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HUD 221(d)(4) 
Non-Recourse, Ground-up Development and Substantial Rehabilitation Multifamily Financing

The FHA® 221(d)(4) loan, guaranteed by HUD is the multifamily industry’s highest-leverage, lowest-cost, non-recourse, fixed-rate loan available in the business. 221(d)(4) loans are fixed and fully amortizing for 40 years, not including the up-to-three-years, interest-only fixed-rate during construction. In summary, the loan is fixed for up to 43 years and fully amortizing for 40. 

HUD loans, unlike most bank loans, are almost completely asset-based. This means that HUD scrutinizes the property location, the pro forma rents and expenses, supply in that sub-market, and of course the development team to ensure the project successfully comes out of the ground. HUD 221(d)(4) loans are more costly to originate upfront and take longer to close than traditional loans, but if you're working with an experienced intermediary, the costs of and time to originate an FHA 221(d)(4)-insured loan are far outweighed by the benefits in the form of leverage, interest-rate risk mitigation, recourse, and more.

Keep reading to learn more about the HUD 221(d)(4) program, or click here to download our easy-to-read HUD 221(d)(4) loan term sheet.

Overview of Terms, Qualifications, and Valuable Facts

Facts to Consider

HUD provides a full checklist of requirements, but much of the checklist and process is managed in-house. You can see the full HUD 221(d)(4) checklist here. We've also provided a fairly complete synopsis of the FHA 221(d)(4)-insured loan program below. You can find the basics to submit a file for consideration on the Apply Page of our site. 

  • 40-year fixed and fully-amortizing interest rates are highly competitive, though borrowers must pay MIP. 221(d)(4) loans are interest-only during the construction period, providing up to three additional years of financing at the same fixed rate.

  • All loans must go through a HUD pre-review process.

  • Adherence to Davis-Bacon prevailing wage standards is required.

  • An annual audit of operations is required.

  • Hard second liens are not allowed, but soft seconds and stock pledges are allowed if structured in accordance with HUD requirements.

  • A bonded general contractor is required.

  • The minimum loan amount is $4 million. Exceptions are made on a case-by-case basis. Generally, most 221(d)(4) construction loans are $10 million and above. There is no maximum loan amount.

Eligible Properties

The construction or substantial rehabilitation of detached, semi-detached, row, walkup, and elevator-type multifamily properties, including market-rate, low-to-moderate income; and subsidized multifamily, cooperative housing and affordable housing properties with at least five units. 

commercial space limitation 

Commercial and retail space is limited to 25% of net rentable area and 15% of underwritten effective gross income (up to 30% of underwritten EGI permitted in urban renewal areas under Section 220).

ELIGIBLE Borrowers 

Single-asset, bankruptcy-remote, for-profit or nonprofit entities.

Use of Proceeds (substantial rehabilitation only) 

To qualify as a substantial rehabilitation of a multifamily property, a property must meet one of the following requirements: 

(a) the cost of repairs, replacements, and improvements to the existing property must exceed the greater of 15% of the replacement cost of the property after completion of all work or $6,500 per unit adjusted by the local HUD office for high cost percentage in that area; or
(b) the replacement of two or more buildings, regardless of the cost.

loan amount/Leverage/Dscr

The loan amount will be the maximum proceeds subject to the lesser of:

  • 85% LTC (or replacement cost), 85% of net operating income, or 1.20 DSCR for market-rate properties

  • 87% LTC (or replacement cost), 87% of net operating income, or 1.15 DSCR for affordable housing properties

  • 90% LTC (or replacement cost), 90% of net operating income, or 1.11 DSCR for rental assistance properties


  • Replacement reserves are required in accordance with HUD guidelines.

  • Taxes and insurance escrowed monthly (post-construction).

  • Working capital reserve account equal to 4% of the loan amount (paid in cash or letter of credit (LOC)), with unused amount refunded, as per "additional items" below.

  • Operating deficit reserve equal to at least 3% of the loan amount; unused amount later refunded as per "additional items" below.

