HUD Multifamily Loans and Rates

Terry Painter/Mortgage Banker, Author of The Encyclopedia of Commercial Real Estate Advice – Wiley Publishers, Member of the By Terry Painter/Mortgage Forbes Business Council

By Terry Painter/Mortgage Banker, Author of The Encyclopedia of Commercial Real Estate Advice – Wiley Publishers, Member of the By Terry Painter/Mortgage Forbes Business Council

HUD Defines Multifamily as a property that has a least 5 residential units occupied by one or more individuals. Each Unit must have a complete kitchen and a full bath. Multiple contiguous fourplexes on one or individual tax lots are considered multifamily.  Apartment Buildings, Senior Housing (62 and older): Independent Living, Intermediate Care, and Assisted Living Facilities are considered multifamily.

The Difference Between FHA and HUD is that FHA oversees and guarantees low down payment and low credit score loans for moderate to low-income homeowners. HUD oversees FHA, but primarily sets guidelines and guarantees multifamily loans of 5 units or more for rental property investors. The Federal Housing Administration (FHA) came first in 1934 and became a part of HUD in 1965.

The differences between HUD and Fannie Mae Multifamily is that HUD is a government agency, and Fannie Mae is a Government Sponsored Entity (GSE) that is in conservatorship with the US Government. Although both guarantee losses from borrower defaults, HUD’s guarantee is backed by the full faith of the US Government where Fannie Mae’s is only backed by its own corporate financial solvency. HUD can lend more money than Fannie Mae and has a longer maximum fixed rate term of 35 years compared to Fannie Mae’s maximum of 30 years.

HUD Multifamily Loan Requirements state that you have to be a US Citizen, have good credit with no tax liens and have current multifamily ownership experience. Developers must have previous multifamily development experience. Properties can be in any size market and must have 5 units or more. Commercial space is allowed up to 25% of the rentable square footage or 20% of the gross rental income. 

The HUD 232/223(f) loan is for the acquisition or refinance of Senior Independent Living, Intermediate Care, Assisted Living and Licensed Nursing Home facilities. All properties are required to have 20 or more residents who require skilled nursing care and are in continual need of nurses, certified nurse assistants, and other care providers.  All properties must be licensed by the state or other governing agencies. Eligible borrowers can include for profit investors or nonprofit corporations or associations.

The HUD 221(d)(4) Loan is for new construction or substantial rehabilitation of multifamily properties of 5 units or more. Multiple residential buildings of 1 – 3-units on one or individual tax lots that are not allowed. However, multiple 4-unit buildings that are contiguous are acceptable. Mixed-use properties are accepted where the commercial space is no more than 25% of the rentable square footage or 20% of the gross rental income.