HUD Multifamily Loans and Rates

Today's HUD Multifamily Loan Rates 02/20/2025

	Green	Standard	Fixed-Rate Term/Amortization
Refinance/Purchase - 223f	5.39%	5.74%	35 years
New Construction - 221 d4	5.81%	6.21%	40 years

* Rates Includes Mortgage Insurance Premium
 

By Terry Painter/Mortgage Banker 
Author of “The Encyclopedia of Commercial Real Estate Advice” Publisher – Wiley. 
Member of the Forbes Real Estate Council

Why HUD Multifamily Financing Outperforms the Others

HUD Multifamily loans can be used for acquiring, refinancing, rehabbing, or constructing market rent, as well as affordable multifamily properties. With the highest LTV, lowest Non-Recourse Loan rates, the lowest long-term fixed rates, the longest term and amortization -  up to 40 years, HUD Multifamily Financing outperforms any other multifamily loan product in the United States.  But what I love the most about HUD Multifamily Loans is that if rates go down in the future, you can apply at a nominal cost for a Rate Reduction Loan Modification, and switch to a lower rate.  Process takes about 90 days.

 

Advantages of HUD Multifamily Loans

*Highest LTV at 80 – 90%	*1.176 DSCR Market Rents
*Cash Our for Any Reason	*1.15 DSCR Affordable Rents
*Unlimited Loan Size	*Same Rate Construction Roll over to Perm
*35 Year Fixed Rates	*No Global or Debt to Income Ratio
*40 Year Fixed Rate New Construction	*Assumable
*No Tax Returns Required	*Non-Recourse
*Supplemental Financing Available	*Lowest Long Term Fixed Rates
*35 Year Amortization Existing Property	*40 Year Amortization New Construction.

The advantages of HUD Multifamily Loans are truly amazing!  I discovered this when I worked on my first one as a commercial mortgage broker in 1999. But it was my second HUD loan that I will never forget about a year later made to an investor in Tulsa, Oklahoma. He was refinancing a 42 unit he had built there 8 years prior.  His purpose was to take cash out to build another apartment building on an adjoining lot he owned.

“Hey”, he asked me, “can you do as much as a million dollars cash out on my apartment building worth $3,000,000?

 

“How much do you owe on it, what is your credit score, and do you have any tax liens”, I asked him?

 

“$1,390,000, 650 credit score, and no tax liens”, he replied.

 

“Yes then, I have a HUD 223(f) loan product that can do that for you if the property cash flows”.

 

“Seriously”, he asked, “you can get me the million?  The banks say I don’t earn enough and won’t do any cash out unless I use it for repairs.   How the heck can you do it?

 

“Well, HUD is not regulated like commercial banks, tax returns are not required, and they see the cash out as your money to do what you want with it” I answered!

 

He went on, “Okay, but I want a 30-year fixed rate just like my home has with a 30-year amortization.  No more 5-year fixed with a 5year rate adjustment and no more lousy 20 year amortization.   Can you do that”?

“I can likely do better.  How does a 35-year fixed rate sound with a 35-year amortization?”

 

Are You Looking for the Highest Leverage Multifamily Loan?

If you are looking for the largest loan possible, then you must choose a multifamily loan program that can hit a home run on all 3 of these metrics:

1. Lowest Interest Rate
2. Longest Amortization
3. Lowest Debt Service Coverage Ratio (DSCR)

 HUD Multifamily is the one apartment building loan program that achieves the best results on all three of these metrics.   HUD Multifamily loan Rates tend to be the lowest long-term fixed rates and when combined with the longest amortization – 35 years and the lowest DSCR – 1.176,  you can count on leveraging high.  And rates are fixed for 40 years with a 40-year amortization for new construction or substantial rehabilitation.

 

What is truly astounding is that these fully amortizing loans have a lower 35-year fixed rate than most 10-year fixed rate loan programs.  Few banks can fix an apartment building rate for longer than 5 to 10 years and most have a 25-year amortization at best.

 

Note that interest rates are lower if the property is built green. Compare today’s HUD Multifamily Loan Rates with Fannie Mae Multifamily Loan Rates, and Freddie Mac Multifamily Loan Rates.  And while you are at it, why not compare those with Multifamily Loan Rates from 12 loan programs.

