Purchase or Refinance of Existing Multifamily Properties Insured Currently with HUD or Other Debt Sources
The HUD 223(f) program could benefit multifamily borrowers that are looking for a non-recourse, assumable, loan term up to 35 years that is fully amortizing, not to exceed 75% of the remaining economic life. This is not only an excellent solution for long term property holders, but short-term investors as well. This loan is fully assumable, subject to HUD approval, and can be very attractive to purchasers looking to acquire properties and assuming a long-term interest rate below market This feature makes a property appealing for a buyer to assume a low rate in increasing rate environments.
Maximum Loan Amount
|| 1.18% Minimum Debt Service Coverage Ratio
||1.15% Minimum Debt Service Coverage Ratio
|90% or Greater Rental Assistance
||1.11% Minimum Debt Service Coverage Ratio
*Note: Loan amounts in excess of $75MM have higher Debt Service Coverage Ratio (DSCR) limits and decreased Loan-to-Value (LTV) limits.
Checkout the benefits of HUD 223(f) Transactions for Multifamily Apartments as an Infographic.
Overview & Key Requirements of HUD 223(f) Loan
- Single asset, special purpose entities that are either for profit or non-profit
- Market Rate, Affordable Housing (affordable apartments for low-income families, the elderly, and people with disabilities), Unsubsidized Housing, and Subsidized Housing (HUD helps apartment owners offer reduced rents to low-income tenants);
- Properties must be at least 3 years old; and a waiver may be granted if the property is affordable and less than 3 years; and
- The property must have an average physical occupancy of 85% for 6 months prior to the loan application and maintain until close.
*Note: If there is any identity of interest between the buyer and seller in a purchase transaction, it will be considered a refinance transaction.
Amortization and Loan Term
- Maximum Loan Term up to 35 years fully amortizing, not to exceed 75% of the remaining economic life.
- 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.
- Fixed, subject to market conditions.
- 223(f) 25% of net rental area and 20% of effective gross income.
Rate Lock Deposit
- 0.50% of mortgage amount collected at time of client’s acceptance of the Firm Commitment. The rate lock deposit will be fully refunded at the transaction closing.
- The HUD mortgage note will contain a non-recourse provision as to the mortgagor entity. Notwithstanding this provision, certain parties may be held personally liable to the extent of losses arising from certain “bad acts” and malfeasance, as set forth in the Regulatory Agreement. Such parties will be identified in the Firm Commitment.
- Repairs can’t exceed $15,536 per unit multiplied by the high cost factor for the area.
- Repairs and replacements are limited to a maximum of one major building component.
- 2-year lockout followed by 8 years of declining pre-pay of 8%, 7%, 6%, 5%, 4%, 3%, 2%, and 1% (other terms may be negotiated).
- Fully assumable, subject to HUD approval.
- This feature makes the property very appealing for a buyer to assume a low rate in increasing rate environments.
- Annual deposits of a minimum of $250 per unit per year or higher as identified by the Physical Capital Needs Assessment (PCNA).
- An initial deposit will be required at closing which can be capitalized in the transaction and the amount is based on the PCNA.
Davis-Bacon Wage Rates
- Not applicable for this program.
HUD Fees for 223(f) Loan
The borrower is responsible for HUD fees.
Lender Ordered Third-Party Reports for HUD 223(f) Loan
The third-party reports listed are required prior to Firm Application submitted to HUD. They are all mortgageable, and can be reimbursed from loan proceeds at closing. The amount of the reports varies depending on the size and complexity of the project.
- Phase I Environmental Assessment
- Physical Capital Needs Assessment (PCNA)
*Note: Buildings constructed prior to 1978 may require lead based paint and asbestos containing material testing.
Lender Fees for HUD 223(f) Loan
A processing fee (approximately $5,000) along with the required third-party reports are collected at time of engagement with the lender.
The borrower is responsible for the costs listed below. These costs are mortgageable, and the costs vary based on the size and complexity of the transaction.
- lender financing and placement fees (up to 3.5% of the final loan amount, and payable from mortgage proceeds at closing),
- lender legal fees,
- recording fees,
- title insurance, and
- borrower’s legal expenses.
Estimated Timeline for HUD 223(f) Loan
The average time from engagement to the closing a HUD 223(f) transaction is between 4 and 6 months.
Basic Checklist for HUD 223(f) Loan Sizing
The information listed is required for the most accurate estimate for both the loan eligibility amount and detailed estimated cost for the transaction.
HUD 223(f) Term Sheet
Download the attached Term Sheet as a reference for eligibility, Interest Rates, Requirements, Limitations, Terms and more.