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: Personal liability is required in many cases, and there are always “carve-outs” from non-recourse provision.

Loan to Value Ratio

HUD: Loan-to-value is up to 90% for new construction and up to 80% for typical refinancing. Refinancing may qualify for up to 100% loan-to-cost funding.

Conventional: 70-75% loan-to-value is typical.

Interest Rate Risk

HUD: The interest rate is fixed for 35 to 40 years and will not change for the life of the loan, current rates are below that of balance sheet lenders.

Conventional: Loans may be subject to periodic 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 is 10% on new construction and 20% on purchases. Cash equity can be 0% for refinancing.

Conventional: Cash equity 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, providing for 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.