How to Get the Lowest Rates and Longest Terms for Multifamily Financing
FHA-insured financing offers some of the industry's longest terms, even up to a maximum of 43 years for HUD 221(d)(4) loans.
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.
What are the benefits of HUD multifamily loans?
HUD multifamily loans offer many benefits, including 35-year fixed rate terms, full amortization, and leverage up to 83.3% for market-rate apartment buildings or 87% for rental assistance properties. HUD loans also have few restrictions on borrower experience, unless you’re getting a construction loan, and their liquidity and net worth borrower requirements are far more flexible compared to even agency loans. Additionally, HUD multifamily loans include specific benefits for affordable properties, such as increased LTV allowances, reduced DSCR requirements, and lower mortgage insurance premiums, or MIPs. HUD multifamily loans also fit well with the Low-Income Housing Tax Credit (LIHTC) program https://www.hud.loans/hud-loans-blog/lihtc-program-hud-multifamily-loans and the Rental Assistance Demonstration (RAD) program https://www.hud.loans/hud-loans-blog/rental-assistance-demonstration.
What are the requirements for HUD multifamily loan eligibility?
HUD multifamily loans are designed for borrowers of all experience levels, and the minimum credit score for most programs is just 620. However, HUD multifamily loans may require significant documentation and may take longer than many other loan types to be approved. Investors/borrowers likely need one or more professional advisors to guide them through the entire process. For more information, please visit HUD/FHA Multifamily Loans and 5 Myths about HUD-Insured Multifamily Loans.
What are the advantages of HUD multifamily loans over other financing options?
HUD multifamily loans offer some of the most advantageous financing options out there. They carry very long loan terms — some even beyond 40 years — and are fully amortizing with a fixed interest rate for the life of the loan. Leverage for these loans can go up to 87% — even higher in some situations. Additionally, they have few restrictions on borrower experience, unless you’re getting a construction loan, and their liquidity and net worth borrower requirements are far more flexible compared to even agency loans.
The main drawback of a HUD loan is in its timing. A HUD multifamily loan can take more than six months to close. However, if you have the ability to wait for your financing, they can offer a compelling benefit to any multifamily property’s bottom line.
What are the steps involved in applying for a HUD multifamily loan?
The FHA/HUD 221(d)(4) loan application process is relatively complex and involves two parts: pre-application and firm commitment. During pre-application, you'll need to provide your HUD office with a variety of information about your project, including a general description of the project, Form HUD-92013, “Application for Multifamily Housing Project,” the resumes of the owner, key principals of the project, location maps, site plans, photographs, environmental assessments, as well as a variety of other HUD forms and documents.
The second part of the application process is called firm commitment. At this point, the HUD has given general approval to the project based upon what they currently know, but they still need to see more documentation before everything is set in stone. To pass through the firm commitment process to full loan approval, you'll need documentation including a transmittal letter and an Application for Multifamily Housing Project (Form HUD-92013) which has a fee of $3 per $1000 of mortgage. Plus, you'll also have to pass an intergovernmental review. On top of that, you should contact your local HUD office to see who you need to contact in the state where the property is located (and if any additional reviews are required).
In addition, you'll need to fill out Byrd Amendment paperwork, which is intended to make sure no illegal lobbying or lobbyist-based conflicts of interest are likely to occur as a result of the project. And, you'll also need to submit Form HUD-92013, in which you must disclose any recent legal actions regarding parties involved in the project. This is especially important if the legal actions are related to delinquent federal debt.
To check out the full list of documents you'll need to apply for an FHA/HUD 221(d)(4) loan, visit our FHA/HUD 221(d)(4) loan checklist.
What are the current interest rates for HUD multifamily loans?
The current interest rates for HUD multifamily loans range from 4.09% to 6.59%, with terms of 5 to 35 years. This information is sourced from Multifamily.loans and Commercialrealestate.loans.
What are the longest terms available for HUD multifamily loans?
The longest terms available for HUD multifamily loans are 40 years for the HUD 221(d)(4) program and 35 years for the HUD 223(f) program. HUD 221(d)(4) loans are for construction and substantial rehabilitation, while HUD 223(f) loans are for acquisition and rehabilitation. Both loan products offer highly competitive, fixed-interest rates and are non-recourse. Furthermore, these loans are fully assumable (subject to lender approval).
For more information, please visit HUD 221(d)(4) and HUD 223(f).