FHA Multifamily Loans, HUD Mortgage Programs & Interest Rates
FHA operates under HUD, which is the largest mortgage insurer in the United States. HUD administers the FHA mortgage loan programs offering long-term, non-recourse financing for multifamily, affordable apartments and cooperatives, assisted living facilities, skilled nursing facilities, seniors housing, critical access hospitals and manufactured housing communities. As a correspondent for the FHA Multifamily Accelerated Processing ("MAP") program, Commercial Loan Direct provides access to the flexibility of the HUD FHA loan programs on an expedited basis.
As other capital sources have decreased considerably, borrowers are turning to agency lending for new originations and refinancing of their apartment projects. The primary benefit of FHA is that it is a source of financing that is always available despite the volatility of the market. Commercial Loan Direct has prepared an overview of the U.S. Department of Housing and Urban Development's (HUD) FHA apartment mortgage insurance programs to help familiarize FHA loan applicants with these programs.
Advantages of FHA Apartment Programs
|Advantages of FHA Apartment Programs|
|Up to 83% LTV Purchases||Up to 83% LTV Refinances|
|Non-recourse, low interest loans 35-40 yr amortization, low payments||Loans are assumable multiple times|
|Low DSCR requirements 1.17x||All closing costs and lender fees are eligible to be included in the loan to be paid at closing|
|No Networth min. requirements||No liquidity minimum requirements|
|Low experience requirements||Credit Score 680 FICO minimum|
|Special construction and substantial rehabilitation loan program up to 90% of total costs||Lock in the long-term construction interest rate prior to commencement of construction|
|Mezzanine debt is allowable in some cases||No stabilization reserve is required if there is a HAP contract|
|Secondary financing plus the first mortgage can go up to 92.5% of value for existing projects||No Medicaid Stabilization Reserve is required for healthcare projects with Medicaid|
FHA Apartment Loans
FHA 221(d)(4) New Construction or Substantial Rehabilitation for Apartments
New construction or substantial rehabilitation of rental or cooperative apartment market rate or affordable housing. Construction and permanent financing is available with loan to cost up to 90% (100% for non-profits) for a term and amortization period of 40 years.
FHA 223(f) Refinance or Acquisition for Apartments
Refinance, acquisition or moderate renovation of existing apartments and housing cooperatives. Offers up to 85% loan to value and a term and amortization period of 35 years.
FHA 223(f) Refinance, acquisition or moderate renovation of existing Section 202 projects
Refinance, acquisition or moderate renovation of existing Section 202 projects nationwide with a loan to value up to 90% or 100% of refinance costs for a term of up to 35 years.
FHA 223(a)(7) Refinance of an Existing FHA Insured Multifamily or Healthcare Mortgage
Refinance, acquisition or moderate renovation of apartment projects or healthcare facilities. Offers up to 100% of refinance cost or up to the original mortgage amount and a term of up to 12 years beyond the remaining term.
FHA LEAN 232 Pursuant to 223(f) Healthcare Acquisition and RefinancingRefinance, acquisition or moderate rehabilitation of existing healthcare facilities. Refinance or acquisition financing is available at up to 85% loan to value (90% for non-profits) over a 35-year term.
FHA LEAN 232 New Construction or Substantial Rehabilitation for Healthcare Properties
New construction or substantial rehabilitation of assisted living and skilled nursing facilities. Construction and permanent financing is available at up to 90% loan to value (95% for non-profits) over a 40-year term.
FHA 242 Construction, Rehab, Modernization or Expansion for Hospital and Acute Care FacilitiesSection 242 of the National Housing Act enables the affordable financing of hospital projects by reducing the cost of capital and significantly enhancing the credit of hospitals that qualify for mortgage insurance. The program improves access to quality health care, reduces the cost of hospital care, supports HUD's community development mission, and contributes revenues to the General Insurance Fund. Currently, hospitals in HUD's Section 242 portfolio range from small rural facilities to some of the nation's top urban teaching hospitals.
FHA 207 Manufactured Housing Community Properties
Section 207 Program insures mortgage loans to facilitate the construction or substantial rehabilitation of apartment manufactured home parks.
FHA 241(a) Insurance for Supplemental Loans
Section 241(a) provides supplemental - 2nd loans - to borrowers that currently have an FHA insured apartment, healthcare or hospital mortgage loan.
Important Factors Borrowers Should Consider When Selecting the FHA Loan Programs for the Refinance, Acquisition or Moderate Rehabilitation of Multifamily and Seniors/Healthcare Properties
- Loan Processing Time –Application to closing generally takes 3 to 6 months for refinance or acquisition and 9 to 12 months for new construction or substantial rehab.
- Prepayment Penalties – The prepayment terms are negotiable, but they include an initial lockout period followed by a declining percentage penalty through year 10 of the permanent loan.
- Rehabilitation Qualifications – Repairs cannot exceed $6,500 per unit (adjusted for local high cost factor), 15% of appraised value or replacement of two or more major building systems.
- Restrictions on Cash Out – No cash out is allowed for the 223(a)(7), 232 pursuant to 223(f) and 223(f) for the Refinance of Section 202 programs.
What are the Fees and Expenses Involved with making an FHA Loan?
- Lender Application Fee to cover third-party reports and underwriting costs.
- HUD Application (Government Fee): Non-refundable fee of $3 per $1,000 (0.3%) of the mortgage amount due to HUD with the Firm Commitment submission package.
- FHA Mortgage Insurance Premium: HUD sets the cost of the FHA insurance. The MIP is paid in advance for the construction period and is escrowed monthly after amortization commences.
- FHA Inspection Fee: $30 per unit when repairs are less than $3,000 per unit. 0.5 % - 1 % of the cost of repairs otherwise.
- Origination / Commitment Fee: Negotiable.
- Legal/Closing Fees: Amounts vary by transaction type.
How Do I Get Started?
- As an approved FHA Multifamily Accelerated Processing (MAP) correspondent, Commercial Loan Direct provides access to the flexibility of the FHA loan programs on an expedited basis.
- The borrower and the lender work together to prepare and submit preliminary project data, a market study and environmental report. HUD has 45 days to review and issue an invitation to Firm Commitment
- Upon receiving a Firm Commitment, the borrower and lender will submit a Firm Commitment Application that includes all third-party reports, full project plans and specifications, general contractor’s costs, a full credit review of the borrowing entity, principals and general contractor, description of the proposed property manager and business plan. HUD’s review time is up to 45 days.
- The time from the Application Letter to closing is approximately 6-9 months.
- The borrower and lender may opt to combine both steps in this process and submit a single application to HUD for review. HUD’s review time is up to 60 days, and the time from Application Letter to closing is approximately six (6) months.