Mortgage Insurance Premium 

A mortgage insurance premium is paid annually (in the above example of a rate between 4.10% and 4.75%. Those interest rates already include the estimated HUD-required MIP). The MIP is payable at closing for each year of construction and then annually thereafter. The mortgage insurance premium is 65 basis points for market-rate properties, 45 basis points for Section 8 or new money LIHTC properties, and 70 basis points for Section 220 urban renewal projects that are not Section 8 or LIHTC. MIP of 25 basis points is available for properties that qualify for a Green MIP reduction.

Term & Amortization

Fixed and interest only for up to 36 months during construction, followed by an additional 40 years of fully amortizing, fixed-rate payments. A maximum term of 43 years, including construction period.

Interest Rate

Interest rates are fixed throughout the life of the loan (both construction and permanent stages) and determined at commitment by prevailing market conditions. 30 to 80-day rate lock commitments are available. An early rate lock feature is available, allowing the borrower to lock the rate after preliminary underwriting. There is a 1% rate lock deposit payable at the time of rate lock, to be refunded at closing. 


All loans are non-recourse to key principals during both construction and permanent financing, subject to standard carve-outs.


All loans are fully assumable subject to FHA approval and a fee of 0.05% of the original FHA-insured loan amount. 


Generally, for best pricing, 10 years of call protection with a two-year lockout, followed by a step down from 8%. There is no prepayment penalty if the loan is assumed. 

Replacement Reserves

Annual deposits are required for replacement reserves equal to the greater of (a) 0.60% of the total cost for new construction or 0.40% of the loan amount for substantial rehabilitation projects; or (b) $250 per unit per year. In certain circumstances, HUD may consider waivers if calculations exceed $500 per door. 


Market-rate property applications follow a two-step process: first the pre-application, then the firm application. Affordable and rental assistance properties may use MAP one-stage processing.

synopsis of costs

  • Application fee: usually $25,000 to cover lender due diligence and third-party reports, including:

    • Appraisal

    • Phase 1 environmental

    • Construction cost review

    • Market study

    • Plans and specs review

  • FHA exam fee: 0.30% paid as 0.15% at pre-application and 0.15% at application

  • FHA inspection fee: 0.50% paid from mortgage proceeds

  • Financing and placement fees: typically capped at 3.50% of the loan amount paid at closing from mortgage proceeds

  • Good-faith deposit (rate lock and commitment): between 0.50% and 1% of loan amount paid at the time of commitment and refunded at closing

  • Lender's legal, title, and other standard borrower closing costs


One-stage applications for affordable and rental assistance properties generally take 5 - 7 months to close, whereas two-stage applications for market-rate properties generally close in 8 - 12 months, subject to deal specifics. 

Additional HUD Requirements and Items for consideration

  • An initial operating deficit account may be required to cover operating shortfalls incurred prior to stabilization. Usually, the amount will be equal to the greater of an appraiser's or underwriter's estimate, or four months of debt service for garden apartments, or six months of debt service for elevator buildings.

  • A working capital deposit in the form of cash or a letter of credit is required by HUD on all new construction projects in the amount of 4% of the loan amount. For substantial rehabilitation, the deposit would be equal to 2% of the loan amount.

  • Unused working capital and initial operating deficit escrows are released at the later of 12 months from the final endorsement or six months of break-even occupancy.

  • Stabilization must be projected as achievable within 18 months of the certificate of occupancy.

  • The borrower must retain a qualified arms-length supervisory architect during the construction.

  • A cost certification for the general contractor and owner are required upon construction completion.

  • The general contractor must execute a GMP contract, provide a 100% performance and payment bond (cash escrow or letter of credit acceptable), and have a liquidity position equal to at least 5% of the project construction contract plus all uncompleted construction work.

  • Loans over $75 million may be subject to more conservative leverage and DSRC requirements.

  • Maximum underwritten occupancy of 93% for market-rate properties and 95% for 90% rental assistance properties.

  • Qualifies for Ginnie Mae-guaranteed, mortgage-backed securities, direct placement, or may be used to credit enhance tax-exempt bonds.

Learn More About 221(d)(4) Financing

If a HUD 221(d)(4) loan isn't right for your multifamily development or substantial rehabilitation project, please visit for more options including bank financing, life insurance company financing, Fannie Mae®, Freddie Mac®, and more. You may also email directly at

Call us today for more information (877) 585-8645

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