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HUD (the U.S. Department of Housing and Urban Development) and the FHA (the Federal Housing Administration) were founded as two separate entities. However, they now share far more responsibilities than either had originally planned. HUD oversees and guarantees both residential and multifamily lending and insurance programs.

The FHA, which in 1965 became a part of HUD, deals primarily in residential lending, aiding in the purchase of primary residences for Americans by providing loan insurance for single family homes and multifamily properties with up to four units. Although the FHA is now a subsidiary of HUD, it is responsible for the overall management and administration of HUD's Multifamily Housing Programs. HUD, however, ultimately provides the insurance. 


A common misconception is that HUD makes loans to developers and real estate investors for the recapitalization, acquisition, rehabilitation, and construction of multifamily properties. In reality, HUD only underwrites and insures these loans, which are made by investors. 


The FHA or HUD 223(f) program was created for the refinancing or acquisition of multifamily properties. Many believe that HUD only focuses on Section 8 properties, subsidized housing, or low-income housing. In reality, the HUD 223(f) program insures loans for the full spectrum of market-rate multifamily properties across the nation, with further considerations for low income housing, rental assistance, LIHTC, and so on.

In contrast, the HUD 221(d)(4) loan, which we’ll discuss shortly, was designed for the construction or substantial rehabilitation of these same property types.

The HUD and FHA insurance programs were created to ensure the ongoing availability of capital for the acquisition, rehabilitation, development and refinancing of all apartment properties. This includes market-rate apartments, as well as affordable properties and subsidized housing.


The FHA or HUD 221(d)(4) program insures multifamily developers building market-rate, low-income, rental assistance and other multifamily developments. Loans generally range from $2,000,000 to $100,000,000 or more. In general, there is no hard cap or bottom for the loan amounts. However, because of the costs involved with originating HUD-insured multifamily development loans, developers of smaller multifamily projects are often intimidated by this form of financing. Thankfully, the FHA has embraced change and new operational efficiencies over the years. Despite that, HUD 221(d)(4) loans can still take 8-12 months to close, and often require an experienced financial intermediary to assist throughout the entire process.


FHA-insured financing provides for the longest terms in the industry. But something else also sets these loans apart: all FHA loans are fully amortizing, creating the longest amortizations in the industry and the most flexibility on debt service coverage ratios. Why? Longer amortizations mean lower payments.

FHA-insured construction loans offer 40 years of fixed-rate financing plus up to 3 additional years of financing during the construction period. HUD 221(d)(4) provides one of the very few, if not the only, fixed-rate construction loans in the multifamily development business. Existing assets for purchase or refinance are similarly qualified to achieve very long term, fully-amortizing loans. For example, HUD 223(f) insured loans are fully amortizing for up to 35 years; provided the term and amortization does not exceed 75% of the property's remaining economic life.

As industry professionals know, the longer the fixed rate, the higher the interest rate (except for in the case of an inverse yield curve). However, since they are government-insured, FHA and HUD multifamily loans earn a AAA credit rating. This leads to rates that are lower than Fannie Mae® and Freddie Mac® 10-year fixed-rate loans


For all the benefits of HUD-insured loans (rates, leverage, term, amortization, etc.) there are undoubtedly additional hurdles to overcome. However, in the case of 221(d)(4) and 223(f), the process is not as lengthy and difficult as it may have been in the past (provided you are represented by an experienced intermediary).

HUD-insured loans require annual financial audits which may cost upwards of $2,500 per year. In addition, they take longer to close (223f loans may take 120 days, and 221d4 loans may take 10 months). Plus, there are more upfront costs and closing costs associated with the origination of HUD-insured loans. That said, a 223(f) insured loan isn't vastly different from originating a Fannie® or Freddie® multifamily loan. Other requirements involve things like: 

  • Phase 1 environmental assessments are required to include lead-based paint and asbestos reviews for properties built before 1978

  • HUD doesn't insure loans for new properties located within a 100-year flood plain

  • Substantial rehabilitation loans require adherence to David Bacon labor standards. The Davis Bacon Wage determination can be found online at By entering the state, county and construction type (in this case residential) the tool will populate the most recent wage requirements. 

Affordable properties

As we mentioned previously, HUD multifamily loans include specific benefits for affordable properties. These include increased LTV allowances, reduced DSCR requirements, and lower mortgage insurance premium (MIP) requirements. HUD multifamily loans such as the HUD 221(d)(4) and HUD 223(f) are also a great fit when combined with the Low-Income Housing Tax Credit (LIHTC) program, which offers investors a dollar-for-dollar federal tax credit in order to encourage investment in affordable properties. These loans also fit well with the Rental Assistance Demonstration (RAD) program, which allows properties using certain HUD legacy housing assistance programs to convert their properties to long-term Section 8 HAP (Housing Assistance Payment) contracts.


HUD-insured loans may not be for everyone. They certainly are not for small balance loans (as fixed origination costs translate to higher costs when interpreted as a percentage of the loan amount). If your need for financing is time-sensitive, an FHA-insured multifamily loan may also not be the best fit. In general, HUD-insured multifamily loans also do not fit the needs of merchant builders.

Navigate our website as well as to understand all the multifamily financing options available in order to make the best choice. No matter what kind of loan you choose, having the guidance of an experienced intermediary financing the acquisition, development, rehabilitation or recapitalization of apartment properties should result in a reasonably seamless process. 

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