FHA HUD 223(f) Multifamily Loan Program

The FHA HUD 223(f) multifamily loan insurance program is one of the best financing options in the market for multifamily investors. This program has become very popular since the global financial crisis in 2008. The HUD 223(f) loan insurance program offers longer loan terms and amortizations and higher LTV’s than traditional bank, Freddie Mac, Fannie Mae and CMBS multifamily loans. Additionally, these loans generally come with some of the lowest interest rates in the market. While many investors think that the FHA 223(f) loan program is only available for non-profits, low-income housing and affordable housing properties, the reality is that investors in all types of multifamily properties are eligible for this product. One of the biggest drawbacks to the FHA 223(f) program is the timing it takes to close the loan and the red tape the borrower must go through. The process can take anywhere from 5-10 months from start to closing (depending on geographical location and HUD’s pipeline). This timeline presents a bigger issue for investors looking to acquire a property than those looking to refinance one. Sellers typically will not want to wait that long to sell their property. For this reason, we offer bridge to HUD loans. We finance the acquisition of the property through a bridge loan and simultaneously go through the HUD underwriting process. The bridge loan can close within 30-45 days, a reasonable timeline for most sellers. Once the bridge loan closes, we continue the process of HUD underwriting until the HUD 223(f) multifamily loan is ready to close.

FHA HUD 223(f) Multifamily Loan Program Loan Program Terms and Guidelines

Eligible Transaction Types
Both acquisitions and refinances

Eligible Properties
All types of 5+ unit multifamily properties including detached, semi-detached, row, walkup, and elevator-type apartment buildings. Properties can be market-rate, low-to-moderate income, and subsidized multifamily. Cooperative housing and affordable housing properties are eligible as well. Properties can have commercial space up to the lesser of 20% of effective gross income and 25% of the net rentable area

Borrower Requirements
Borrower must be a single asset entity. Borrower can be either for profit or not for profit. Entity must be bankruptcy remote

Interest Rate
Interest rate is fixed for the term of the loan.

Recourse
Loan is non-recourse with standard “bad-boy” carveouts

Loan to Value

• Max 85% LTV for market rate properties
• Max 87% LTV for affordable properties
• 90% LTV or the total debt that can be serviced by 90% of net operating income or more for Rental Assistance Properties

Minimum DSCR
Generally around 1.18x

Loan Term
Up to 35 years

Amortization
Fully amortizing loan, amortizations up to 35 years

Prepayment penalty
Various different options

Loan Assumption
Loans are assumable subject to HUD approval

Mortgage Insurance Premium
1% due to HUD at closing and 0.6% annually thereafter (0.25%-0.35% for affordable and subsidized properties, 0.25% for Energy Star certified properties).

Timing
Anywhere from 5-10 months (depending on geographical location and HUD’s pipeline)

Standard Costs

• Application fee of about $25,000 (typically covers appraisal, environmental report, market studies etc)
• HUD exam fee- 0.3% of loan amount
• HUD inspection fee- 0.5% of loan amount paid at closing
• Standard financing fees, lender’s legal and title

Key Facts about the HUD 223(f) Multifamily Loan Program

• Loans are fully amortizing with terms up to 35 years
• Loans have some of the best interest rates in the market
• Interest rates are fixed for the life of the loan
• These loans have offer some of the highest LTV and lowest DSCR requirements of any multifamily loans
• Borrower must pay MIP at closing and annually
• Monthly funding of replacement reserves is required with initial funding of replacement reserves — sometimes as much as $1,000 per unit for older properties.
• HUD requires annual audit of the property