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HUD Multifamily Construction Loans/Financing

The FHA/HUD 221 (d)(4) provides assumable non-recourse construction and perm financing for new apartments or substantial rehabilitation of existing apartments.  Featuring 85% loan to cost (no loan to appraised value) a 40 year very low fixed rate, a 40 year term and 40 year amortization – you can see why this is the best construction roll over to perm loan in America. If you are bringing in investors, the non-recourse feature makes this loan a must – especially since it is difficult to find a non-recourse construction loan. One of the best features is that the rate on your perm loan is fixed within days of your construction loan being approved at the same low rate as your construction loan.  This means that you do not have to live with the uncertainty of what your perm loan rate will be during construction. With up to the first three years interest only for construction and then an additional 40 years for the perm loan the total term can be up to 43 years.


Qualified Properties:

For multifamily commercial properties of 5 Units or more. 

For a property to qualify for substantial rehabilitation the cost of repairs, replacements and/or improvements to the existing property must exceed $15,000 per unit adjusted by the applicable high cost factor for that sub-market; or two or more major building components are being replaced regardless of cost (plumbing, electrical, HVAC, are examples of building components. 

This program is permitted for age-restricted properties under section 231 as long as all occupants are 62 or older. 



  • Minimum Loan: $5,000,000 – There is no maximum loan, but loans over $25M are scrutinized at a higher level
  • 85% of Cost for Market Rate Developments, 87% of Cost for Affordable Housing
  • There is no loan to appraised value, however the current fair market value of the land will be appraised.
  • Construction Loan rolls over seamlessly to 40 year fixed rate perm loan
  • Perm Loan Term: 40 Years, Amortization 40 years
  • Exceptionally Low 40 year fixed rate (call us for today’s rate)
  • DSCR: 1.176 for Market Rents, 1.15 for Affordable developments, and 1.11 for  projects with 90% or more rental assistance
  • 18 months after completion for absorption/stabilization
  • Perm loan rate is locked prior to construction
  • Non-Recourse construction and perm loan
  • Commercial Space is limited to 25% of the gross square footage and 15% of gross income. This can be extended up to 30% of underwritten EGI in an urban renewal or opportunity zone.
  • Assumable for a ½ point fee
  • No Tax Returns Required
  • FF&E may be financed
  • Draws (average bi-monthly)
  • No minimum Net Worth Requirement
  • No debt to income ratio done
  • Minimal Post Closing Cash Requirement
  • Good Credit Required
  • Experience required for the developer and HUD experience for the construction team– architect, general contractor and property manager
  • Davis Bacon Prevailing Wages are required
  • General Contractor has to be capable of posting a performance bond or have 15% of the hard construction costs in working capital.
  • CPA Audited Financials are required annually
  • Draws to key principals and investors are allowed every 6 months
  • Fees and expenses include:  Financing fees, HUD exam fees, HUD inspection fee, permanent placement of the Gennie Mae bond, legal fees and processing fees
  • Mortgage Insurance Premium is .25% for green buildings and .70% for non-green buildings of the loan amount due at loan closing for each 12 month period of the construction loan term. There is also .25% for green buildings and .70% mortgage insurance premium paid monthly on the outstanding principal balance paid with the mortgage payment.  


Other HUD Requirements:

  • Working Capital Escrow – New Construction: 4% of loan amount (2% allocated to construction contingency and 2% to working capital expenses) Working Capital Escrow – Substantial Rehabilitation: 2% of loan amount
  • Construction contingency balance at final endorsement may be released at that time
  • Unused working capital and initial operating deficit escrows to be released later of 12 months from final endorsement or 6 consecutive months of break-even occupancy
  • Initial operating deficit escrows will be required and can be posted in cash or letter of credit, which will be the greater of:
  • Amount determined to be appropriate based on underwriting analysis and appraisal;
  • Three percent of the mortgage amount; or
  • Four months debt service (principal and interest and MIP) if the property is walk-up, or 6 months debt service if the property is an elevator building where a single certificate of occupancy must be issued before any of the units or entire floors can be rented.
  • The absorption period used in estimated market demand for the proposed number of units is restricted to 18 months
  • Any “off-site” construction costs or demolition costs require separate funding by the borrower
  • An “Initial Endorsement” will commence the construction phase
  • The general contractor must pay Davis-Bacon prevailing wage rates as required by the Department of Labor
  • The mortgagor must retain a qualified arms-length supervisory architect during construction
  • A cost certification for the owner will be required after construction completion. General contractors are required to submit a cost certification if there is an identity of interest with the borrower
  • The general contractor must execute a lump sum or cost plus contract depending on relationship between owner and contractor, provide a 100% performance and payment bond (or cash escrow or letter of credit acceptable to FHA), and have liquid net worth equal to at least 5% of the project construction contract plus all other uncompleted construction work
  • FF&E may be included in the mortgageable project cost
  • Large loan sizes are subject to more conservative underwriting
  • Escrows for property taxes, insurance, MIP and replacement reserves required



A Pre-Review Meeting is scheduled with HUD. In this meeting we present the scope of project to HUD with supporting data. Within a week of this meeting HUD will make a decision on the viability of the project.
The Pre-Application package is prepared and sent to HUD to pre-approve the project.  HUD then issues an invitation letter to apply for the loan.
Full plans and specs are ordered and reviewed along with the construction contract by a HUD approved architect. The firm application is prepared and sent to HUD. HUD has 60 days to respond.  Once the loan is approved, the rate is locked and documents are created.
It usually takes about 30 days from loan approval to close


THE HUD 221 (d)(4) TIME FRAME 


Part 1  PRE-APPLICATION    60 Days

1. Schedule Concept Meeting with HUD (14 day average wait time)

2. Order Appraisal (part 1), Market Study and Phase 1 Environmental Report 60 days. 

3. Pre-Loan Approval Package is assembled by the lender with analysis of the reports and sent to HUD to  be preapproved. -  16 days


Part 2   HUD INVITATION  ISSUED  -  60 Days

HUD has 60 days to review the package and Invite the borrowers to apply for the loan.


Part 3    FIRM APPLICATION  SUBMISSION -  75 Days (This can be lowered to 30 days if plans and specs are completed prior to receiving HUD’s preapproval invitation) or if plans and specs are not needed.

1. 2nd part of Appraisal is ordered for the cost approach 

2. Full Architectural plans and specs are ordered and completed. Construction contract is obtained, and management company, and general contractor credentials are turned in.

3. All documents relating to the sponsors are collected and filled out

4. Architectural review, construction budget review and legal review of borrowing entity is completed.

5. Firm Application package is compiled and sent to HUD for final approval



1. HUD has 60 Days to approve the firm application


Part 5  CLOSING -   30 Days

1. Documents are drawn  - 1 week

2. Documents are review and signed by the borrower 1 week

3. HUD's attorney reviews the signed documents - 2 weeks

4. Loan Closes


Total  285 days   8 – 9.5 Months



Getting the right loan and the lowest rate requires wisdom and finesse. If you’re ready to partner with a team of professionals who’ve built a foundation on straight talk and true strategy, we are the loan store for you.


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HUD Loans are one of the best options with the current level of interest rates. For a complete guide to HUD Multifamily Loans please go here:

HUD Multifamily Loans - The Complete Guide