HUD/FHA Financing for Apartments
HUD 223(f) Loan for Purchase and Refinance
The HUD 223(f) loan is used for the acquisition, refinance, or minor rehabilitation of multifamily properties of 5 units or more. Multiple single-family homes, duplexes or triplexes are not acceptable. Multiple 4-unit buildings that are contiguous on one or individual tax lots are allowed. Mixed-Use properties can be financed if the commercial space does not occupy more than 25% of the rentable square footage or account for more than 20% of the gross rents.
Buying Multiple Houses with a HUD/FHA Loan
Buying multiple houses with a HUD/FHA loan for the purpose of renting them is not allowed. An FHA residential loan can be used to purchase a duplex, triplex or fourplex and renting units out is allowed as long as the applicant occupies one of the units. HUD multifamily will not finance 1 – 3-unit properties in any configuration. However, HUD will finance 2 or more contiguous fourplexes on one or individual tax lots.
Minimum Loan Amount for HUD 223(f)
The Minimum Loan Amount for the HUD 223(f)
The minimum loan amount for HUD 223(f) averages around $3,000,000 – although HUD does not specify an exact minimum loan. HUD allows their approved lenders to decide this. Due to the over 400 hours that it takes a HUD lender to process, underwrite, apply for and close the 223(f), minimum loan amounts under $3,000,000 are not profitable. HUD does set minimum loan amounts based on LTV, rate, and amortization.
What is the Highest LTV Multifamily Loan?
Highest LTV Multifamily Loans
1. HUD Multifamily Loans – 85% - 90% LTV
2. Mezzanine Financing – 80% - 85%
3. Freddie Mac Multifamily Loans – 80% LTV (Purchase & Cash-Out Refinance)
4. Fannie Mae Multifamily Loans – 75% - 80% LTV (Purchase & Refinance - 75% on Cash-Out Refinance)
5. Credit Unions – 75% LTV Purchase & Refinance with or without cash out
Disadvantages of HUD Multifamily Loans
The 12 Disadvantages of 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 |
| *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 |