Click on this link HUD Multifamily Loans - The Complete Guide for my most extensive article covering just about everything you might need to know about the subject.  And on this link for a HUD Multifamily Loan Glossary to look up HUD Loan terms you need defined.

 Disadvantages of a HUD Multifamily Loans

*Takes a Long Time to Close	*Older Properties May Have to be Remodeled
*Higher Closing Costs	*Monthly Replacement Reserves Required
*Minimum Loan $3,000,000	*Working Capital Reserve for Construction
*Annual Financial Audits	*Davis-Bacon Wages Required for Construction
*Biannual Draws for Owners	*Mortgage Insurance Required

Click on this link for a complete list of HUD Multifamily Loan Disadvantages

 

HUD Multifamily Loan Requirements:

MULTIFAMILY ACQUISITION OR REFINANCE LOAN - HUD FHA 223 (f) Assumable non-recourse financing for the purchase or refinance of existing multifamily properties. Minor rehab allowed. 

• Minimum Loan:  $3,000,000    Maximum Loan:  None
• LTV:  85% for market rates, 87% for affordable, and 90% for rental assistance, 80% for cash out
• Term: Up to 35 Years    Amortization:  Up to 35 years
• Minimum DSCR:  Market Rents: 1.176, Affordable: 1.15, Rental Assistance: 1.11
• Any Size and Location Market Okay
• Commercial Space: 25% of net rentable area and 20% of effective gross income
• Qualified Properties:  5 Units or More.
• Repairs: Cannot exceed the greater of $15,000 per unit
• Occupancy: Minimum of 90% for 90 Days
• Age Restricted Properties of 62 or older allowed
• Student Housing Not Allowed
• No Global or Debt to Income Ratio Done
• Good Credit Required with No Tax Liens
• Tax Returns not Required
• Mortgage Insurance Required
• Post Closing Cash:  Approximately 10% of the Loan
• No Net Worth Requirement Stated
• Current multifamily Ownership Experience Required
• Refundable Rate Lock Deposit of .50% of the Loan Required

Top Three HUD Multifamily Loan Programs

 

 

Click on the links below for the three most popular HUD Multifamily Loan Programs  if you want to go right to extensive detail on them:

 

HUD 223(f) for Acquisition and Refinance of Existing Apartment Buildings.   This loan program has 35-year fixed, fully amortizing rates that are often lower than the best 10-year fixed rates offered by Fannie Mae, Freddie Mac, and Commercial Banks. If you want to renovate the property you finance up to $15,000 per unit in improvements with this loan program.

 

HUD 221(d)(4) for New Construction or Substantial Rehabilitation.  Why not find an office property that has failed and repurpose it to an apartment building with this loan.  Your up to 3 year construction loan rolls over seamlessly to a 40 year fixed rate permanent loan at the same rate as the construction loan.

 

HUD 232/223(f) for Independent Senior Living, and Assisted Living.  With our aging population, there has never been a greater need for this loan program than now.  This program has a health care component.  Independent Senior Living cannot have more than 20% of the residents that are truly independent and only rent their apartment.  The remainder must need room, board or be in needed of assisted living or memory care.

 

Pros and Cons of HUD Multifamily Loans

 

Pros of HUD Multifamily Financing

We've been doing HUD Multifamily Financing since 1999 and I can tell you that there is no other apartment building financing that can compete with the quality of what HUD has to offer. Here are the main benefits: 

 

1. Lowest Long Term Fixed Interest Rates – The rule of thumb on all commercial loans is the longer you fix the rate, the higher the rate. Not so on a HUD multifamily loan, and no one fixes the rate for longer. On March 15th, 2021, we locked a $13 million loan on a green recently built 90-unit apartment complex in Beaumont, Texas at a rate of 2.96% fixed for 35 years. On a new construction roll over to a permanent loan, the rate can be fixed for 40 years.

