HUD 241(a) Supplemental Financing for HUD Multifamily Loans
HUD 241(a) loans offer fixed-rate, non-recourse, low-interest supplemental financing for existing HUD/FHA-insured multifamily and healthcare projects.
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A HUD 241(a) loan offers additional financial assistance to property owners who want to enhance multifamily properties by making significant improvements. Acceptable HUD 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.
Read below to learn more, or check out our HUD 241(a) loan term sheet.
Terms, Qualifications, and Facts
Potential borrowers should fully review HUD's complete checklist of requirements before beginning the application process. However, borrowers should be aware of one key restrictions could affect their chances for funding approval for a HUD 241(a) loan — the loan cannot exceed the property’s appraised value, and it is primarily for keeping multifamily units competitive in today’s market.
Only multifamily properties already encumbered by HUD-insured loans are eligible.
Owners of multifamily or healthcare properties with HUD-insured debt may qualify for HUD 241(a) loans.
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
Borrowers should expect a DSCR requirement 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% 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.
Borrowers can expect a fixed interest rate reflective of current market conditions at closing.
Like all FHA multifamily loans, the HUD 241(a) is non-recourse.
Loans are assumable, provided the borrower meets HUD approval.
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)
Full appraisal reports
Architectural and engineering 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.
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.
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.