hud 223 (f) terms and qualifications
ELIGIBLE PROPERTIES
Multifamily properties with at least 5 units including various classifications (market-rate, subsidized multi-family, low-to-moderate income, affordable housing properties, and cooperative housing) and various types (detached, semi-detached, walkup, row, and elevator-type).
ELIGIBLE BORROWERS
Non-profit borrowers, for profit borrowers, or public owners are eligible for the HUD 223f program. These are typically single-asset entity (SAE) and bankruptcy-remote entities.
COMMERCIAL SPACE LIMITATION
HUD multifamily loans limit commercial space to the lesser of:
* 20% of the property's effective gross income OR
* 25% of the property's net rentable area
LEVERAGE (LOAN AMOUNT OR DSCR*)
LEVERAGE (LOAN AMOUNT OR DSCR)
HUD multifamily loans provide the following leverage. The loan amount is subject to the lesser of:
* 85% LTV for Market Rate Properties
* 87% LTV for Affordable Housing Properties
* 90% LTV or the total debt that can be serviced by 90% of net operating income or more for Rental Assistance Properties
* For purchases: 100% of mortageable transaction costs, excluding grants, public loans, and tax credits
Refinancing:
* The greater value between 80% LTV or 100% of the total cost of refinancing the existing debt and other mortgageable transaction costs
REPLACEMENT RESERVES
HUD guidelines require minimum replacement reserves of $250 per unit, per year. In addition, HUD requires an initial deposit at closing. This can be funded by mortgage proceeds.
ESCROWS
With HUD multifamily financing, insurance and taxes are escrowed monthly.
MIP (MORTAGE INSURANCE PREMIUM
HUD-required MIP is paid upfront and annually. HUD requires 1% of the total loan amount at closing as the first year's MIP. For each year after, it is 0.60% annually. HUD allows an adjustment for affordable properties to 0.45%. Properties qualifying for a Green MIP Reduction are charged a reduced MIP of 0.25%.
TERM & AMORTIZATION
For up to 35 years, terms are fixed and fully amortizing. The terms cannot exceed 75% of the property's remaining economic life.
RECOURSE
HUD multifamily loans are non-recourse and subject to standard carve-outs.
ASSUMABILITY
Based on FHA approval along with a 0.05% fee of the original FHA loa amount, these loans are fully assumable.
PREPAYMENT
There are no prepayment penalties if an FHA multifamily loan is assumed. Also, after 10 years, there are no prepayment penalties. However, there is usually a zero or one year lockout and a 10% to 1% declining prepayment penalty. Additional prepayment options are available.
OCCUPANCY
Prior to application for HUD 223f loans, properties must have an average occupancy of 85% for the preceeding six months. This occupancy rate must be maintained throughout the application process. For market rate properties, the maximum underwritten occupancy is 93%. For affordable properties this occupancy is 95%, and for rental assistance properties, it is 97%.
REPAIRS AND IMPROVEMENTS
Some repairs, maintenance, and improvements can be included in the loan (subject to leverage and DSCR limitations) for the greater of:
* 15% of the property value OR
* $6,500 per unit (adjusted for high-cost areas) OR
* 20% of the mortgage proceeds can be included in the loan amount
However, these repairs cannot exceed $15,000 per unit (also adjusted for high-cost areas), and cannot replace more than 50% of a major buiding system (i.e. plumbing, electrical, building structure).