FHA/HUD Section 221

Construction or Substantial Rehabilitation of Multifamily Properties Across All 50 States

Key Features

  • Competitve
  • Local Processing
  • More Money In Your Pocket
  • Flexibility
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Details

Eligible Properties

  • Low-to-moderate income
  • Subsidized multifamily properties

Term & Amortization

  • Interest-only for up to three years during construction period, followed by 40 years fully amortizing, rate fixed at construction for all years.

    Property Type Maximum Loan to Cost Minimum DSC
    Subsidized1 90 1.11x
    Affordable2 90 1.11x
    Market Rate 87 1.15x

Commercial Space Limitations

  • Limited to 25% of net rentable area and 15% of underwritten effective gross income (up to 30% of underwritten EGI permitted in Urban Renewal Areas and Opportunity Zones).

Minimum Scope of Work

  • All new construction plus renovation of existing building when renovating costs exceed $15,000 per unit (adjusted for inflation) times a local cost factor, typically 190% - 270%

Prepayment & Assumption

  • Negotiable prepayment, with best pricing for 10 years of call protection (can be a combination of lockout and/or penalty); loan is fully assumable, subject to HUD approval.

Escrow

  • At closing, nonmortgageable escrows are required for working capital (2%--4% of the loan) and initial operating deficit; balances will be released to the borrower after 6 consecutive months of break-even operations. Post construction, taxes, insurance, and mortgage insurance premium will be escrowed monthly and a capital needs reserve maintained with monthly deposits in accordance with HUD guidelines on a property-specific basis (minimum $250/unit/year).

Interest Rate

  • Single fixed rate for both the construction interest only period and the permanent loan term, determined by market conditions at time of rate lock. Rate lock deposit is 0.5%, refunded at closing.

HUD Application Fee

  • 0.15% of estimated loan amount due with submission of initial application, plus 0.15% due with final application (entire 0.30% due with final application for affordable and subsidized properties). HUD Application Fees are reduced for properties in Opportunity Zones.

Third Party Reports

  • Appraisal, Market Study, Environmental, and future Capital Needs Assessment, plus a review of the final construction and architectural documents by a HUD-approved third party contractor

Mortgage Insurance Premium (MIP)

  • 0.65% annually (0.70% for projects under Section 220, 0.25% - 0.35% for affordable and subsidized properties, and 0.25% for properties with Green Building certification from a list of accepted standards). Note that any MIP due during construction period will be escrowed at the initial closing, prior to the start of construction.

Miscellaneous

  • Non-Recourse
  • Davis-Bacon Wages Required
  • Loan Amounts up to $125 Million (Larger Amounts Available)
  • Single-asset, special purpose entity, either for profit or non profit borrowers
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All loans are subjectto credit approval. Terms and conditions may apply.

1- At least 90% of the units covered by a project-based Section 8 contract for at least15 years after the loan closes.

2 - Affordable: Regulatory Agreement in place with minimum set-aside (e.g., 40% of units at 60% AMI, or 20% of units at 50% AMI) in effect for at least15 years after the loan closes and with rent advantage to market; Middle Income: Regulatory Agreement in place with minimum set-aside of 50% of the units at up to 120% AMI in effect for at least10 years after the loan closes (no rent advantage to market required).