FAQ

A single asset borrower entity is required for all multifamily FHA mortgage insurance projects.

• General Partnership (GP) with two or more general partners.
• Limited Partnership (LP) with one or more general partners and one or more limited partners.
• Corporation, C Corporation, or S Corporation with shareholder owners and corporate officers and directors who may or may not be shareholders.
• Limited Liability Company (LLC) composed of members, with one or more managing members and one or more investor members.
• Trust with beneficiaries and one or more trustees (when borrower is a trust the duration of the trust must be equal to or longer than the term on the FHA Note).
• Nonprofit Corporation with officers and directors.
• Any other public or private single asset borrower entity.

The average time is between 4 to 6 months and varies based on the complexity of the transaction.

• High LTV (loan-to-value) and low DSCR’s (debt-service-coverage-ratio’s)
  • 87% LTV and 1.15% minimum DSCR for Market Rate Properties
  • 90% LTV and 1.11% minimum DSCR for Affordable Properties
  • 90% LTV and 1.11% minimum DSCR for Subsidized Properties
• Non-Recourse and fully assumable subject to both the lender and FHA approval
• 80% LTV for cash out transactions
• Low fixed-rate financing self-amortizing loan up to 35 years or 75% of remaining economic or useful life of the property
• Lower debt-service coverage requirements than other loan types
• No balloon payments and future risk of refinancing in rising interest rate environments eliminated
• No geographical restrictions
• Supplemental financing is available

• Significant documentation requirements
• Transaction time (usually 4-6 months)
• Costs are higher than other transactions
• Higher initial escrow and monthly reserves required to fund future repairs
• Annual CPA audited financials required
• Owner distribution restrictions limited to two times a year

Yes.  The loan is fully assumable with approvals from both the lender and HUD and assumption fee of 0.05% of the original loan amount.

Yes, an upfront MIP of 1% is due at closing, and an annual MIP is charged based on property type below:

• Market rate properties 0.60%
• Affordable and subsidized properties between 0.25 and 0.35%
• Energy Star certified properties 0.25%

Yes. A maximum net rental area of 25% is allowed, and a maximum of 20% of the effective gross income can be used.

Yes, for transactions up to 80% LTV.  50% of cash will be released at closing, and the remaining 50% will be held in escrow until all required non-critical repairs are completed.  A waiver can be requested to receive 75% cash at closing with 25% held in escrow until repairs are completed.

The average physical occupancy cannot be less than 85%, and the occupancy must be stable for a six-month period up until the closing of the transaction.

Initial replacement reserves of approximately $1,000 per unit are required.  An annual replacement reserve amount between $250 to $400 per unit will be determined by the Physical Capital Needs Assessment (PCNA) report.

“Private secondary financing is permitted to offset mortgageable and non-mortgageable costs up to the difference between the loan-to-value percentage and a maximum combined debt of 92.5% of the FMV, except in instances when private secondary financing is combined with federal, state or local governmental agency secondary financing. (In these instances, the governmental loan, in aggregate with the HUD first and private second, may exceed the property’s FMV.)” Source HUD MAP Guide January 2016

An Appraisal, Physical Capital Needs Assessment (PCNA), and Phase I Environmental Assessment are required.

•    Pay interest only during construction period at the same rate of the permanent loan
•    Secure both the construction and permanent loan at the same time
•    Non-recourse

•    Prior multifamily or HUD experience of the development team members which include the borrower/developer, general contractor and management company
•    Include detailed Proforma Operating Statements with as much information as possible on number of units, unit mix, rent projections, and expense projections
•    Estimated construction costs of the project
•    Market research or market study reflecting the demand for additional units that can be quickly absorbed after construction is completed

•    Appraisal
•    Market Study
•    Environmental Site Assessment
•    Architectural Plan & Cost Review

The Davis-Bacon Act requires the payment of wages that prevail in the locality on projects of a character similar to the work that will be performed on direct federal contracts. The National Housing Act (§ 212) requires Davis-Bacon compliance on multifamily projects assisted with FHA mortgage insurance under Section 221(d)(4).

Yes, a working capital escrow of 4% of loan amount is required (2% allocated to construction contingency and 2% to working capital expenses).

The timing usually takes about 6 to 8 months assuming a MAP one-stage application and about 9 to 12 months assuming a MAP two-stage application (subject to deal specifics).

They are based on Loan-to-Cost. (LTC) is a ratio used to determine how much of a development project will be financed by debt versus equity. LTC is defined as the value of the loan divided by the cost of the project. The Loan-to-Value (LTV) is the ratio of the value of a loan to the market value of the property, as opposed to the cost of construction for a project.  LTV is the mortgage amount divided by the appraised value of the property.

