FHA-insured Financing: Low Interest Rates, Long Terms

Many people aren’t aware that FHA-insured financing offers some of the industry’s longest terms for the construction, substantial rehabilitation, acquisition, and refinancing of multifamily properties.

For example, the HUD 221(d)(4) program is a fixed-rate construction and substantial rehabilitation loan. This product is fixed for 40 years plus up to 3 years for construction (43 years total). In the past year, HUD 221(d)(4) interest rates ranged lower than anywhere else in the industry. HUD 221(d)(4) loans also offer up to 85% LTV for market-rate properties, and up to 90% LTV for subsidized properties.

In addition, HUD 223(f) loans for multifamily acquisition and rehabilitation are fully amortizing for as long as 35 years (as long as the term and amortization isn’t more than 75% of the property's remaining economic life). HUD 223(f) loan rates are also highly competitive, with below-market rates. These loans also offer the same leverage terms as HUD 221(d)(4) financing.

Overall, longer amortizations produce lower payments. Moreover, these products come with lower rates than Fannie Mae and Freddie Mac 10-year fixed-rate loans. Furthermore, FHA-insured loans are government-insured loans that earn a AAA credit rating.

HUD 223(a)(7) Refinancing and HUD 241(a) Supplemental Loans Offer Borrowers More Options

If you do decide to get a HUD 221(d)(4) or HUD 223(f) loan, you can easily refinance it through the HUD 223(a)(7) loan program, which allows borrowers to extend the original term of the loan by up to 12 years. Just like other FHA multifamily loans, 223(a)(7) loans are non-recourse and fully assumable. However, unlike other types of HUD multifamily financing, these loans close in as little as 60 days, and only require one type of third-party party report, a PCNA, or project capital needs assessment.

And, if you’re interested in getting additional financing for your property in order to make safety upgrades, environmental or energy efficient improvements, or expanding the footprint of current buildings on the property, HUD can also provide financing in the form of a HUD 241(a) supplemental loan. HUD 241(a) loans offer up to 90% LTC for for-profit entities, and up to 95% LTC for non-profits.

In addition to the fact that these loan products are fully amortizing and have the industry’s longest amortizations, FHA-insured financing provides the most flexibility on DSCR (debt service coverage ratios).

For instance, HUD 221(d)(4) financing requires a DSCR of only 1.20x for market-rate properties and permits DSCRs as low as 1.11x for subsidized properties. And, HUD 241(a) loans require a minimum DSCR of only 1.11x for all properties, while HUD 223(a)(7) loans permit DSCRs of 1.11x for for-profit entities and allow DSCRs as low as 1.05x for non-profits. This translates into significant savings for borrowers.

To learn more about HUD multifamily loans, simply fill out the form below and a HUD lending expert will get in touch.