Apartment Loans

HUD Multifamily Loan Requirements

By Terry Painter/Mortgage Banker, Author of The Encyclopedia of Commercial Real Estate Advice – Wiley Publishers, Member of the Forbes Business Council

 

HUD Multifamily Loan Requirements state that you have to be a US Citizen, have good credit with no tax liens and have current multifamily ownership experience. Developers must have previous multifamily development experience. Properties can be in any size market and must have 5 units or more. Commercial space is allowed up to 25% of the rentable square footage or 20% of the gross rental income. 

Video about HUD Multifamily Loans

HUD Multifamily Loan Requirements:

MULTIFAMILY ACQUISITION OR REFINANCE LOAN - HUD FHA 223 (f) Assumable non-recourse financing for the purchase or refinance of existing multifamily properties. Minor rehab allowed. 

  • Minimum Loan:  $3,000,000    Maximum Loan:  None
  • LTV:  85% for market rates, 87% for affordable, and 90% for rental assistance, 80% for cash out
  • Term: Up to 35 Years    Amortization:  Up to 35 years
  • Minimum DSCR:  Market Rents: 1.176, Affordable: 1.15, Rental Assistance: 1.11
  • Any Size and Location Market Okay
  • Commercial Space: 25% of net rentable area and 20% of effective gross income
  • Qualified Properties:  5 Units or More.
  • Repairs: Cannot exceed the greater of $15,000 per unit
  • Occupancy: Minimum of 90% for 90 Days
  • Age Restricted Properties of 62 or older allowed
  • Student Housing Not Allowed
  • No Global or Debt to Income Ratio Done
  • Good Credit Required with No Tax Liens
  • Tax Returns not Required
  • Mortgage Insurance Required
  • Post Closing Cash:  Approximately 10% of the Loan
  • No Net Worth Requirement Stated
  • Current multifamily Ownership Experience Required
  • Refundable Rate Lock Deposit of .50% of the Loan Required

 

MULTIFAMILY NEW CONSTRUCTION LOAN - HUD FHA 221 (d)(4): This assumable non-recourse loan can also be used for substantial rehabilitation. The construction and perm loan are all in one. Up to 85 of cost, Maximum term and amortization 40 years.

  • Minimum Loan: $10,000,000   Maximum Loan:  None
  • Loan to Cost:  Up to 85% with no Loan to Appraised Value required. 87% of replacement cost for Affordable, 90% of replacement cost for projects with 90% or greater rental assistance  
  • Term: 40 years
  • Minimum DSCR: Market Rents: 1.20, Affordable: 1.15, rental Assistance: 1.11
  • Any Size Market and Location Okay
  • Age Restricted Properties of 62 or older allowed
  • Student Housing Not Allowed
  • Prior Development Experience Required
  • Current Multifamily Ownership Experience Required
  • No Global or Debt to Income Ratio Done
  • Tax Returns not Required
  • Good Credit Required with No Tax Liens
  • Mortgage Insurance Required
  • Post Closing Cash:  Approximately 10% of the Loan
  • No Net Worth Requirement Stated
  • Current multifamily Ownership Experience Required
  • Refundable Rate Lock Deposit of .50% Required

 

Click on these links if you would like to know what is The Difference Between HUD and FHA, and How Does HUD Define Multifamily

 

And here’s a HUD Multifamily Loan Glossary with 74 terms defined for a fast look up.

 

HUD Multifamily Loans are Easier to Qualify For

In 1999, as a commercial mortgage broker, I was at a mortgage bankers convention in San Diego listening to a panel discussion on the best apartment building loan programs.  I became captivated by the lender selling HUD Multifamily Loans. He seemed to be answering my prayers with a loan program I was desperately looking for. One that could lend anywhere in the country, was okay with high leverage and did not seem to have a maximum loan size.

 

But most of all, I needed a loan program that had easier requirements and had low rates HUD Multifamily Loan Rates. Many of my business owner clients owned multifamily real estate and wanted to take cash out of their existing properties to buy more property.  Well, that just didn’t work for the banks I was brokering loans with. They didn’t like cash out and most still don’t today. And they kept telling me that my business clients did not show enough income on tax returns. How refreshing that HUD Multifamily allowed cash out for any reason and did not even collect tax returns.  

 

Although HUD has become more stringent on owner experience and financial strength since the great recession in 2008, it still has more lenient requirements than most other loan programs. Click on these links to review the Advantages of HUD Multifamily Loans and the Disadvantages of HUD Multifamily Loans. And on this link HUD Multifamily Loans to learn just about everything you might need to know about HUD Multifamily financing.  

 

HUD Multifamily Requirements for the Borrower

Citizenship: Must be a US Citizen

Credit Score: Score not specified. Must have good credit with no tax liens

Down Payment: For Profit: 15%, Non-Profit 10%

Closing Costs: Loan Fee: 1 point, HUD Approval Fee: .30%, HUD Exam Fee: .40%, Fee to start Mortgage Insurance: 1.00%, Processing: $7,500. Appraisal and Environmental Report Required.  

Cash Out:  On Refinances, cash out is okay for any reason

Debt to Income Ratio:  None

Tax Returns:  Not collected

Net Worth:  Not specified

Ownership:  Must be owned by a single asset entity, like an LLC

Post Closing Cash:  Exact amount not specified. 5% to 10% of the loan amount should be sufficient.

Borrower Experience: Must have current multifamily ownership experience if a similar size property when purchasing.

Self Management:  Because of the extensive forms that need to be filled out twice annually, self-management is not encouraged

 

HUD Multifamily Requirements for the Property

Property Types:  Apartment Buildings, Senior Housing (62 or older) for the HUD 223(f) loan  Senior Living, Assisted Living, Licensed Nursing Homes for the HUD 232/223(f) Loan 

Number of Units: 5 units or more

Multiple Residential Properties:  No 1 – 3 unit buildings.  Multiple contiguous 4-plex on one or individual tax lots are acceptable

Loan Size: $3 million for acquisition or refinance. $10 million for new construction or substantial rehabilitation

Property Condition:  Must be brought up to very good condition if older. An extensive property condition report called a PCNA is required. Maximum rehabilitation for the HUD 223(f) loan is $15,000 per unit.

Commercial Space:  Maximum of 25% of rentable square footage, or maximum of 20% of the effective gross income

 

Getting Pre-Qualified

Call one of our friendly highly experienced loan officers to discuss your transaction to see if you and the property are a fit for a HUD 223(f) loan.  We will be pleased to size a loan for you that will give you a quote for maximum loan amount, along with loan expenses and projected time involved.

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