Cost Driven Mortgage Limits for HUD/FHA 221 (d)(4)

*Note: Loan amounts in excess of $75MM have higher Debt Service Coverage Ratio (DSCR) limits and decreased Loan-to-Value (LTV) limits.

Yes. Many class A and B market rate multifamily apartment developments qualify. HUD is known for providing programs that provide financing programs for Section 8, affordable housing, and elderly and disabled, many of their programs can be taken advantage without these components.

Yes. Cash flow distribution allowed up to two times per year upon HUD approval of audit. Submission of annual audited financial statements is required.

Yes. The loan is fully assumable with approvals from both the lender and HUD and assumption fee of 0.05% of the original loan amount.

Monthly escrows are required for property insurance, real estate taxes, reserves for replacement and mortgage insurance premiums.

Yes. The maximum allowable percentage of total net rentable area is 25%, and the maximum allowable percentage of effective gross income is 15%.

•    That there is demand for the units proposed and there is not an oversupply in the current proposed market, as well as other proposed units coming online.
•    Environmental remediation at the site that there is removal of pollution or contaminants from environmental media such as soil, groundwater, sediment, or surface water.

The repairs, replacements, and improvement costs for an existing multifamily apartment property must be more than:

• 15% of the property’s replacement cost after of all work is completed OR
• Renovation costs of more than $15,000 per unit as adjusted by the local HUD office OR
• The cost of replacing two or more buildings, regardless of the cost

• Appraisal
• Market Study
• Environmental Report
• Projected Capital Needs Assessment

A review of the architectural documents and final construction by a HUD approved third party contractor is also needed.

Multifamily and Healthcare properties with current FHA insured loans.

Yes. Minor repairs are allowed not to exceed $1,500 per unit.  If the Physical Capital Needs Assessment (PCNA) report reflects required repairs over $1,500 per unit, you would not be eligible for this particular program.

1.11x minimum DSCR For-profit entities

1.05x minimum DSCR Non-profit entities

No appraisal is required.  The only 3^rd party report that is required is the Physical Capital Needs Assessment (PCNA) report if one has not been completed within the last 5 years.

Maximum loan term is the remaining term on the existing mortgage. Can be increased up to 12 years beyond the remaining term of the existing mortgage, but not to exceed the original term. Cannot exceed 75% of the project’s remaining economic life.

The Lesser of:

• Original principal amount of existing insured mortgage;
• DSC of 1.11x (1.05x for non-profit borrowers);
• 100% of eligible transaction costs, including existing indebtedness, repairs, fees, third party costs and initial reserve deposit.

No.  The entire balance of the current replacement for reserve escrow account is transferred to the new HUD/FHA 223(a)(7) loan.

The transaction time from Engagement to close normally takes between 60 and 90 days.

Click here to download these answers within an infographic. 

For REFINANCING, the lesser of:

• 80% of fair market value (85% for non-profits)
• 100% of FHA’s allowable transaction costs (no equity take-out)
• 100% of FHA’s allowable costs less grants, public loans, and tax credits
• Amount that results in a debt service coverage ratio of 1.45x based on the underwritten Net Operating Income

For ACQUISITION, the lesser of:

• 85% of FHA’s allowable acquisition costs (90% for non-profits)
• 100% of FHA’s allowable costs less grants, public loans, and tax credits
• 80% of fair market value (85% for non-profits)
• Amount that results in a debt service coverage ratio of 1.45x based on the underwritten Net Operating Income

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Yes. Annual deposits are required based on estimates determined by a third-party Project Capital Needs Assessment. An initial deposit to the replacement reserve will be required at closing and can be funded by the mortgage loan.

Secondary financing is allowed in the form of a surplus cash note. Combined loan to value cannot exceed 92.5% unless secondary financing is from a governmental source.

Up to 15% of the appraised value of the property after completion of repairs, as long as no more than one building system is substantially renovated or replaced.

The maximum loan term is 35 years or 75% of the remaining economic life of the property.

• Appraisal
• Phase I Environmental report
• Project Capital Needs Assessment (PCNA)

Section 232 provides construction loans for assisted living facilities, skilled nursing, and intermediate and memory care properties meeting the following requirements:

• Must provide continuous care
• Must offer three meals per day
• Facility must be licensed by appropriate government entity
• Non-resident day care not to exceed 20% of gross area and 20% of gross income
• May include up to 25% non-licensed independent living units
• 20 bed minimum
• Operating leases to qualified facility operators are permissible, subject to HUD approval
• Major movable equipment, day-care facilities, and fire safety equipment may be financed
• If a state has a Certificate of Need program, a CON must be obtained prior to filing for Pre-Application

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Yes.

