HUD 223(f) Acquisition & Refinancing
FHA 223(f) Acquisition and Refinancing of Multifamily Properties
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- The Only Way to Refinance or Purchase Apartment Buildings
- Overview of Terms, Qualifications, and Valuable Facts
- Loan Considerations
- Eligible Properties
- Commercial Space Limitation
- Eligible Borrowers
- Loan Amount, Leverage, and DSCR
- Occupancy
- Escrows
- Repairs and Improvements
- Mortgage Insurance Premium
- Term and Amortization
- Interest Rate
- Recourse
- Assumability
- Prepayment Penalties
- Synopsis of Costs
- Timing
- Additional HUD Requirements, Items
- Get Qualified!
- Get Financing
The Only Way to Refinance or Purchase Apartment Buildings
HUD's FHA 223(f) multifamily loan insurance program has become quite popular in recent years. However, it's still grossly misunderstood and even unknown to many in the industry. Despite this lack of widespread recognition, the HUD 223(f) program offers financing with longer terms and longer amortization at a lower interest rate than Fannie Mae, Freddie Mac, CMBS loans, and even life company multifamily loans.
HUD 223(f) loans are available for market-rate properties. In the past, FHA 223(f) loans gained a reputation as being solely for nonprofits, low-income housing, and affordable housing projects. Because of this, many market-rate multifamily owner-operators have missed out on the industry's most affordable (and highest-leverage) financing mechanism.
HUD 223(f) loans carry the stigma of taking longer to originate. And it’s true: Average origination times are around four months from application to closing. However, if you're not in a great hurry, that's only 60 days longer than the average window to close a Freddie Mac multifamily loan or even a Fannie Mae DUS multifamily loan.
Read more below, or click here to download our straightforward HUD 223(f) loan term sheet.
Overview of Terms, Qualifications, and Valuable Facts
HUD provides a full checklist of requirements for 223(f) loans. However, much of the checklist and process is managed in-house.
We've provided a synopsis of the FHA 223(f)-insured loan program below. When you’re ready, submit your details to get a free quote.
Loan Considerations
35-year fixed-rate, fully amortizing loans
Interest rates are very competitive, but borrowers must pay MIP
To be eligible, the property must be at least three years old or substantially rehabilitated at least three years ago. Standard repairs are allowed.
Monthly funding of replacement reserves is required with initial funding of replacement reserves — sometimes as much as $1,000 per unit for older properties.
An annual audit of operations is required.
The minimum loan amount is $2 million, with exceptions made on a case-by-case basis.
Eligible Properties
The loan may be used for purchasing or refinancing 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 the lesser of 20% of net rentable area or 20% of effective gross income.
Eligible Borrowers
Borrowers must be single-asset, bankruptcy-remote, for-profit or nonprofit entities.
Loan Amount, Leverage, and DSCR
The loan amount will be maximum proceeds, subject to the lesser of:
83.3% LTV or the amount of debt that can be serviced by 83.3% of net operating income for market-rate properties
85% LTV or the amount of debt that can be serviced by 87% of net operating income for affordable housing properties
87% LTV or the amount of debt that can be serviced by 90% of net operating income or more for rental assistance properties
For refinancing: the greater of 80% LTV or 100% of the total cost of refinancing the existing debt and other financing costs
For purchases: 100% of mortgageable transaction costs, excluding the portion of grants, public loans, and tax credits applied
Statutory per-unit limits applied
Occupancy
Properties must have an average actual occupancy of at least 85% for the six months prior to application. This level of occupancy must be maintained throughout the process until funding. The maximum underwritten occupancy for market-rate properties is 93%; for affordable properties and rental assistance properties, it's 95%.
Escrows
The replacement reserves required in accordance with HUD guidelines (minimum of $250 per unit per year) will be established by a PCNA report. An initial deposit will be required at closing, which can be funded by mortgage proceeds. Taxes and insurance are escrowed monthly.
Repairs and Improvements
Repairs, deferred maintenance, and capital improvements for up to the greater of 15% of the property value, $6,500 per unit (adjusted for high-cost areas), or 20% of the mortgage proceeds can be included in the loan amount, subject to leverage and DSCR limitations.
Mortgage Insurance Premium
The mortgage insurance premium is paid annually. At origination, 1% of the loan amount is due to HUD at closing from loan proceeds as the first-year MIP. It's 0.60% annually thereafter, with an adjustment to 0.45% for affordable properties.
Term and Amortization
HUD 223(f) loans are fixed-rate and fully amortizing for up to 35 years. The term may not exceed 75% of the remaining economic life of the property.
Interest Rate
Interest rates are fixed throughout the life of the loan and determined by prevailing market conditions. While 223(f) interest rates are often lower than bank and agency loans, they do require borrowers to pay MIP.
Recourse
All loans are non-recourse to key principals, subject to standard carve-outs.
Assumability
All loans are fully assumable, subject to FHA approval and a fee of 0.05% of the original FHA loan amount.
Prepayment Penalties
Generally, for best pricing, loans have 10 years of call protection structured as a two-year lockout, followed by a step down from 8%. There's no prepayment penalty if a loan is assumed.
Synopsis of Costs
Application fee: generally $25,000 to cover third-party reports and due diligence, including:
Appraisal
Phase 1 environmental review
PCNA
Market study
FHA application fee: 0.30% of the loan amount
FHA inspection fee:
$30 per unit where the repairs are more than $100,000 in total but $3,000 or less per unit
The greater of $30 per unit or 1% of the cost of repairs if the repairs required are greater than $3,000 per unit
Finance and permanent placement fees: typically capped at 3.50% of the loan amount, paid from mortgage proceeds
Good-faith deposit (rate lock and commitment): 1% of the loan amount, paid at the time of commitment and refunded at closing
Lender's legal, title, and other standard borrower closing costs
Timing
FHA 223(f)-insured loans generally take 100 to 150 days to close, subject to deal specifics.
Additional HUD Requirements, Items
Loans over $50 million may be subject to more conservative leverage and DSCR constraints.
FHA 223(f) can be used in conjunction with LIHTC.
FHA 223(f) can be used to refinance or acquire properties that involve Section 202, Section 236, and Section 8 funding.
A Project Capital Needs Assessment (PCNA) will be required every 10 years.
Davis-Bacon requirements do not apply to repairs.
Get Qualified!
To apply for a 223(f) loan, fill out the form below. We'll get back to you with quotes.
If a HUD 223(f) loan isn't right for your multifamily development or substantial rehabilitation project, visit Multifamily Loans for more options that include bank financing, life company financing, Fannie Mae, Freddie Mac, and many others.
- The Only Way to Refinance or Purchase Apartment Buildings
- Overview of Terms, Qualifications, and Valuable Facts
- Loan Considerations
- Eligible Properties
- Commercial Space Limitation
- Eligible Borrowers
- Loan Amount, Leverage, and DSCR
- Occupancy
- Escrows
- Repairs and Improvements
- Mortgage Insurance Premium
- Term and Amortization
- Interest Rate
- Recourse
- Assumability
- Prepayment Penalties
- Synopsis of Costs
- Timing
- Additional HUD Requirements, Items
- Get Qualified!
- Get Financing