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.
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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
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.