FHA/HUD Section 221
Construction or Substantial Rehabilitation of Multifamily Properties Across All 50 States
KEY FEATURES




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 |
---|---|---|
Subsidized* | 90 | 1.11x |
Affordable** | 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
All loans are subject to credit approval. Terms and conditions may apply.
* At least 90% of the units covered by a project-based Section 8 contract for at least 15 years after the loan closes.
** 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).