HUD Multifamily Loans
HUD Multifamily Loans in 2022
HUD multifamily loans offer some of the best financing options to real estate investors and developers. While HUD(Department of Housing and Urban Development) doesn't directly make these loans, they do insure multifamily loans made by third party lenders to real estate investors. The third party lender will process the loan in accordance with the HUD guidelines and HUD will underwrite the loan in order to provide the insurance. There are two primary types of HUD insured loans that multifamily investors can take advantage of. The HUD 223(f) multifamily loan program and the the HUD 221(d)(4) Multifamily loan program. Scroll down to see more information on these types of multifamily loans.
|HUD Loan Programs||Rates (start as low as)||LTV|
|HUD 223(f)||5.80% plus MIP||Up to 85%||Get Free Quote|
|HUD 221(d)(4)||6.22% plus MIP||Up to 85%||Get Free Quote|
HUD Multifamily Loan Benefits
HUD Multifamily Loan rates start as low as 5.80% (as of December 7th, 2022)
• A commercial mortgage broker with over 30 years of lending experience
• No upfront application or processing fees
• Simplified application process
• Up to 85% LTV on multifamily
• Terms and amortizations up to 35 years
• Loans for purchase and refinance, including cash-out and construction
• Quick pre-approvals with no cost and no obligation
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HUD 223(f) Multifamily Loan ProgramThe HUD 223(f) multifamily loan program was instituted to help investors purchase and refinance multifamily properties. While many people think that HUD will only insure affordable and Section 8 housing the truth is that the HUD 223(f) loan program is a great option for investors looking to finance all kinds of multifamily properties across the United States. The HUD 223(f) multifamily loan insurance program is one of the best financing options in the market for multifamily investors.
HUD 221(d)(4) Multifamily Loan ProgramThe HUD 221(d)(4) Multifamily loan program was instituted to finance developments and substantial rehabilitations of multifamily properties. Through these multifamily loan programs, FHA and HUD are able to fulfill the essential mandate of its insurance programs: to make sure that there is an ongoing availability of capital for the acquisition, rehabilitation, development and refinancing of all apartment properties.
HUD insured multifamily loans offer investors some of the longest terms and amortizations on the market. The HUD 223(f) loan program offers fully amortizing terms of up to 35 years while the HUD 221(d)(4) loan program offers up to 43 year loan terms! This multifamily construction loan offers up to 3 years of interest only financing for the construction period followed by an additional fully amortizing term of up to 40 years. Monthly payments on multifamily HUD loans are much lower than with a typical lender because of the program’s longer amortization periods. Another huge benefit of these programs is that HUD is not able to discriminate based on geographical locations and markets. While many lenders may choose to not lend in a small and rural markets, HUD will insure loans in these markets. The biggest drawbacks of HUD insured multifamily loans are the timing it takes to close the loan and the red tape the borrower has to navigate. These loans can take anywhere from 5-10 months depending on the location of the property and HUD’s current pipeline. HUD insured loans require annual financial audits and they are generally more expensive than traditional multifamily loans.
Mortgage Insurance Premium - A common misconception in the multifamily industry is that HUD directly makes multifamily loans to developers and real estate investors. The truth is that these loans are actually made by third party lenders and HUD only underwrites and insures the loans. This is where the mortgage insurance premium comes in. All HUD borrowers have to pay mortgage insurance premium at time of closing and on an annual basis. Typically, borrowers will pay 1% due to HUD at closing and 0.6% annually thereafter. However, affordable properties and green properties are eligible for MIP discounts (0.25%-0.35% for affordable and subsidized properties, 0.25% for Green/Energy Star certified properties). HUD pools up this money and uses it to insure the loans made by third party lenders. If a borrower defaults on a loan, HUD will use this money to pay the third-party lender. In essence, the mortgage insurance premium paid to HUD is what allows these loans to be offered at such attractive rates with incredibly long terms and amortizations.
