HUD 221(d)(4) Loans – 2022 Guide


The demand for multifamily properties has surged.

That means finding the right financing option for multifamily properties can be difficult.

Not every loan option works in a given investing scenario.

If you’re looking to finance the construction or major rehabilitation of a multifamily property, consider the HUD 221(d)(4) loan!

The HUD 221(d)(4) loan is the multifamily property industry’s highest leverage and lowest cost loan.

It provides a minimum of $4 million on up to a 43-year term, fully amortizing over 40 years.

Are you interested to learn more about this fantastic financing tool?

In this article, we’ll go over how HUD 221(d)(4) loans work, how to qualify for them, how to apply, how you can use them, and more!

HUD 221(d)(4) Loans: How they work

The Department of Housing and Urban Development, or HUD, isn’t the party that’s providing the loan to you.

Instead, they work with partnered lenders and cover some of the losses in the event of a default on the loan.

Typically, the loans they cover are for multifamily property financing.

The HUD 221(d)(4) loan is a type of loan that the Department of Housing and Urban Development will guarantee.

HUD 221(d)(4) loan terms last for a maximum of 40 years, with an additional 3 years (43 total) for the construction period.

The initial 40 years are amortized with fixed interest rates.

To protect the lenders, borrowers will need to pay a mortgage insurance premium at closing.

These loans come with an annual audit, and you’ll need a general contractor to close the deal.

Most lenders will offer a minimum of $4 million, but the HUD does make exceptions.

For construction purposes, lenders will usually offer a minimum of $10 million.

How to qualify for a HUD 221(d)(4) Loan

To qualify for a HUD 221(d)(4) loan, you’ll need to make sure the property financing is appropriate for the HUD 221(d)(4) loan.

Here are a few things to keep in mind.

Property Conditions

The HUD 221(d)(4) loan is meant to finance the construction of multifamily properties or significant rehabilitation.

These properties can be considered market-rate, moderate-income, and subsidized properties.

The properties need to have at least five units for occupation, and each unit must have a kitchen and bath.

There can also be some space used on the property for commercial purposes.

This area cannot exceed 25% of the rentable area or account for more than 15% of the property’s net income.

The property can be either for-profit or non-profit.

Borrower eligibility

Borrowers that are eligible for the HUD 221(d)(4) loan should be single-asset, bankruptcy-remote property owners.

Use of funds

To be eligible for financing, the property must meet one of the two requirements:

  • The cost of rehabilitating the property that already exists must be more than the greater of 15% of replacement cost or $6500 per unit
  • The replacement of two or more buildings, ignoring costs

How to use a HUD 221(d)(4) Loan

HUD 221(d)(4) loans are used to construct or rehabilitate a multifamily property.

These properties include detached, semi-detached, row, walkup, and elevator properties.

Loan amounts, LTC ratios, and DSCR will differ based on the type of property you’re dealing with.

  • Market-rate properties – 85% LTC / 85% net income / 1.20 DSCR
  • Affordable housing properties – 87% LTC / 87% net income / 1.15 DSCR
  • Rental assistance properties – 90% LTC / 90% net income / 1.11 DSCR

How to apply for an HUD 221(d)(4) Loan

There are 7 primary sections that you’ll be concerned with:


During underwriting, the lender highlights the value of the loan.

They’ll discuss terms, ask for HUD-related documentation, and assess your risk as a borrower.

You’ll need to submit documents about what you plan on doing with the loan.

You can continue once the lender and HUD verify all your information. Until then, it’s a waiting game!

Third-Party Reports

There are a variety of third-party forms that the HUD will require from you.

  • Property appraisal forms – assess the value of the property in the context of the market. If the property isn’t built yet, it’s essential that you provide a construction plan for the property.
  • Environmental assessment – ensures there are no hazardous materials on the property.
  • Site containment report – examines the construction site to ensure safety.
  • Certification of specific plans and measures – If your multifamily property needs special considerations, note them here.

Management Agent

Here, you’ll be responsible for submitting documents on who will manage the property.

This might be an individual, a party of your choosing, or a management firm.

You’ll submit their resume, plans, and the actions they’ll take in the event of tenant complaints.

Construction and Architectural Documents

You will submit your floor plans and planned rehabilitation changes here.

Be ready to show the approval documentation!

Legal, Property, and Financial Documentation


This is all the personal documentation you’re going to need for the project.

This includes IDs, certifications of obligations, and any HUD authorization letters.


