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HUD FHA 223(f) Transaction FAQs

If you are interested in a HUD FHA 223(f) Transaction, it's important to understand your options. Below you will find frequently asked questions concerning HUD FHA 223(f) transactions to help you with your lending decision. See below to find out what properties are eligible, the advantages and disadvantages, the third party involvement, and more.

HUD FHA 223(f) Transactions Questions

Questions & Answers

What type of entities are eligible for HUD FHA 223(f) transactions?

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

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What are the most common types of single asset entities?

  • 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.

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What is the average time from engagement to closing on a HUD FHA 223(f) transaction?

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

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What are the advantages of HUD FHA 223(f) transactions?

  • High LTV (loan-to-value) and low DSCR’s (debt-service-coverage-ratio’s)
    • 85% LTV and 1.18% minimum DSCR for Market Rate Properties
    • 87% LTV and 1.15% 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

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What are the disadvantages of HUD FHA 223(f) transactions?

  • 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

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Are HUD FHA 223(f) transactions assumable?

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.

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Is there a mortgage insurance premium (MIP) on HUD FHA 223(f) transactions?

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%

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Are there commercial space restrictions on HUD FHA 223(f) transactions?

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

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Are cash out transactions allowed on HUD FHA 223(f) transactions?

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.


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What are the occupancy requirements for HUD FHA 223(f) transactions?

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.

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Are Replacement Reserves required on HUD FHA 223(f) transactions?

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.

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Do HUD FHA 223(f) transactions allow for secondary financing?

“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

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What Third Party Reports are required on HUD FHA 223(f) transactions?

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

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