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

HUD 221(d)(4) Loan

New Construction Multifamily or Substantial Rehabilitation FHA Loan

The HUD 221(d)(4) program is a great financing option for borrowers looking to develop or substantially rehabilitate multifamily apartments. This program features a 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 for the construction phase. Upon completion of construction, the loan is converted to a 40-year low fixed-rate that is fully amortizing. The mortgage is also assumable, which makes the property very marketable to buyers during business cycles or economic periods of rising interest rates.
Find more information below or view our frequently asked questions about the HUD 221(d)(4) loan for multifamily apartment construction and read more about navigating the loan application process with details and easy to navigate infographics.
Cost Driven Mortgage Limits
Market Rate  85% Loan-to-Cost 1.18% Minimum Debt Service Coverage Ratio
Affordable   87% Loan-to-Cost 1.15% Minimum Debt Service Coverage Ratio
90% or Greater Rental Assistance 90% Loan-to-Cost 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 HUD 221(d)(4) Loan Application and Approval Process as an Infographic

Overview & Key Requirements of HUD 221(d)(4) Loan

Eligible Borrowers

  • Single asset, special purpose entities that are for-profit profit or non-profit.

Eligible Properties

  • Market Rate, Affordable, and Rental Assistance Properties;
  • Tax-exempt bond structures for Low Income Housing Tax Credit (LIHTC) transactions; or
  • Substantial rehabilitation that meets one of the following requirements:

1. The cost of repairs. replacements, and improvements of the existing property exceeds $15,636 per unit adjusted by HUD’s high-cost for that area (estimated between 190%-270%).


2. Replacement of two or more building systems.

Low Equity Requirements 

  • As low as 10% for projects with a 90% or greater rental assistant component to 15% for market-rate transactions.

Amortization and Loan Term

  • Interest rate is the same for the construction period followed by a 40-year fixed rate fully amortizing the permanent loan. 
  • Interest only during the construction period.

Interest Rate

  • Fixed, subject to market conditions.

Commercial Space 

  • 221(d)(4) 25% of net rental area and 15% of effective gross income.

Rate Lock Deposit

  • 0.50% of mortgage amount collected at the time of client’s acceptance of the Firm Commitment. The rate lock deposit will be fully refunded at the transaction closing.


  • For both construction & permanent phases of financing.

Two-Stage Application Process

  1. Preliminary Application reviewed by HUD prior to a Firm Application.
  2. HUD experienced development teams may request to bypass the Preliminary Application and submit a Firm Application which saves time and expenses.

Absorption Period

  • The absorption period used is estimating market demand for proposed newly constructed or substantially rehabilitated units is 18 months.

Underwritten Physical Occupancy

  • Maximum of 93% for market rate.
  • Up to 97% for projects with 90% or more Section 8.


  • 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).

Assumable Mortgage

  • 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.


  • Taxes, insurance, replacement reserves, mortgage insurance premium, debt service, working capital, operating deficit, and minor movables are required.

Davis-Bacon Wage Rates 

  • The general contractor and all subcontractors are required to comply with federal wage and reporting requirements.

HUD Fees for 221(d)(4) Loan

The borrower is responsible for HUD Fees.

HUD Fees for 221(d)(4) Loan


Lender Ordered Third-Party Reports for HUD 221(d)(4) Loan

The lender ordered third-party reports listed below 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.
  • Market Study 
  • Appraisal
  • Phase I Environmental Assessment
  • Phase II Environmental
  • Architectural Plan and Costs Review (completed by a HUD-approved Third Party Contractor)

Lender Fees for HUD 221(d)(4) Loan

After the loan sizing, the processing fee (approximately $5,000 to $10,000) along with the estimated funds required for third-party reports are collected at the 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,
  • survey, 
  • title insurance, and
  • borrower’s organizational and legal expenses.


Estimated Timeline for HUD 221(d)(4) Loan

The average time from engagement to the closing a HUD 221(d)(4) transaction is between 8 and 11 months. The development team members, which include the borrower/developer, general contractor and management company, should have prior multi-family and HUD experience to qualify for this program.

Timeline for HUD 221(d)(4) Loan

Basic Checklist for HUD 221(d)(4) Loan Sizing

The information listed is required for the most accurate estimate for both the loan eligibility amount and costs for the loan. 

HUD 221(d)(4) Term Sheet

Download the attached Term Sheet as a reference for eligibility, Interest Rates, Requirements, Limitations, Terms and more.

newsletter signup