HUD 221(d)(4) Program - Construction or Rehabilitation of Multifamily Properties

Property Types

Market Rate, Affordable, and Subsidized Multifamily
Eligible Borrowers

Single asset, special purpose entities, either for profit or non-profit
Loan Amount

No Minimum/No Maximum (subject to general loan parameters)
Location

Nationwide
Term & Amortization

Interest-only term equal to actual construction period plus 40 years fully amortizing
General Loan Terms

New Construction: The maximum loan is the lesser of

  • 83.3% (87% for Affordable) of HUD’s estimate of replacement cost (Rehabilitation - plus “As-Is” value of property)
  • 1.20x Debt Service Coverage, (1.15x for Affordable)
Interest Rate

Fixed rate, subject to market conditions at the time of rate lock
Recourse

None, except standard carve-outs
Assumable

Yes, subject to HUD approval
Prepayment

Typically loans are prohibited from prepayment for the 1st year, then have a 9% penalty declining 1% each year thereafter until 0%.  Alternative lockout and prepayment structures are available.
Mortgage Insurance Premium

Depending on property type:
.25% to .65% at closing
.25% to .65% annually thereafter
Professional Liability Insurance

HUD requires a minimum coverage of $1 million per occurrence and $3 million aggregate.  Waivers may be granted in cases where premiums are high and claim history is clean.
Other
  • Davis Bacon prevailing wages are required
  • Builders and Sponsors Profit and Risk Allowance of 10% of all construction costs can be used for sponsors with an identity of interest general contractor
  • Escrows required for repairs, mortgage insurance premium, taxes, insurance, and replacement reserves
  • Third party reports include Appraisal, Market Study, Phase I, and future Capital Needs Assessment, plus a review of the final construction and architectural documents by a HUD-approved third party contractor
  • Secondary financing is allowed, subject to HUD guidelines and approval