Advantages of HUD

 


Loan Term

HUD
Loan term is up to 40 years on a fully amortized basis for new construction/major expansion/rehab or up to
35-year term and amortization for existing refinancing depending upon remaining useful life.

Conventional
Loan term is typically 5-7 years based upon a 20 to 30-year amortization schedule.  Renewal options might
be negotiated for additional periods.

 


Recourse

HUD
Loans are nonrecourse.

Conventional
A personal guarantee is required in many cases, and there are always “carve-outs” from the non-recourse provision.

 


Loan to Value Ratio

HUD
Loan to value is up to 90% for new construction, and up to 80% for most refinancings.  Refinancing may
qualify for up to 100% loan to cost funding.

Conventional
70-75% loan to value is typical.

 


Interest Rate Risk 

HUD
Interest rate is fixed for the life of the loan (35 - 40 years).  Current rates are below those of balance
sheet lenders.

Conventional
Loan may be subject to periodic interest rate adjustments through the life of the loan with balloon risk
at maturity.

 


Loan Prepayment

HUD
Flexible prepayment structures.

Conventional
Subject to rigid programmatic prepayment requirements.

 


Cash Equity

HUD
Cash equity requirement is 10% on new construction and 20% on purchases.  Cash equity can be 0% for refinancing.

Conventional
Cash equity requirement will be 25% to 35% of loan for new construction and 25% to 30% for acquisitions.

 


Construction and Permanent Financing

HUD
Construction and permanent financing are arranged simultaneously.

Conventional
Construction and permanent financing are typically separate transactions, resulting in duplication of fees
and interest rate risk.

 


Fee Payments

HUD
Fees are paid one time for a 35 to 40-year loan.

Conventional
Borrower may pay both lender’s and broker’s fees 2 to 3 times over holding period: one for construction,
one for permanent, and any refinancing will also require additional fees.

 


Loan Assumability

HUD
Loan is assumable for qualified borrowers with minimal fees.

Conventional
Loan is typically not assumable and for those banks that allow assumptions, a substantial assumption fee
is charged.