Term: Term must be identical to the current loan; however, if there are less than 25 years left on that loan, the HUD 241(a) loan term can be expanded to 40 years

Amortization: Up to 40 years, fully amortizing

Minimum DSCR: 1.11x

Advantages:

  • Highly competitive, fixed interest rates

  • Loans are fully assumable (with FHA approval)

  • HUD 241(a) loans are non-recourse

Disadvantages:

  • Requires a variety of third-party reports, including environmental assessments, architectural and engineering reports, and full HUD/FHA appraisals

  • Requires an FHA application fee of 0.30% of the loan amount and a 0.50% FHA inspection fee

  • Requires a one-time mortgage insurance premium (MIP) at closing, and payment of monthly MIPs throughout the duration of the loan.

fha HUD 232 Loans for Building or Substantially Rehabilitating Healthcare Properties

  • Size: Minimum loan of $2 million (typical loan averages $7.6 million)

  • LTV/Leverage:

•New Construction: 75% (for profit), 80% (non-profit)

•Substantial Renovation:

  • 75% (for profit), 80% (non-profit), OR

  • Borrower-owned: 100% of current mortgage debt or 90% pre-rehabilitation market value (95% for non-profits)

  • Purchase/substantial rehabilitation: 85% of purchase price or 90% pre-rehabilitation market value (95% for non-profits)

  • Term: 40 years, fixed-rate

  • Amortization: Up to 40 years, fully amortizing

  • Minimum DSCR: 1.45x

fha HUD 232/223(f) Loans for Acquiring or Refinancing Healthcare Properties

  • Purchase:

• Non-profits: The lesser of 90% of the acquisition price or appraised value

• For profits: The lesser of 85% of the acquisition price or appraised value

  • Refinance:

• For profits: The lesser of 85% of the appraised value or 100% of the cost to refinance

• Non-profits: The lesser of 90% of appraised value or 100% of the cost to refinance

  • Term: 35 years, fixed-rate

  • Amortization: Up to 35 years, fully amortizing

  • Minimum DSCR: 1.45x MIP: HUD 232/223(f)

  • MIPs include an MIP fee of 1% of the loan amount, paid at closing, and an annual MIP of 0.65%

HUD LEAN Loan Processing for HUD 232 and HUD 232/223(f) Financing

In order to reduce approval times, the HUD 232 LEAN process has instituted changes including:

  • Forms, including lender templates, certifications, and other documentation, are standardized

  • In most cases, duplicate forms and submissions are not required

  • LEAN applications are not submitted by borrowers; instead, they are submitted by lenders directly to the OCRF (HUD's Office of Residential Care Facilities)

  • HUD LEAN processing does not require propriety earning carve-outs

HUD 232 LEAN Loan Requirements

HUD 232 LEAN processing also has specific requirements, including:

  • Physical Property Exams: Third-party property exams are required in order to determine the condition of the property itself; for properties that may require a lot of repairs, a HUD 232 loan for substantial rehabilitation may be recommended.

  • Credit Check: HUD/FHA will look at a borrower's credit history and financial experience to determine if they're a good fit for a HUD 232 loan.

  • Developer Experience: HUD/FHA will also examine examine a developer's experience in the healthcare industry, especially the financial health of any healthcare properties that they currently own.

  • Formal Incident Reports: HUD now requires that all properties using HUD 232 financing have a formal, software-based incident reporting system.

  • Special Portfolio Reviews: For borrowers with more than one HUD 232-insured property, HUD may require a special review, and, for borrowers with three or more properties, HUD may require a master lease.

HUD 232/223(a)(7) Refinancing Loans for HUD 232 and HUD 232/223(f) Borrowers

Designed for the borrower that already own a senior living, assisted living, or skilled nursing facility that was built or purchased with a HUD 232 loan or a HUD 232/233(f) loan, and want a lower interest rate or an extension on the loan term.

Size: Loans are allowed up to 100% of the "eligible transaction costs", which include the principal of the project's existing debt, prepayment penalties, funding for required replacement reserves, and a project capital needs assessment (PCNA)

Term: The loan can increase by a period of up to 12 years, but new loan term may not exceed the original loan term: 40 years for HUD 232 loans and 35 years for HUD 232/223(f) loans

Amortization: Up to 40 years, fully amortizing

Minimum DSCR: 1.11x for for-profits, 1.05x for non-profits

MIP: HUD 232/223(a)(7) loans have an annual MIP of 0.55% of the entire loan amount, or 0.45% if the project is using low income housing tax credits (LIHTCs)

Advantages:

  • Allows term increase of up to 12 years

  • Streamlined processing; loans can close in as few as 60 days

  • Less paperwork and fewer reports required

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

  • HUD 232/223(a)(7) loans are non-recourse

Disadvantages:

  • The loan requires one third-party report, a project capital needs assessment (PCNA)

  • Requires an FHA application fee of 0.30% of the loan amount

  • Requires borrowers to pay both an initial, one-time MIP (mortgage insurance premium) fee and pay additional MIP each month