Loan Amount

The maximum loan amount will be the lesser of:

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

• The project’s maximum insurable amount as determined by HUD

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

DSCR

Borrowers should expect a DSCR requirement of at least 1.11x.

Occupancy

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

Escrows

Escrow is determined by previous mortgage restrictions.

Mortgage Insurance Premium

Borrowers should expect to pay an annual mortgage insurance premium of 0.95% of the principal loan amount. Certain projects may qualify for a reduced mortgage insurance premium, which could range from 0.25% to 0.35% 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% of the remaining useful life of the improvements.

Interest Rate

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

Recourse

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

Assumability

Loans are assumable, provided the borrower meets HUD approval.

Prepayment

Terms can vary. A five-year lockout with a 5% penalty in the sixth year, or a two-year lockout with an 8% 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 are commonly required if the building is expanded or significant building improvements are suggested)

• Market studies

• Full appraisal reports

• Architectural and engineering reports

• Seismic reports

• HUD application fee equal to 0.3% of the loan amount

• HUD inspection fee equal to 0.5% of the loan amount

• Finance and permanent placement fees of up to 3.5% of the loan amount due at closing

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

Timing

HUD 241(a) 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.

• Section 241 supplemental loans are subject to Davis Bacon wage requirements only if the original mortgage has the same requirement.

• 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.

• You should reassess the multifamily insurance you have in place, especially if you will use the financing to expand or improve the property.

Get Qualified

To begin the HUD 241(a) application process, fill in the form below. We'll get to work on providing you a quote immediately.

The HUD 241(a) loan doesn't meet the unique needs of every multifamily property owner. To learn about other financial options to update, expand, or improve your apartment building portfolio, visit Multifamily Loans for additional options that may include Fannie Mae apartment loans, Freddie Mac Small Balance Loans, bank financing, and life company financing for multifamily properties.
In this article:
1. Terms, Qualifications, and Facts
2. Eligible Properties
3. Eligible Borrowers
4. Loan Amount
5. DSCR
6. Occupancy
7. Escrows
8. Mortgage Insurance Premium
9. Term and Amortization
10. Interest Rate
11. Recourse
12. Assumability
13. Prepayment
14. Synopsis of Costs
15. Timing
16. Additional HUD Requirements and Items for Consideration
17. Get Qualified
18. Get Financing