Top 5 HUD Loans by Volume in Q1 2022
The department reported just over $6 billion in insured loan firm commitments for the first quarter of 2022 alone. Find out which financing vehicles stood out.
Apartment buildings. Photo by Philip de Leon from Unsplash.
Loans insured by the Department of Housing and Urban Development continue to gain traction among multifamily borrowers. Contrary to popular belief, properties do not need to be fully affordable to qualify for HUD-backed loans, though many of the programs do have somewhat strict eligibility and lending criteria.
We examined the $6 billion in HUD firm commitments from the first quarter of 2022 to see which loans are the most popular right now. Check out our list below.
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Lending Program | Loan Purpose | Q1 2022 Volume |
|---|---|---|
HUD/FHA 223(f) | Acquisition/Refi | $2,665,192,200 |
HUD/FHA 221(d)(4) | Construction | $1,091,906,400 |
HUD/FHA 232 | Health Care | $909,517,400 |
HUD/FHA 223(a)(7) | Refinance | $887,676,400 |
HUD/FHA 241(a) | Supplemental | $5,784,700 |
5. 241(a) Supplemental Financing
HUD’s 241(a) supplemental financing is specifically designed for multifamily or health care property owners looking to enhance their properties. The main eligibility caveat with this lending mechanism is that the owner must already have a HUD-insured mortgage on the property in question.
In the first quarter of 2022, new HUD loans through this program were at the bottom of the list, with only $5.8 million in firm commitments. However, activity through the program has been steadily increasing, with $72 million reported in 2021. This may not be HUD’s largest loan program by any stretch — the average HUD 241(a) loan amount between 2000 and the end of last year was $5.4 million — but it offers favorable terms, including fixed interest rates and a maximum loan amount of up to 95% for nonprofits.
4. 223(a)(7) Refinancing
With $887.7 million in firm commitments between January and March 2022, HUD’s 223(a)(7) refinancing program offers an affordable way for HUD borrowers to reduce interest rates, prolong amortization, and reduce the costs associated with debt service. This type of debt is unique within the department as it does not require any appraisals, market studies, or environmental reports — just a capital needs assessment.
Origination volume for the 223(a)(7) program has varied significantly in recent years. After peaking at $7 billion in 2012, lending plummeted, hitting $376 million in 2018. However, in the past two years alone, volumes have rebounded, with $7.8 billion and $4.5 billion closed in 2020 and 2021.
3. 232 Health Care Financing
In third place on our list is HUD’s 232 program, exclusively used to finance health care properties. This financing vehicle covers all types of residential properties within the sector, including nursing homes, assisted living centers, and other care facilities. These loans may be used to purchase, refinance, or even develop a property, though there are some strict eligibility requirements.
Through the end of March, $909.5 million in HUD 232 loans received firm commitments. Loan volume has kept relatively steady in this health care financing program, with an annual average of $4.2 billion between 2017 and 2021. These mortgages appeal to a broad range of borrowers, thanks to fixed interest rates and a maximum, fully amortizing term of 35 years.
2. 221(d)(4) Development Financing
With $1.1 billion in firm commitments in the first quarter, HUD’s 221(d)(4) program takes second place. The program’s nonrecourse construction loans are available for market-rate, low- to moderate-income, and subsidized multifamily developments alike. These are not simply construction loans, however, as they include a construction term of up to three years followed by an additional 40-year fixed-rate, fully amortizing loan once the property is complete.
The 221(d)(4) program has skyrocketed in recent years. At the turn of the 21st century, the program had less than half a billion dollars in originations. Since then, lending has been on an upward trajectory, with the highest volume of $6.1 billion in 2018, with annual originations since then hovering around the $5.2 billion mark.
1. 223(f) Refinance/Purchase
HUD’s most popular financing vehicle by far is its 223(f) program. In the first quarter alone, originations approached $2.7 billion, nearly as much as all other programs combined. In recent years, lending through this program has increased astronomically: In 2021, firm commitments hit an all-time high of $16 billion, a 25% increase from the previous year — which had itself been a record year, with $12.8 billion.
HUD’s 223(f) firm commitments volume has skyrocketed in the past few years. Source: HUD
The HUD 223(f) loan is a 35-year, fixed-rate, fully amortizing non-recourse mortgage. This type of financing generally isn’t for brand-new properties, as HUD requires that an asset should not have been substantially renovated or developed fewer than three years prior to taking the loan.
Related Questions
What are the top 5 HUD loans by volume in Q1 2022?
The top 5 HUD loans by volume in Q1 2022 are:
- 223(f) Refinance/Purchase - HUD’s most popular financing vehicle by far. In the first quarter alone, originations approached $2.7 billion, nearly as much as all other programs combined. In recent years, lending through this program has increased astronomically: In 2021, firm commitments hit an all-time high of $16 billion, a 25% increase from the previous year — which had itself been a record year, with $12.8 billion. (Image)
- 223(a)(7) Refinancing - With $887.7 million in firm commitments between January and March 2022, HUD’s 223(a)(7) refinancing program offers an affordable way for HUD borrowers to reduce interest rates, prolong amortization, and reduce the costs associated with debt service. This type of debt is unique within the department as it does not require any appraisals, market studies, or environmental reports — just a capital needs assessment. Origination volume for the 223(a)(7) program has varied significantly in recent years. After peaking at $7 billion in 2012, lending plummeted, hitting $376 million in 2018. However, in the past two years alone, volumes have rebounded, with $7.8 billion and $4.5 billion closed in 2020 and 2021.
- 223(h) Refinancing - HUD’s 223(h) refinancing program saw $845.3 million in originations in the first quarter of 2022. This program is designed to help borrowers refinance existing HUD-insured mortgages, and it can be used to refinance both market-rate and affordable housing properties. The program is also available to borrowers who are refinancing out of a non-HUD loan.
- 223(a)(7) Acquisition - HUD’s 223(a)(7) acquisition program saw $717.3 million in originations in the first quarter of 2022. This program is designed to help borrowers acquire existing HUD-insured mortgages, and it can be used to acquire both market-rate and affordable housing properties. The program is also available to borrowers who are acquiring out of a non-HUD loan.
- 223(e) Refinancing - HUD’s 223(e) refinancing program saw $619.2 million in originations in the first quarter of 2022. This program is designed to help borrowers refinance existing HUD-insured mortgages, and it can be used to refinance both market-rate and affordable housing properties. The program is also available to borrowers who are refinancing out of a non-HUD loan.
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 with less-than-perfect credit. The minimum credit score for most programs is 620, and there are options for borrowers with even lower scores. Other requirements include:
- Longer approval process than many other loan types
- Significant documentation may be required
- Investors/borrowers likely need one or more professional advisors to guide them through the entire process
What are the advantages of HUD multifamily loans compared to other financing options?
HUD multifamily loans are some of the most competitive types of financing 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. Loans backed by the Department of Housing and Urban Development 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.
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 differences between HUD 221(d)(4) and HUD 223(f) loans?
The main difference between HUD 221(d)(4) and HUD 223(f) loans is the purpose of the loan itself. HUD 223(f) loans are intended for the acquisition and refinancing of multifamily properties, while 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.
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 current interest rates for HUD multifamily loans?
HUD multifamily loans have a fixed interest rate and are fully amortizing over the longest terms in the sector — beyond 40 years for HUD 221(d)(4) loans. The current interest rates for HUD multifamily loans are 4.09% - 6.59%.
You can find more information about HUD multifamily loan rates here.