HUD 241(a): Supplemental Financing For HUD-Insured Mortgages

A HUD 241(a) loan offers additional financial assistance to property owners who want to enhance their multifamily properties by making significant improvements. Acceptable (FHA 241(a)) improvements could include the addition of energy-efficient infrastructure or necessary safety equipment. HUD 241(a) loans may also be used to purchase additional land or to finance the hard and soft construction expenses necessary to expand the footprint of an existing structure.

The U.S. Department of Housing and Urban Development (HUD) notes that in 2015, six projects received funding under this program. The resulting loans, totaling $25 million, resulted in the updating or construction of 974 units.

Overview of Terms, Qualification, and Valuable Facts

Potential borrowers should completely review HUD's complete checklist of requirements before beginning the application process. However, borrowers should be aware that the following restrictions could affect their chances for funding approval for a HUD 241(a) loan:

  • The project owner must provide at least 10 percent of the total cost of the loan.

  • This program is used to keep existing multifamily units competitive in the current market, while not exceeding the property's appraised value.

Our Apply Page provides a way to apply for funding through the program.

Eligible Properties

Multifamily properties that already hold HUD-insured or HUD-held loans are eligible.

Eligible Borrowers

People who own a FHA-insured or HUD-held multifamily property may qualify for a HUD 241(a) loan.

Loan Amount/DSCR

The maximum loan amount will be the lesser of:

  • Up to 90 percent of the value of a new construction project for for-profit entities and 95 percent for nonprofit entities

  • An amount that will not surpass the insurable amount of the project as specified by HUD

  • Up to 90 percent of the net operating income, which should include the first mortgage debt payment obligation

Borrowers should expect a DSCR of at least 1.11x.


Requirements should not exceed the existing terms of the underlying mortgage.


Escrow is determined by previous mortgage restrictions.

Mortgage Insurance Premium

Borrowers should expect to pay an annual mortgage insurance premium of 0.95 percent of the principal loan amount. Certain projects may qualify for a reduced mortgage insurance premium, which could range from 0.25-0.35 percent if the project meets additional environmental or affordability restrictions.

Term and Amortization

The length of the HUD 241(a) must match the same term as the first mortgage. However, if less than 25 years remain on the mortgage term, the term can extend up to 40 years. An extended mortgage term cannot exceed 75 percent of the remaining useful life of the improvements.

Interest Rate

Borrowers can expect a fixed interest rate reflective of the current market rate at closing.


Like all FHA multifamily loans, the HUD 241(a) is a non-recourse product.


Loans are assumable provided the borrower meets FHA approval.


Terms can vary. A five-year lockout with a 5 percent penalty in the sixth year or a two-year lockout with an 8 percent penalty in the third year are two common terms. Borrowers can expect a comparable combination of penalties and lockouts for the first 10 years of the loan.

Synopsis of Costs

Cost of third party reports vary by market. Borrowers may need:

  • Environmental studies (Phase I Environmental Reports commonly required if the building is expanded or significant building improvements are suggested)

  • Market studies

  • Full appraisal reports

  • Architectural and engineering reports

  • Seismic reports

  • FHA Application Fee: 0.30 percent of the loan amount

  • FHA Inspection Fee: 0.5 percent of the loan amount

  • Finance and Permanent Placement Fees: up to 3.5 percent of the loan amount due at closing

  • The lender may charge a reasonable fee to offset title, legal and other closing costs.


HUD-241(a)-insured loans can close within 20 weeks. This timeline allows eight weeks for the pre-application process and eight weeks for the firm application process. Borrowers should expect to wait another three to four weeks for closing. If the loan will fund a new construction project or substantial rehabilitation, borrowers can opt for single-stage processing to decrease the overall application period.

Additional HUD Requirements and Items for Consideration

  • HUD 241(a) loans are subject to the same restrictions and regulations that govern the root mortgage loan insurance program.

  • Borrowers must meet the same IOD requirements and working capital requirements that govern the 221(d)(4) program, unless they obtain waivers.

  • David Bacon wage requirements apply to contractors working on the project.

  • Borrowers should expect to schedule a pre-application conference with the local HUD Program Center or Multifamily HUB to verify the feasibility of the proposed multifamily property improvements.

Get Qualified!

To begin the HUD 241(a) application process, email us your contact and project information to today. Borrowers can also apply for an FHA insured multifamily loan online and follow the listed instructions to start an application.

The HUD 241(a) loan doesn't meet the unique needs of every multifamily property owner. To learn about other financial options to update or expand and improve your apartment building portfolio, email us directly at Potential borrowers can also visit for additional options that may include Fannie Mae Apartment Loans, Freddie Mac Small Balance Loans, bank financing and life company financing for multifamily properties.

Call Now: (877) 585-8645

Speak With a HUD Insured Multifamily & Healthcare Finance Specialist