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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 in the business. 221(d)(4) loans are fixed and fully amortizing for 40 years, not including an additional interest-only period of up to three years during construction.

HUD loans, unlike most bank loans, are almost completely asset based. This means that HUD scrutinizes the property location, pro forma rents and expenses, supply in that submarket, and, of course, the development team to ensure the project successfully delivers. 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 and time to originate an FHA 221(d)(4) loan are far outweighed by the benefits in the form of leverage, interest rate risk mitigation, recourse, and more.

Learn more about the HUD 221(d)(4) program below, or read our HUD 221(d)(4) loan term sheet.

HUD 221(d)(4) Terms & Qualifications

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, and we offer an overview of the loan program’s main points below. When you’re ready, you can submit details to get a quote.

Loan considerations

  • 40-year fixed and fully-amortizing interest rates are highly competitive, though borrowers must pay a mortgage insurance premium.

  • 221(d)(4) loans are interest only during the construction period, providing up to an additional three years of financing at the same fixed rate.

  • All loans must go through a HUD preliminary 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.

  • The project requires a bonded general contractor.

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

Eligible Properties

The loan may be used for the construction or substantial rehabilitation of detached, semi-detached, walkup, row, 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 is permitted in urban renewal areas defined under Section 220.

ELIGIBLE Borrowers 

Borrowers must be single-asset, bankruptcy-remote, for-profit or nonprofit entities.

Use of Proceeds (substantial rehabilitation only) 

To qualify for substantial rehabilitation financing, a property must meet one of the following requirements: 

  • 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 the specific area.

  • The rehabilitation plan will replace 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), with any unused amount refunded.

  • Operating deficit reserve equal to at least 3% of the loan amount; the unused amount is later refunded.

Mortgage Insurance Premium 

A mortgage insurance premium is paid annually. The MIP is payable at closing for each year of construction, then annually after construction. 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. An MIP of 25 basis points is available for properties that qualify for a Green MIP reduction.

Term & Amortization

Loans have a maximum term of 43 years, which includes a maximum 36 months for construction and an additional 40 years of fully amortizing, fixed-rate payments.

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. Thirty- 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 the lock, which is 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 a loan is assumed. 

Replacement Reserves

Annual deposits are required for replacement reserves equal to the greater of:

  1. 0.6% of the total cost for new construction (or 0.4% for substantial rehabilitation projects).

  2. $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: a pre-application followed by a 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 review

    • 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 3.5% 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 five to seven months to close, whereas two-stage applications for market-rate properties generally close in eight to 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 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 (either by cash escrow or letter of credit), and have a liquidity position equal to at least 5% of the project construction contract plus all incomplete construction work.

  • Loans more than $75 million may be subject to more conservative leverage and DSCR 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 Multifamily Loans for more options including bank financing, life insurance company financing, Fannie Mae®, Freddie Mac®, and many others.