If the units serve those needing assistance with at least 3 Activities of Daily Living (ADL) and meet the other ALF requirements (e.g. licensed) they are eligible under Section 232.  If they are independent, you would need to limit to 25% of total number of units or request a waiver of the 25% rule (for up to 30%). 

The limitation on Independent Living refers to 25% of units.

Yes. The facility must have been completed or substantially rehabilitated for at least three years prior to the date of the Firm Commitment application. Projects with additions completed less than 3 years previous are eligible as long as the addition was not larger than the original project in size and number of beds.

OHP Benchmarks for each facility type are below, with the LTV presented first (in percentage) and the DSCR presented after the LTV for each type:

• SNF/ILU Both for Profit 80% LTV 1.45 DSCR
   
• SNF/ILU Both Non-Profit 85% LTV 1.45 DSCR
   
• ALF New for Profit 75% LTV 1.45 DSCR
   
• ALF New Non-Profit 80% LTV 1.45 DSCR
   
• ALF Existing for Profit 80% LTV 1.45 DSCR
   
• ALF Existing Non-Profit 85% LTV 1.45 DSCR

• Taxes and Insurance escrowed monthly (post construction)
• Replacement reserves required in accordance with HUD guidelines;
• Working Capital Reserve equal to 2% of loan amount (post in cash or LOC)
• Typically, equal to 12-18 months of debt service and released upon property maintaining 1.45x debt service coverage for 3 consecutive months
• Debt service reserve is required and ranges from 6-12 months of principal, interest and MIP payments; will be held until an average debt service coverage of 1.45x is met for 12 consecutive months (no month can be below 1.25x).

Developer’s Fees are not eligible mortgageable costs. However, costs associated with development of the project are allowed to be repaid through a surplus cash note. Justification to support what is included in the developer’s fee, including evidence that the work was specifically related to the project, is required if a surplus cash note is used.

Under the LEAN process this transaction can typically be completed in 9 to 12 months. Actual processing times vary depending on the complexity of the project and information available from the borrower.

The term available is 5-30 years with an amortization of up to 35 years

80%

1.20x (fixed rate)

Yes, this is a non-recourse execution with standard carve-outs for “bad acts” such as fraud and bankruptcy.

• Flexible underwriting to specific affordable developments
• Competitive pricing
• Flexible loan terms, and fixed- or variable-rate financing options
• Certainty and speed of execution

• Expiring Low-Income Housing Tax Credit deals
• Refinancing of existing tax-exempt bond deals
• Properties eligible for the Rental Assistance Demonstration (RAD) program
• Properties with HUD Section 8 HAP Contracts
• Properties with existing Rural Housing Service (RHS) Section 515 loans
• Loans insured under Sections 202 or 236 of the National Housing Act

The term available is 7 years with an amortization of up to 30 years

80%

1.00x at the maximum lifetime interest rate

Yes, this is a non-recourse execution with standard carve-outs for “bad acts” such as fraud and bankruptcy.

• Attractive low-cost financing
• No minimum or maximum loan size
• Maximum interest rate is set at rate lock
• Convertible to a fixed-rate loan with minimal re-underwriting

• Existing, stabilized multifamily properties, including: Conventional, Multifamily Affordable Housing, Seniors Housing, Student Housing, and Manufactured Housing Communities
• Loans for acquisition or refinance

The term available is 5-30 years with an amortization of up to 30 years.

55% (on a market rental basis).

1.0x on actual underwritten operations; 1.55x when utilizing market rate rentals.

Yes, this is a non-recourse execution with standard carve-outs for “bad acts” such as fraud and bankruptcy.

• Flexible loan terms
• Competitive pricing
• Certainty and speed of execution
• Customized solutions

• Existing stabilized Cooperative Properties in eligible Cooperative Property markets
• Cooperative corporations with strong management and solid operating history
• Limited equity cooperative properties for low- and moderate-income families are also eligible
• Overall Property condition rating of two or better

The term available is 5-30 years with an amortization of up to 30 years.

80% for Conventional Properties.

1.25x for Conventional Properties.

Yes, this is a non-recourse execution with standard carve-outs for “bad acts” such as fraud and bankruptcy.