 

2. Highest Loan to Value (LTV) – Up to 80% with cash out and 85% without cash out. Cash out can be used for any reason. This goes up to 87% for affordable  rent properties and 90% for properties that have at least 90% rental assistance. Click on this link if you are wondering What is the Highest LTV Multifamily Loan and you will find the best multifamily loan programs listed in order of the highest LTV.

 

3. Longest Amortization – Up to 35 years on a multifamily purchase or refinance and up to 40 years if you use a HUD 221(d)4 loan for the construction. 

 

4. No Tax Returns Required – HUD Multifamily loans are made mostly to the property and not as much based on the financial strength of the borrower. So only the income of the property is taken into consideration – not the borrower’s personal income

 

5. The Loan is Non-Recourse –  Unlike recourse loans that just about all banks have, non-recourse means there are no personal guarantees required from key principals. This makes it so much easier to raise investors who will not have to worry about their bank and security accounts, homes, autos being at risk if the property fails and goes into foreclosure. For more on non-recourse loans go to: Non-Recourse Loans

 

6. Lowest Debt Service Coverage Ratio (DSCR) – The lower the DSCR, the higher the loan amount. Where most multifamily loan programs have a DSCR of 1.25, HUD loans only require a 1.17 DSCR. For more on DSCR go to: Debt Service Coverage Ratio

 

7. Loan is Assumable – If you decide to sell the property, your loan can be assumed by the buyer for a .50% fee. Almost all other commercial loan products charge 1.00% for this.

8. Get the Rate Lowered if Rates Come down – I have left the best feature for last.  This is the only commercial loan program I know of where you can get the rate lowered in the future if rates come down by applying for a Rate Reduction Loan Modification with your HUD Lender.

 

Click on this Link to review all the Advantages of HUD Multifamily Loans.

Click on this link to review HUD Multifamily Loan Requirements for the borrower and the property to see if you qualify. 

 

8 Cons of HUD Multifamily Financing

1. Only for Larger Loans – Because of the high loan expenses, HUD multifamily loans only really make sense for loan amounts of $3,000,000 and above on purchase and refinances, and $10,,000,000 on ground up construction, and major construction.  This is because of the amount of work and time it takes the lender to close one of these loans.  Also the closing costs just don’t pencil on smaller loans. 

 

2. Annual Audits Required – A CPA prepared audit of the property’s financials has to be done annually. This can cost $3,000 or more.

 

3. Annual Inspections from HUD – As long as you keep the property in great condition this will not be a problem. Just keep in mind that HUD’s mandate is to provide more quality housing in America. So they do require you to keep the property condition up including the parking lot, walkways, common areas and landscaping.

 

4. Higher Closing Costs – Because these loans are guaranteed by HUD with the full credit strength of the United States Government, and they go up to 85% LTV, there is an initial cost for mortgage insurance, and then a monthly cost added to the rate. Expect at minimum 1.00% financing fee, plus HUD charges a .30% fee to approve the loan. There are also high costs for lender legal expenses.  Because of the low interest rate and long amortization (35 – 40 years), these expenses will not usually increase your loan payments and can be financed with the loan.

 

5. Long Time to Close –  Expect a HUD multifamily 223(f) for refinance or purchase to take 7 – 8 months. And a 221(d)4 for new construction or substantial rehabilitation to take up to a year to close. For this reason, these loans usually do not work well for purchases. 

 

6. Property has to be in Very Good Condition – Unless you are planning on rehabbing the property, HUD loans require the property to be in or brought up to very good condition. This will add more to the cost of the project for older properties.

 

7. Replacement Reserves Required – HUD will require an initial contribution to a replacement reserve fund starting from $400 per unit per year on up.  This is your money to be used as needed to make repairs and replacements for the property.

 

8. Mortgage Insurance Required – there is a 1.00% fee to start the mortgage insurance premium at loan closing and then each month the premium is added into your rate.  .25% for green properties and .60% for standard properties.

