Important: Refinance your current loan to avoid a balloon payment prior to maturity date.  - Read more.

FHA Multifamily Loans Explained


There are many intricacies to FHA multifamily loan programs, and navigating them can be tricky. At LSG Lending Advisors, we're here to help break it down so you can better understand this potential financial opportunity.

What is the Multifamily Loan Program

A HUD/FHA-insured loan program makes capital available to borrowers for the purchase, development, rehabilitation, and refinancing of multifamily properties, and they offer the industry's lowest-cost, fixed-rate, non-recourse financing options available in the marketplace. Multifamily can mean large apartment complexes or a smaller property with two or more residential units. It's important to know that different HUD and FHA multifamily loan programs are available to investors.

HUD 221 (d)(4) Program

This HUD loan program is a financing option for those borrowers wanting to develop or rehabilitate multifamily apartments. Take advantage of high leverage 85% loan-to-cost for market-rate apartments and up to 90% loan-to-cost or subsidized apartments. This combination loan structure offers up to 24 months interest-only during the construction phase. Upon completion of construction, the loan is converted to a 40-year fixed-rate that is fully amortizing.

HUD 223(a)(7) Program

For multifamily and healthcare loans that are presently insured, this program offers simplified refinancing. Through this program, borrowers may quickly and efficiently minimize their debt payment, extend their mortgage term up to 12 years, and refinance their existing mortgage with a new lender at a reduced rate. It is possible to finish the procedure in two to four months. The revenues from the loan may be used to pay off pre-existing FHA-recognized debt, finance refinancing, cover the cost of necessary and minor repairs (up to $1,500 per unit), and set aside deposits for future accounts.

How to Buy a Multifamily Property with an FHA Loan

All HUD/FHA mortgages are insured by the Federal Housing Administration (FHA) and approved by the Department of Housing and Urban Development (HUD). These mortgages are processed and underwritten, processed through the Multifamily Accelerated Processing (MAP) approved lenders. HUD and FHA loans are funded through the issuance of Government National Mortgage Association (Ginnie Mae or GNMA) mortgage-backed securities.

What do Multifamily Properties Offer Investors?

At LSG Lending Advisors, we're often asked what value multifamily properties can offer investors. Like any potential investment, a multifamily property can be a fantastic addition to your investment portfolio.

  • FHA Multifamily loans offer higher Loan-To-Values.
  • HUD and FHA-insured loans have a non-recourse feature. (with the exception of standardized carve-outs).
  • Fixed-term amortizations have durations of up to 35 years for refinancing, purchase, or substantial rehabilitation and up to 40 years for new construction. 
  • Debt service coverage ratios (DSCR) are lower than those of agency loan programs and banks. 
  • Interest rates are the lowest available of any multifamily loan program.

In addition, Ginnie Mae ensures that principal and interest on securities issued by private lenders and backed by Federal Housing Administration (FHA) pools will be paid on schedule to investors, often known as security holders. Ginnie Mae's placement of the full confidence and credit guarantee of the United States government on mortgage-backed securities reduces the cost of mortgage financing and keeps it available for government-backed loans.

What Types of FHA/HUD Multifamily Programs are Available? 

The FHA/HUD offers several multifamily programs that cater to different needs, including loans for multifamily apartment projects, including Section 8, low-income housing, and market rate projects. 

FHA Insured Loan Programs – targeted to developers, investors, and property owners and include HUD 223(f), which allows for refinancing, and section HUD 221(d)(4) designed to finance the construction or rehab of a multifamily property. Several FHA loan programs exist, including Section 213. For the greatest success in an FHA multifamily property transaction, We recommend to contact our team for a thorough introduction to these valuable loan programs.

Can Multifamily Borrowers Benefit from HUD 223(f)?

Multifamily borrowers seeking a fully amortizing, assumable, non-recourse loan with terms up to 35 years and does not exceed 75% of the remaining economic life may find many benefits to the HUD 223(f) program.

Long-term property owners will find this to be a great option, and short-term investors can get in on the action. Assuming a long-term interest rate below market, this loan could be very appealing to buyers wishing to purchase properties. It is completely assumable and subject to HUD clearance.

FHA Multifamily Lenders: Choosing the Right Partner

Without a doubt, there is great potential in multifamily loans. However, the complexity of multifamily financing, with the different types of financing, qualifications, and other factors should not be overlooked. It is crucial to be well-educated on the subject and to work with an experienced lender. If you’re ready to add multi-family investing to your portfolio, have questions on multifamily loan programs, or need a quote contact LSG Lending Advisors today. 

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