• Flexible loan terms
• Competitive pricing
• Predictable payment and amortization schedule
• Speed in processing and underwriting

• Existing, stabilized Conventional properties; Multifamily Affordable Housing properties; Seniors Housing properties; Student Housing properties; and Manufactured Housing Communities
• Properties with a minimum of five units (50 pad sites for Manufactured Housing Communities)
• Credit-worthy single asset U.S. borrower with U.S. ownership
• Borrowers may have indirect foreign ownership interests, subject to proper structuring of the     borrowing entity and its parent.

The term available is 5-30 years with an amortization of up to 30 years

Varies by asset class and product type

Yes, this is a non-recourse execution with standard carve-outs for “bad acts” such as fraud and bankruptcy.

• Lower interest rate
• Free Energy and Water Audit Report
• Up to 5% more loan proceeds
• Increased Net Cash Flow by underwriting projected energy and water cost savings
• No minimum investment per unit
• Attract more investors with the market’s only Green MBS

• Conventional and Affordable Housing
• Multifamily, Seniors, Student, Military, and Cooperative
• Borrower must commit to installing capital improvements that target a 25% or more reduction to the whole property’s annual energy or water use
• Improvements must be installed within 12 months of loan origination
• Properties may be located anywhere in the U.S.
• Only Green Rewards loans that are projecting greater than 5% additional loan proceeds are Pre-Review.

The term available is 5-, 7- or 10-year fixed rate term followed by 25-, 23-, or 20-year adjustable rate term with an amortization of up to 30 years

The maximum loan-to-value is up to 80%

1.25x Actual Amortizing DSCR, if the Hybrid ARM is secured by a property located outside of a strong market, the maximum loan amount must be determined by using a minimum 1.0x DSCR sufficient to cover a debt service constant that equals the sum of the interest rate during the fixed rate term; plus 2.5%

Yes, this is a non-recourse execution with standard carve-outs for “bad acts” such as fraud and bankruptcy

• Competitive interest rates
• Low cost of execution
• Delegated Model provides Lenders and Borrowers speed and certainty of execution
• No Underwriting Floor or Fixed Rate test in Strong Markets
• Flexible prepayment terms

• Properties with loan amount $3 million or less in Nationwide Markets or $5 million or less in Eligible MSAs
• Properties with 5-50 units and loan amount $5 million or less, regardless of location
• Existing, stabilized multifamily properties, including Conventional properties and Manufactured Housing Communities
• Loans for acquisition or refinance

The term available is 5-30 years with an amortization of up to 30 years

The maximum loan to value is 75% (80% for fixed-rate tax-exempt bonds)

The minimum DSCR is 1.30x if the property is 100% Independent Living, 1.40x if the property is 100% Assisted Living, 1.45%, if the property is stand-alone Alzheimer/Dementia Care.  For combinations of the above special rules apply to calculate the minimum DSCR

Yes, this is a non-recourse execution with standard carve-outs for “bad acts” such as fraud and bankruptcy.

• Customized solutions
• Flexible loan terms
• Competitive pricing
• Certainty of execution
• Speed in processing and underwriting

• Existing, stabilized, purpose-built Seniors Housing Properties
• Sponsors and Operators experienced in the Seniors Housing industry
• Lenders experienced in financing Seniors Housing and approved by Fannie Mae for participation

The term available is 5,7 or 10 years with an amortization of up to 30 years

The maximum loan to value is 75%.

1.00x, using a DSCR calculated based on a variable underwriting rate. Mortgage loan amount shall not exceed that of a fixed-rate loan of similar terms.

Yes, this is a non-recourse execution with standard carve-outs for “bad acts” such as fraud and bankruptcy.

• Attractive low-cost financing.
• Convertible to fixed rate financing.
• Flexible loan terms and prepayment options.
• Ability to choose interest rate cap.

• Existing, stabilized Conventional properties; Multifamily Affordable Housing properties; Seniors Housing properties; Student Housing properties; and Manufactured Housing Communities
• Mortgage Loans secured by properties undergoing Moderate Rehabilitation may be eligible on a case-by-case basis.
• Credit Enhancement Mortgage Loans and Substantial Rehabilitation are not eligible
• Loans of $25 million or more

The term available is 5 to 30 years with an amortization of up to 30 years.

The maximum loan to value is 75%.

1.30x for Fixed-Rate and 1.05x for variable rate, subject to a fixed-rate test.

Yes, this is a non-recourse execution with standard carve-outs for “bad acts” such as fraud and bankruptcy.

• Customized solutions
• Competitive pricing
• Certainty of execution
• Speed in processing and underwriting

• Existing, stabilized properties that cater to a student tenant base because of design, tenancy, or location
• Strong operators with proven records of accomplishment in student housing
• Properties rented on a per-unit or per-bed basis

Up to 30 years with up to a 35-year amortization

The maximum loan to value is 90%

The minimum debt service coverage ratio is 1.15x

Yes, this is a non-recourse execution with standard carve-outs for “bad acts” such as fraud and bankruptcy.

