MULTIFAMILY | FHA/HUD Section 221(d)(4)
New Construction or Substantial Rehabilitation Loan
Our HUD Section 221(d)(4) program provides long-term, low fixed-rate, non-recourse, assumable financing for the construction and permanent financing of new apartment projects or substantial rehabilitation of existing apartment projects.
Eligible Properties
Market rate, affordable, or subsidized multifamily properties.
Eligible Borrowers
Single asset, special-purpose entity, either for profit or not-for-profit.
Term
Maximum of 40 years, fully amortizing (plus interest only period during construction).
Interest Rate
Locked before closing and fixed for the duration of the construction period and full 40-year term. (Subject to market conditions.)
Guarantees
Non-recourse for the construction period and duration of the term.
Prepayment
Customizable, typically a 10-year step down, based on market conditions and borrower preferences.
Assumable
Subject to FHA/HUD and lender approval.
Loan Parameters
| Market Rate | 85% | 1.176 |
| Affordable | 87% | 1.15 |
| Subsidized | 90% | 1.11 |
HUD Fees and Expenses
- The annual Mortgage Insurance Premium (MIP) is 0.65% of the outstanding loan amount for market rate transactions. Reduced MIP rates for affordable projects or projects that qualify for Green/Energy Efficient Housing.
- FHA Application Fee of 0.30% of loan amount.
- FHA Inspection Fee of 0.50% of loan amount (new construction) and 0.50% of costs associated with construction (substantial rehabilitation).
- Replacement Reserves determined by a 20-year capital needs analysis, minimum of $250 per unit per annum.
Commercial Space
Limited to 25% of net rentable space and 15% of gross income.
Third-Party Reports
Market Study, Appraisal, Phase I Environmental, and Architectural & Cost Review.
Construction Wages
Local prevailing wages, as per Department of Labor, paid under Davis-Bacon Act.
Timing
Approximately 8 – 12 months for engagement, submission, FHA/HUD review, and closing.
Funding
Ginnie Mae guaranteed mortgage-backed securities.
Other Program Parameters
- Escrows for property taxes, insurance, MIP, working capital, and replacement reserves are required.
- A Builder’s and Sponsor’s Profit and Risk Allowance (BSPRA) equal to 10% of all costs other than land can be utilized for sponsors with an identity of interest general contractor. For affordable and rental assisted transactions, a mortgageable developer Fee in lieu of BSPRA is permitted.
- Value of land already owned is included in eligible costs.