A Side-by-Side Comparison of the HUD 223(F) and HUD 221(D)(4) Programs

Some investors and developers don’t fully understand the differences between the HUD 223(f) and HUD 221(d)(4) programs. To help, below is a side-by-side comparison of these programs:

HUD 221(d)(4)

Purpose: Finance ground-up construction and substantial rehabilitation of market rate properties of any class (cooperatives, affordable housing, or subsidized multifamily properties).

Loan Size: $2 million minimum

Terms/Amortization: Fixed and fully amortizing for 40 years, after up to 3 years of construction at a fixed rate (43 years total).

LTV: 85% LTV for market-rate properties, up to 87% on affordable properties, and up to 90% for projects with 90% or greater rental assistance.

Recourse: HUD 221(d)(4) loans are non-recourse with standard bad boy carve-outs.

Assumability: Fully assumable with HUD/FHA approval.

MIP: 1% upfront MIP at closing followed by 0.65% annual MIP for market-rate projects, 0.45% for Section 8/LIHTC, 0.25% with Green MIP reduction

Replacement Reserves: Required.

Interest Rates: 3.10% to 4.10% fixed (without MIP)

Closing Timeline: 5-11 months

HUD 223(f)

Purpose: Purchase or refinance of market rate properties of any class (cooperatives, affordable housing, or subsidized multifamily properties).

Loan Size: $1 million minimum (exceptions may be made on an individual basis)

Terms/Amortization: Fixed and fully amortizing for up to 35 years (both the term and the amortization are 35 years).

LTV: Leverage of 85% LTV for market-rate properties, up to 87% on affordable properties, and up to 90% for projects with 90% or greater rental assistance.

Recourse: HUD 223(f) loans are non-recourse with standard bad boy carve-outs.

Assumability: Fully assumable with HUD/FHA approval.

MIP: 1% upfront MIP at closing followed by 0.65% annual MIP for market-rate projects, 0.45% for Section 8/LIHTC, 0.25% with Green MIP reduction

Replacement Reserves: Required.

Interest Rates: 4.10% to 4.75% fixed (with MIP)

Closing Timeline: 4.5-6 months

HUD 223(f) and 221(d)(4) Loans Have More Similarities Than Differences

In general, you can see that HUD 223(f) and HUD 221(d)(4) loans have far more similarities than differences. In fact, the main difference is really the purpose of the loan itself; while HUD 223(f) loans are intended for the acquisition and refinancing of multifamily properties, HUD 221(d)(4) loans are designed for multifamily property construction and substantial rehabilitation. In addition, HUD 221(d)(4) loans have a slightly longer term length, at 40 years (plus a three-year, interest-only construction period), when compared to 223(f) loans, which have a maximum term length of 35 years.

In addition, it should be noted that (as mentioned above), 223(f) loans have slightly higher interest rates than 221(d)(4) loans, and, in general, 221(d)(4) loans have a higher minimum loan amount, at $2 million, compared to $2 million for a HUD 223(f) loan. Also, HUD 221(d)(4) loans can take significantly longer to close; up to 11 months for loans processed through TAP (Traditional Application Processing), while 223(f) loans can usually be closed within 5 months, as long as no complexities arise.

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