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Is a Bridge-to-HUD Loan Right for You?
Bridge-to-HUD financing offers a way to take advantage of some of the highest-leverage, longest-term loans in the multifamily sector, even when timing is an issue.
Image by Brandon Griggs from Unsplash.
Loans backed by the Department of Housing and Urban Development have among the most advantageous financing terms out there. From low, fixed interest rates to some of the longest, fully amortized terms available. And unlike what many people assume, HUD loans aren’t exclusively for affordable housing. In fact, financing covers the full multifamily spectrum, from market-rate to fully affordable properties and everything in between.
With all of these upsides, why isn’t HUD lending more popular? Apart from misunderstandings about the loans, there is one hard reality: HUD loans take longer than most loans to originate. If you plan to use an FHA 223(f) loan to acquire a market-rate multifamily community, for example, having to wait six to eight months could be an impossible ask.
Bridge-to-HUD’s Benefits for Multifamily Acquisitions
Thankfully, there’s a way around those long origination timelines: by using a bridge-to-HUD loan product. Bridge loans are often used as a short-term financing solution when timing is a key issue. So, if you’re looking to take advantage of HUD’s loan terms but don’t have the six-plus months to wait on the financing, bridge loans can make it happen in far less time.
Bridge financing typically closes in 45 to 60 days. Once the HUD loan closes, it refinances the bridge loan. This provides an investor with some of the most advantageous financing terms out there.
Bridge-to-HUD for Rehab Properties
These loans aren’t just for multifamily acquisitions — they can be ideal for rehabilitating assets, too. Going straight for a HUD 223(f) loan may not be possible if you’re doing serious work on a community. HUD has some very stringent guidelines in place for the loans it insures. For example, one requirement for HUD 223(f) loans is that a property must have an occupancy rate of 85% for at least six months before you even apply for financing — and that level of occupancy must be maintained during the entire application process.
If you’re planning on gut-rehabbing a community, that would normally be a deal breaker. But with a bridge-to-HUD package, it’s far less of a problem. Because these bridge loans can have terms of up to 36 months, this allows for plenty of time to execute your capital improvement plans, lease up your units, then get the longer-term HUD financing in place.
It isn’t just rehabs, either. Any property falling short of HUD’s exacting requirements could be fair game, depending on the property’s financial metrics, the investor’s long-term strategy, and the bridge lender’s requirements.
Sample Bridge-to-HUD Loan Terms
Loan Size: From $3 million and up
Terms: Up to 36 months
Amortization: Interest only
Maximum LTV: Up to 80% LTV (stabilized) or 90% LTC
Recourse: Non-recourse in most situations (with standard carve-outs) for multifamily
Learn More
Interested in finding out more about bridge-to-HUD financing? Curious how it can benefit your next multifamily investment and your bottom line? Get a free quote with us today by filling in our form at the bottom of the page.
Related Questions
What are the benefits of a bridge-to-HUD loan?
Bridge-to-HUD loans provide a rapid source of capital that can be used in many different ways, including the fast acquisition of an asset, funding lease-up activities, or any required rehabilitation in order to meet eligibility requirements. Bridge loans are typically closed within 45 to 60 days, compared to HUD financing which can take anywhere between six months to a year before funding becomes available. Bridge-to-HUD loans also provide a temporary financing solution that is easily replaceable with permanent financing.
Sources: Is a Bridge-to-HUD Loan Right for You? The Bridge-to-HUD Financing Option Explained Understanding Bridge Loans for Apartment Property InvestingWhat types of properties are eligible for a bridge-to-HUD loan?
Bridge-to-HUD loans are ideal for multifamily acquisitions and rehabilitating assets. Properties that don't meet HUD's exacting requirements may also be eligible, depending on the property's financial metrics, the investor's long-term strategy, and the bridge lender's requirements.
For example, HUD 223(f) loans require that a property must have an occupancy rate of 85% for at least six months before you even apply for financing — and that level of occupancy must be maintained during the entire application process.
Using a bridge-to-HUD strategy gives investors the wiggle room to execute necessary capital improvements and lease up the asset to the required threshold before closing the more desirable and longer-term HUD financing.
What are the requirements for a bridge-to-HUD loan?
Bridge-to-HUD loans are typically used for multifamily, assisted living, and skilled nursing facilities. The loan size is typically from $3 million and up, with terms up to 36 months and amortization of interest only. The maximum LTV is up to 80% LTV (stabilized) or 90% LTC, and the loan is non-recourse with standard “bad boy” carve-outs. Additionally, many of the HUD-insured loan programs have incredibly strict requirements when it comes to the rehabilitation of a property, such as requiring an occupancy rate of 85% for at least six months prior to and throughout the financing application. Source and Source
What is the process for obtaining a bridge-to-HUD loan?
The process for obtaining a bridge-to-HUD loan is relatively straightforward. First, you will need to find a lender who offers bridge-to-HUD financing. You can find a list of lenders who offer this type of loan on HUD.loans. Once you have found a lender, you will need to fill out an application and provide the necessary documentation. The lender will then review your application and determine if you are eligible for the loan. If you are approved, the lender will provide you with the loan terms and conditions. Once you have accepted the terms and conditions, the lender will provide you with the funds and you can begin using the loan for your investment.
For more information on bridge-to-HUD financing, you can read this article.
How long does it take to get approved for a bridge-to-HUD loan?
Bridge financing typically closes in 45 to 60 days. Once the HUD loan closes, it refinances the bridge loan. This provides an investor with some of the most advantageous financing terms out there.
And if the timing isn’t the most critical part of your financing plan, consider that a HUD 223(f) loan — generally used for buying or refinancing multifamily properties — takes around four months to close. That’s only about 60 days longer than most Fannie Mae or Freddie Mac loans take to close, and terms are better across the board.
What are the advantages of a bridge-to-HUD loan over other financing options?
Bridge-to-HUD loans offer a number of advantages over other financing options. The most notable advantage is the speed of the loan process. Bridge loans are typically closed within 45 to 60 days, while HUD financing can take anywhere between six months to a year before funding becomes available. This makes bridge-to-HUD loans an ideal loan for investors who need an immediate capital injection while they arrange and fund more permanent HUD financing.
Bridge-to-HUD loans are also flexible financing solutions that can be used in many different ways. This includes anything from the fast acquisition of an asset to even funding lease-up activities or any required rehabilitation in order to meet eligibility requirements. Additionally, bridge loans are easily replaceable with permanent financing.
If you're interested in finding out more about bridge-to-HUD financing and how it can benefit your next multifamily investment and your bottom line, you can get a free quote with us today by filling in our form at the bottom of the page.