HUD 221(d)(4) Loan Rates
Terry Painter/Mortgage Banker, Author of The Encyclopedia of Commercial Real Estate Advice – Wiley Publishers, Member of the By Terry Painter/Mortgage Forbes Business Council
HUD 221(d)(4) Loan Rates for the New Construction and Substantial Rehabilitation of Multifamily properties change daily as the 10-year treasury yield index changes. HUD adds a spread to this index based on perceived risk. If the treasury yield were to be 3.25% and the spread is 2.50 the all-in rate would be 5.75%. Interest rates are .35% lower for buildings certified green by Energystar or Leed. Rates cannot be locked until Loan Approval. Today’s rates below include the Mortgage Insurance Premium (MIP)
Today's HUD 221(d)(4) Multifamily Loan Rates 07/20/2023
| Green | Standard | Fixed-Rate Term/Amortization | |
| HUD 221(d)(4) For New Construction | 6.09% | 6.59 | 40 Years |
*Mortgage Insurance Premium Included in Rates Shown
Click on this link to learn in depth about the HUD 221(d)(4) Loan.
And this link to learn just about everything you might need to know about HUD Multifamily Loans
And here’s a HUD Multifamily Loan Glossary with 74 terms defined for a fast look up.
How Long are HUD 221(d)(4) Loan Rates Fixed For?
HUD 221(d)(4) loan rates are fixed on the construction loan for up to 3 years while the property is being built and occupied. The rate is then fixed for 40 years on a fully amortized mortgage. No other commercial loan program fixes a rate for that long. Having such a long term loan with such a long amortization greatly lowers loan payments and gives those borrowers wanting to hold the property a long time peace of mind.
Do HUD 221(d)(4) Construction Loan Rates Change when the Permanent Loan Starts?
This is the only commercial loan program I know of that rolls seamlessly from the construction loan to a long-term permanent loan at the same rate as the construction loan. This removes the uncertainty as to what your permanent loan rate is going to be when your construction loan is approved.
Being able to calculate the permanent loan rate ahead based on the construction loan rate often allows for a higher loan to cost on the construction loan. This is because almost all construction loan to costs are constrained by a much higher estimated perm loan rate lowering the size of the perm loan which then lowers the size of the construction loan.
What is the Rate Lock on the HUD 221(d)(4) Loan?
The 221(d)(4) construction loan rate cannot be rate locked until a day or two after HUD approves the loan. The process starts with the lender getting real time quotes from Ginnie Mae (Government National Mortgage Association) bond traders on Wall Street. Rates can often be lowered by shopping many bond shops competitively. To lock the rate the borrower needs to put down .50% of the loan amount l as a rate lock deposit. This allows the bond trader to purchase a swap rate that holds the rate for up to 90 days. This deposit is refunded in full at loan closing.
How Does the Mortgage Insurance Premium Effect Rates?
Because these loans are usually high leverage, mortgage insurance is required. This also enables HUD to guarantee the loan with the full faith and credit of the United States Government. This is why investing in Ginnie Mae Bonds is one of the lowest risk investments and are always in great demand. Loan funds are actually raised from the sale of the Ginnie Mae bonds which have the same high credit rating as the United.
As the mortgage insurance premiums (MIP) are paid with the mortgage based on a percentage of the principal balance monthly, they are added into the rate. For green buildings this is .25% and for standard buildings .60% paid monthly. There is a 1.00% fee to start the mortgage insurance at the closing of the construction loan.
Do Interest Rates Stay the Same if the Loan is Assumed?
HUD 221(d)(4) loans are assumable at the same rate as the original mortgage for the remaining term of the loan. This is a huge benefit for both buyer and seller when rates are high since the HUD loan likely has a much lower fixed rate than current rates with many years remaining on the loan. Even if the rate is a bit higher than current rates, because of the 40-year amortization – payments are usually lower.
HUD loans are generally easier to assume than most other commercial loan types. The process takes about 90 days. The buyer has to qualify under the same guidelines as the seller did and has to be approved by HUD. The cost of loan assumption is only .50% and the buyer does not have to order a new appraisal or other third party reports.