Advantages of 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.
Loan term is typically 5-7 years based upon a 20 to 30-year amortization schedule. Renewal options might
be negotiated for additional periods.
Loans are nonrecourse.
A personal guarantee is required in many cases, and there are always “carve-outs” from the non-recourse provision.
Loan to Value Ratio
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.
70-75% loan to value is typical.
Interest Rate Risk
Interest rate is fixed for the life of the loan (35 - 40 years). Current rates are below those of balance
Loan may be subject to periodic interest rate adjustments through the life of the loan with balloon risk
Flexible prepayment structures.
Subject to rigid programmatic prepayment requirements.
Cash equity requirement is 10% on new construction and 20% on purchases. Cash equity can be 0% for refinancing.
Cash equity requirement will be 25% to 35% of loan for new construction and 25% to 30% for acquisitions.
Construction and Permanent Financing
Construction and permanent financing are arranged simultaneously.
Construction and permanent financing are typically separate transactions, resulting in duplication of fees
and interest rate risk.
Fees are paid one time for a 35 to 40-year loan.
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 is assumable for qualified borrowers with minimal fees.
Loan is typically not assumable and for those banks that allow assumptions, a substantial assumption fee