2021 HUD Multifamily Loan Data - In 2021, HUD insured about 1,800 loans (worth over $29 billion) made to commercial real estate investors and developers. These loans were made on multifamily and healthcare properties all across the United States. HUD put a few new policies into place that made their loan insurance programs even more desirable for investors. HUD used to require developers of newly constructed apartment buildings to wait at least three years in order to be eligible to refinance their property into a HUD insured loan. In 2020, HUD did away with this rule- allowing developers to refinance right at stabilization. Many developers took advantage of this rule change in 2021, helping HUD achieve record loan volume year over year. In addition, HUD also began to allow investors looking to acquire multifamily properties through bridge loans and still qualify for up to 85% LTV through the 223(f) program. This was very beneficial for investors because the HUD process can easily take over half a year. Most sellers will not wait around that long to wait for their sale to close. This policy allowed investors to purchase multifamily properties with short term bridge loans and to flip into HUD loans after the initial acquisition. Many real estate investors took advantage of this policy change in 2021, another factor that helped HUD to produce record volumes year over year.
Due to historically low rates and the above policy changes, HUD was incredibly busy throughout 2021. Many loans took upwards of 10 months to close as HUD offices across the country were backlogged with billions of dollars’ worth of deals. Many investors were able to take advantage of the low-rate climate by locking into long term fixed rates below 3%. Due to all these factors, HUD was able to claim a very large share of the multifamily loan market in 2021.
HUD 223(f) Multifamily Loan Program
The 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 HUD 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...
HUD 221(d)(4) Multifamily Loan Program
The HUD 221(d)(4) multifamily loan program is one of the market’s best for developers looking to construct multifamily properties and for owners looking for substantial rehabilitation funds for their apartment buildings. This multifamily construction loan program offers the highest-leverage, longest fixed-rate terms available in the multifamily industry. Additionally, HUD 221(d)(4) loans are non-recourse and serve as a construction to perm loan option. The HUD 221(d)(4) multifamily loan begins with up to 3 years of interest only payments during the construction period and is followed by a fully amortizing term of up to 40 years.
HUD 223(a)(7) Multifamily Loan Program
The HUD 223(a)(7) loan product is used by multifamily and healthcare investors with current HUD loans who are looking to refinance their debt. There are a variety of different reasons for an investor to refinance a current HUD loan into a new one. In low interest rate environments, many borrowers want to refinance into lower rates to increase cash flow. Additionally, some borrowers look to the HUD 223(a)(7) loan to increase their loan amortization schedule. This product is very favorable in HUD’s eyes because both lower interest rates and longer amortizations mean more cash flow and more cash flow means there is a lower chance the borrower defaults on the loan. One of the best factors of this product is that HUD will allow the prepayment penalty to be rolled into the new loan.
HUD 241(a) Multifamily Loan Program
The HUD 241(a) Multifamily Loan program is designed to provide supplemental financing for current HUD borrowers. The purpose of this program is to keep existing multifamily properties competitive in the market. If you are an owner of a HUD-insured multifamily property looking for extra financing to enhance your property with significant improvements, the HUD 241(a) multifamily loan program could be a great option for you. These loans can also be used to add energy-efficient infrastructure to a property, to purchase additional land or to finance construction costs needed to expand a current property. In 2015, the FHA 241(a) multifamily loan program financed a total of $25 million over 974 units. To qualify for this loan program, the borrower must provide at least 10 percent of the total loan cost.
HUD 232/223(f) Healthcare Loan Program
The HUD 232/223(f) loan is federally insured loan program to help investors finance residential health care facilities. Investors can use this program to finance the acquisition, refinance, and substantial rehabilitation of properties such as nursing homes and assisted living facilities. While this is an HUD program, the Office of Residential Care Facilities oversees this program. Since these HUD loans are insured by the federal government, they offer some of the most favorable terms for health care real estate investors and developers.
Multifamily Bridge to HUD Loans
One of the biggest issues potential HUD borrowers face is the timing it takes to close a multifamily HUD loan. These loans can take anywhere between 5 and 10 months to close depending on market conditions and the location of the property. This timing is a particular concern for investors looking to purchase multifamily buildings. Most sellers will simply not sit around waiting over half a year to sell their property. In order to solve this problem, we help borrowers obtain bridge to HUD financing.