 

Click on this link to review all the Disadvantages of HUD Multifamily Loans

 

And on this link to review HUD Multifamily Loan Requirements

 

And on this link to learn more about Buying Multiple Houses with a HUD/FHA Loan

 

When a HUD Multifamily Loan Makes Sense

 

HUD multifamily loans make the most sense if you need an acquisition or refinance loan of preferably $3 million dollars or higher, or a construction loan of $10 million dollars plus., and are going to hold the property long term. Why? Because this will be the last loan you will need to get. Where most commercial loans mature in an average of 10 years, and you have to refinance over and over, HUD loans don’t mature until the property is paid off in 30 – 40 years. So, you won’t have to worry about having to refinance when interest rates have soared, or keep paying closing costs on loans that mature every 10 years.

 

On the other hand, because these loans are high leverage and assumable with a .50% fee, they can work well for someone who wants to hold the property for 5 years or a bit longer, then sell if they get an offer they cannot refuse. They also make sense if you need a high loan to cost construction. Where most multifamily construction loans.  And don’t forget about being able to apply for a lower interest rate should rates come down in the future.  No other commercial loan program that I know of can do that.

 

Yes, the cons are somewhat daunting on HUD Multifamily Loans, but in my opinion if you are going to keep the property long term, the very low long-term fixed-rate combined with a 35 – 40-year amortization will create such a low monthly payment that will make it worth it. 

 

To learn more about HUD Multifamily, please read on. I have highlighted the guidelines and terms for 3 HUD Multifamily loan programs where you can check to see if they will be a fit for you.

 

 

Need help calculating your DSCR? Try our free Debt Service Coverage Ratio Calculator here.

Want to learn more about DCSR and why it is the Number One Factor in analyzing the risk level of your business or investment property loan? Read our current article here! 

 

ARE YOU A GOOD MATCH FOR A HUD APARTMENT LOAN?

Answer These Questions and Find out Fast

 

To Score Add Up All Yes Answers

Do you have current or recent Multifamily (5 Units or more) ownership experience?

YES          NO

Do you have at least 15% of the cost or value of the project in equity or cash, or can bring in a partner that can help you achieve this?

YES          NO

Do you have a Credit Score of 660 or above? 

YES          NO

It it correct that you have no tax liens?

YES          NO

Is it correct that you have never defaulted on a Federal loan guaranteed by HUD?

YES          NO

Do you currently have some post closing cash (cash left over after the loan closes) or can you bring in a partner to help you achieve this?

YES          NO

Are you a US Citizen or Resident Alien?

YES          NO

Are you willing to hire a HUD experienced property management company if you do not have prior HUD property management experience?

YES          NO

Have you run the numbers with income and expenses to show that the property is running profitably?

YES         NO

Will the subject property have 25% or less Commercial Space?

YES         NO

Does your project have the time and are you willing to wait for a HUD Apartment Loan Closing?  This will take 6 – 7 months for a refinance or purchase, 8 – 9 months for a construction project

YES         NO

Do market rents in the submarket of the subject property support the rents that you have or are planning on having for the subject property?

YES        NO

Are you willing to own the property in a single asset entity like an LLC (Limited Liability Company)?

YES       NO

Will a long term, low rate 35– 40 year fixed rate mortgage that is assumable be your preference?

YES       NO

Are you willing to go through a lengthy and complicated loan application process to obtain the best quality long term fixed rate mortgage available in America?

YES       NO

Are you willing to keep the subject property in excellent condition during the entire time you have the HUD mortgage?

YES       NO

Are you ok with a HUD requirement requiring replacement reserves?  This is  an additional  amount paid into a repair/capital replacement escrow account with your mortgage payment each month.  This account will be used for repairs and major replacements to the property such as replacing a hot water heater, or roofing, etc..

YES       NO

Are you ok with the HUD requirement for annual audited financial statements on the property?

YES      NO

Are you ok with HUD making annual inspections of the subject property?

YES      NO

Are you ok with HUD restrictions on cash distributions to owners?

YES      NO

 

Are you a good match for a HUD Apartment Loan? 

If you answered YES 18 times or more    =     EXCELENT MATCH

If you answered YES 16 times or more    =      GOOD MATCH

If you answered YES 14 times or more   =       FAIR MATCH

If you answered YES less than 14 times  =       POOR MATCH

If you have 14 or more YES answers call one of our friendly loan specialists to size and pre-qualify you for a HUD Apartment Loan and to find out more about the program:  503-376-7303