If you seek multi-family financing, whether the property is new or in construction, loans insured through the Department of Housing and Urban Development (HUD) may be the most beneficial option available. HUD is an agency specifically responsible for implementing national policies and programs to address America’s housing needs. Through the Federal Housing Administration (FHA), HUD provides mortgage and loan insurance for multi-family properties. Hunt Mortgage Group is a Federal Housing Administration (FHA) Multi-family Accelerated Processing (MAP) approved lender and offers HUD mortgage insurance to provide consumers an easy and secure borrowing experience.
Eligibility of Properties
HUD provides mortgage insurance for rental and cooperative housing (Section 221 D4) as well as mortgage insurance for purchase, refinancing or existing multi-family rental housing (Section 223F). Properties that qualify for Section 221 D4 are 5 or more rental units including apartments or new construction with no more than 10% of the total gross floor space dedicated to commercial use or 20% for substantially rehabilitated properties. Borrowers may be public, profit-motivated sponsors, nonprofit cooperatives, limited distribution, builder-seller, investor-sponsor, and general mortgagors. This option is especially advantageous for the private industry looking to construct or rehabilitate housing for moderate-income and displaced families, by making capital more readily available.
Section 223F is for properties with 5 or more residential units completed or substantially rehabilitated for at least three years before the date of application for mortgage insurance. These properties can include apartments, refinancing a multi-property, or acquisition of a new multi-family property. Both non-profit and for profit borrowers may apply. This insurance is beneficial as it provides eligibility for purchase in the secondary mortgage market, improving the availability of loan funds and permitting more favorable interest rates.
HUD Section 221 D4
In 2015, this program insured mortgages for 192 projects with 30,412 units. Currently, the program insures mortgage loans, which facilitate new construction or substantial rehabilitation of multi-family housing specifically for moderate-income families, elderly, and the handicapped. This program also includes a 40-year fixed term or up to 75% of the remaining economic life. It is a non-recourse loan that is assumable by approval from HUD and the lender. The rate locks before to new construction. All types of consumers qualify to occupy these properties however they are subject to normal tenant selection.
Maximum loan is the lesser of:
Replacement cost multiplied by
- 90% for projects with 90% or greater rental assistance
- 87% for affordable housing transactions
- 85% for market rate projects
- Land value (new construction) or “as is” value of the property (sub rehab) are included in replacement costs
Debt Service Coverage
- 11 or 90% of NOI for projects with 90% or greater rental assistance
- 15 or 87% of NOI for affordable housing transactions
- 176 or 85% of NOI for market rate projects
Costs and Fees
- Operating deficit escrow (LOC or cash)
- Offsite or unusual site development cost (LOC or cash)
- 4% working capital escrow (LOC or cash), half of which is a construction contingency to cover cost overruns and approved change orders
HUD Inspection Fees
- $ 5 per thousand of mortgage amount for new construction
- $ 5 per thousand of improvement costs for sub-rehab
- Initial premium: .25% for affordable and .65% for market rate
- Annually thereafter: .65% escrowed monthly for market rate and .25% for affordable
- If a property meets the standards for green buildings and energy efficiency, then the MIP rate can reduce to .25%.
HUD Section 223 F
This program has insured mortgages for 500 projects with 70,142 units, totaling $ 4.5 billion in the 2015 fiscal year. For insurance of mortgage loans facilitating the purchase or refinance of existing multi-family rental housing, this program provides a non-recourse loan. But HUD and the lender must first approve the loan. It is the lesser of a 35-year fixed term or up to 75% of the building’s remaining economic life. All consumers qualify to occupy projects under this program.
Maximum Loan is the lesser of:
HUD appraised value or acquisition cost multiplied by:
- 90% of projects with 90% rental assistance
- 87% of affordable housing transactions (tax credits)
- 85% of market rate deals
- 80% of cash out transactions
- 50% of cash out at closing will remain in escrow and until completion of all identified immediate repairs
Debt Service Coverage
- 11or 90% NOI for projects with 90% rental assistance
- 115 or 87% NOI for affordable housing transactions (tax credits)
- 176 or 85% NOI for market rate deals
FHA per Unit Statutory Limit
- Section 207 statutory per unit limits, adjusted by the local Field Office high cost percentage for the locality
Cost to Refinance or Cash-out
- The greater of the cost to refinance or 80% of HUD appraised value
- If the transaction provides cash-out, 50% of the cash out proceeds will remain in escrow until completion of all identified immediate repairs
Costs and Fees
- 20% of estimated repairs (LOC or cash) – held until repairs are complete
- Tax and insurance escrow
UD Application Fees
- $ 3 per thousand of requested mortgage amount
Mortgage Insurance Premium
- Initial premium: 0.25% of mortgage amount is payable at closing for affordable properties, 1% of mortgage amount is payable at closing for market rate.
- Annually Thereafter: .25% paid monthly on the average outstanding principal balance for affordable properties and .60% for market rate.
- If a property meets energy efficient standards, the MIP rate can reduce to 0.25%
For more information about HUD mortgage insurance for multi-family properties, contact the experts at Hunt Mortgage Group today!