• Protection from interest rate volatility by locking the interest rate and other key provisions prior to completing construction.
• Certainty and speed of execution.

• New construction and properties undergoing substantial rehabilitation, including preservation and rural transactions.
• Lenders approved to deliver forward commitments under Fannie Mae’s Multifamily Affordable Housing product line.

• For rate locks with Fannie Mae’s trading desk and many other MBS investors, the breakage fee for failure to originate the loan is limited to the Good Faith Deposit
• Expanded delivery tolerance allows greater flexibility for rate locks

• Existing, multifamily properties including Conventional, Coops, Green Rewards, Green Building Certification Loans, Hybrid ARM Loans, Manufactured Housing Communities, Multifamily Affordable Housing, Seniors Housing, Small Loans, Structured Transactions, Student Housing and Dedicated Student Housing properties. Some may be subject to pre-review.

Up to 30 years with up to a 35-year amortization

The maximum loan to value is 90% for deals with 90% or more affordable units. 85% for all other deals.

The minimum debt service coverage ratio is 1.15x for deals with 90% or more affordable units. 1.20x for all other deals.

Yes, this is a non-recourse execution with standard carve-outs for “bad acts” such as fraud and bankruptcy.

• Protection from interest rate volatility by locking the interest rate and other key provisions prior to construction
• Single asset security allows for customized loan structures
• Certainty and speed of execution
• M.TEB execution offers reimbursement of certain Costs of Issuance

• LIHTC new construction and properties undergoing substantial rehabilitation, including preservation and rural transactions
• Lenders approved to deliver forward commitments under Fannie Mae’s Multifamily Affordable Housing product line

Up to 30 years with up to a 35-year amortization.

The maximum loan to value is up to 90%.

The minimum debt service coverage ratio is 1.15x.

Yes, this is a non-recourse execution with standard carve-outs for “bad acts” such as fraud and bankruptcy.

• Protection from interest rate volatility by locking the interest rate and other key provisions prior to construction
• Single asset security allows for customized loan structures
• Certainty and speed of execution
• M.TEB execution offers reimbursement of certain Costs of Issuance

• LIHTC new construction and properties undergoing substantial rehabilitation, including preservation and rural transactions
• Lenders approved to deliver forward commitments under Fannie Mae’s Multifamily Affordable Housing product line

The term available is 5-10 years with up to 30 years for fixed rate loans

Varies by term and property type up to 75% LTV

Varies by term, LTV and property type

• Experienced owner/operator of comparable facilities
•  If the loan is less than $5 million, the borrower may be a Single Asset Entity with some additional restrictions and may be a limited partnership, general partnership (no individuals may be general partners), limited liability company, corporation, or real estate investment trust (must be a corporation, not a trust)
•  If the loan is $5 million or more, the borrower may be a limited partnership, a corporation, or a limited liability company and must be a Single Purpose Entity (SPE); see Section 6.13 of the Loan Agreement for basic SPE requirements
• If the borrower is structured as a tenancy in common (TIC), each tenant in common must be an SPE (Note: TICs are not encouraged)

•  Independent living properties
•  Assisted living properties
•  Memory care properties
•  Properties with a limited amount of skilled nursing (maximum 20% of NOI)
•  Any combination of the above

The term available is 5-10-years (up to 30 years for fixed-rate loans if loan is not purchased for securitization) with an amortization of up to 30 years

The maximum loan-to-value is up to 80%

Varies by term and LTV

• Borrower may be a limited partnership, corporation, limited liability company, or a tenancy in common (TIC) with 10 or fewer tenants in common
• General partnerships, limited liability partnerships, real estate investment trusts (REITs) and certain trusts may also be acceptable in limited circumstances, subject to additional requirements
• Borrower must generally be a Single Purpose Entity (SPE); however, on loans less than $5 million, upon borrower’s request, a borrower other than a TIC may be a Single Asset Entity instead of an SPE
• If the borrower is structured as a TIC, each tenant in common must be a SPE

• Purpose-built student housing properties; must have a minimum of one bathroom for every two bedrooms, and each apartment must have a separate full kitchen
• Stabilized garden, mid-rise and high-rise apartment properties that are greater than 50% occupied by student tenants
• Supporting college/university has 8,000 or more students; student housing properties located within close proximity to multiple schools that have a combined student body of 8,000 students or more will be considered
• Property is located less than two miles from college/university or on a public transportation route