Property documents highlight aspects of the property that might be of concern.

This includes zoning and building codes, construction permits, and code violations.


Financial documents include lease agreements, any personal tax forms, and any existing income forms.

You’re going to need an organizational chart that breaks down how you plan on spending the loan as well.


At this stage, you’ll present your mortgagor’s resume.

This can be an individual or, more likely, the project sponsor and their development team.

List all the principals and submit a credit report for each of them.

General contractor and closing

The final step before closing is finding or finalizing your general contractor.

The HUD and lender can recommend contractors if you haven’t decided on one yet.

Upon selection and agreement, submit select contractor-related documentation to the HUD.

After this, you’re all set!

It can take anywhere from 5-to 11 months to close the loan application.

How to pay back your HUD 221(d)(4) Loan

HUD 221(d)(4) loans are amortizing for 40 years; you’ll be paying them according to the lender’s payment schedule.

The construction component of the project has its own 3-year, fixed, interest-only term as well.

As for the interest rate of the loan, it’s fixed through the life of the loan, and they’re offered at competitive rates.

You can also choose 30-80 day rate-lock commitments, these need a 1% deposit that you’ll get back at closing.

As for prepayment, your best bet is to prepay after 10 years. There’s a 2-year lockout, followed by a 10% (which jumps down to 8% after the lockout) declining penalty of 1% annually.

Sample HUD 221(d)(4) Loan Terms

Maximum Amount $5,000,000
Guarantee % 85% LTC
Guarantee Fee 3.5%
Term/Timeline 40 years + 3 years for construction 
Amortization 40 years amortizing 
Interest Rates 3.10% (fixed)
Additional Fees Application Fee – $25,000

FHA exam – 0.30% loan 

FHA inspection – 0.5% loan

Financing and placement – 3.5% loan

Use of Proceeds  Substantial rehabilitation of 1 Multifamily property (7 units) 
Recourse Non-recourse
Assumability Fully assumable 
Prepayment 2-year lockout – 8% declining by 1% annually until the 10-year point

HUD 221(d)(4) Loans vs HUD 223(f) Loans

Check out this table for a quick overview of the differences between HUD 221(d)(4) loans and HUD 223(f) loans.

HUD 221(d)(4) HUD 223(f)
Loan Size $4 Million Minimum $1 Million Minimum
Interest Rate 3.10 to 4.10% Fixed               (no MIP)

MIP of 1% at close and up to 0.65% annually 

4.10% to 4.75% Fixed (and MIP)

MIP of 1% at close and up to 0.65% annually 

Terms Fixed and fully amortizing (up to 40 years) 

Additional 3 years for construction at a fixed rate

Fixed and fully amortizing (up to 35 years) 
Fees  5 to 11 months  4.5 to 6 months

Pros and Cons of HUD 221(d)(4) Loans

As per most loan options out there, there are pros and cons to choosing a HUD 221(d)(4) loan:

Pros of HUD 221(d)(4) Loans

  • Long terms (up to 43 years)
  • Competitive interest rates
  • The construction portion of a loan is separate and has its own terms
  • Fully assumable
  • Non-recourse

Cons of HUD 221(d)(4) Loans

  • Long closing times—it can take anywhere from 5-11 months to close
  • The application process is very time consuming and requires a lot of documentation
  • MIP at closing


Is it hard to get a HUD 221(d)(4) loan?

This depends on what your metric is for “hard.” With a wide range of eligible properties and borrowers, getting a foot in the door for these loans is easy.

The difficulties come with the large fees and the lengthy application process.

Should I take out a HUD 221(d)(4) loan?

If you plan on rehabilitating or constructing a multifamily property, yes!

It’ll be hard to find a better option with the amazing terms and rates provided by the HUD.

Are HUD 221(d)(4) loans expensive?

They can be.

There are a handful of fees you’re going to need to cover.

There’s the application fee, which can be over $25,000. FHA fees range from 0.15% to 0.50%, placement fees of 3.5%, and the list goes on.

Final Thoughts

HUD 221(d)(4) loans are an amazing tool for multifamily property rehabilitators.

With generous terms and rates, it’s no wonder why HUD 221(d)(4) loans get the praise it deserves.

Have a multifamily property you’re planning on rehabilitating or building? Want to get your hands on a HUD 221(d)(4) loan? Check out Loanbase!

Our platform has streamlined the process to connect borrowers and lenders.

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