HUD and agency loans


agency loan for multifamily property

Agency Loans: The Ideal Financing Solution for Multifamily Properties

Financing multifamily properties comes with a wealth of choices, and finding the right one can be a critical step in your investment journey. Agency loans have become a favored option for many seasoned investors, standing out as a robust and reliable solution. These government-backed loans suit the unique needs of multifamily property investment, whether you’re looking to purchase, refinance, or improve properties. With their features and benefits, agency loans offer a premier choice in the complex landscape of multifamily financing. This article sheds light on agency loans, detailing their features and benefits, their critical differences from traditional bank loans, and the criteria for eligibility. By the end of this read, you’ll understand why agency loans are a premier financing choice for multifamily property investments. Understanding Agency Loans for Multifamily Properties Agency loans are mortgage loans backed by government-sponsored enterprises (GSEs) such as Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA). These loans are specifically designed to purchase, refinance, or improve multifamily properties, typically housing five or more units. They are called agency loans because government agencies do not directly issue them. Instead, they guarantee or insure the loans issued by approved lenders, making them attractive to investors due to their competitive rates and terms, among other advantages. Key Benefits of Agency Loans Agency loans offer a broad range of benefits that cater to various investor needs. Their flexible terms and favorable conditions often make them a preferred choice for real estate financing, fostering growth and stability in the real estate market. Let’s take a closer look: Long-Term Amortization Agency loans are particularly appealing because they usually offer 30-year amortization periods. This extended time frame for repayment provides borrowers with the benefit of lower monthly payments, thus enhancing the property’s cash flow.  Lower payments make the loan more manageable, particularly for new or small-scale investors, and may contribute to increased investment stability over time. Competitive Interest Rates One of the standout features of agency loans is their competitive low-interest rates, often significantly lower than traditional bank loans. This can translate to substantial savings over the loan’s lifetime, which may run into tens or even hundreds of thousands of dollars.  These favorable interest rates make agency loans an attractive financing option, particularly for long-term investments. High Loan-to-Value Ratios With agency loans, investors can finance up to 80-90% of a property’s purchase price or appraised value. This high loan-to-value (LTV) ratio allows investors to buy properties with less upfront capital, potentially enabling them to acquire larger or more valuable properties than otherwise possible.  The flexible LTV terms provide investors with greater leverage and opportunities for expansion within the real estate market. Non-Recourse In most cases, agency loans come with a non-recourse feature, meaning the borrower’s liability is strictly limited to the property itself. If the borrower defaults on the loan, the lender’s only recourse is to seize the property, not other personal or business assets.  This protection can reduce financial risk for the borrower, adding a layer of security to the investment. Assumability Most agency loans include an assumable clause, allowing the loan to be assumed by a new borrower if the property is sold. This feature adds a potential selling point for the property, making it more attractive to potential buyers.  It can ease the process of property transfer and may even result in a higher selling price, as the new buyer can take advantage of the existing loan’s favorable terms. Non-Recourse Advantage: Protection for Borrowers Agency loans offer a non-recourse structure that protects borrowers from personal liability. In case of default, the lender can only seize the collateralized property and cannot go after the borrower’s other assets. This protection reduces personal risk, allowing investors to take on larger projects without jeopardizing their financial well-being.  During economic downturns, this feature becomes even more valuable, ensuring borrowers’ financial stability and peace of mind. With the non-recourse advantage, agency loans provide a secure and attractive financing option for multifamily property investors. Tapping into Cash Flow: Unrestricted Cash Out for Refinancing Agency loans allow for unrestricted cash-out refinancing. This means borrowers can refinance their existing loan to a new one with better terms while tapping into the property’s equity.  The cash generated from this refinancing can be used to acquire additional properties, renovate existing ones, or for any other purpose, providing a valuable avenue to boost investment capacity. Fixed and Floating Rates: Flexible Loan Options Agency loans offer both fixed and floating interest rates. Fixed-rate loans provide stability as the interest rate remains constant throughout the loan term, regardless of market conditions. This predictability allows for accurate long-term budgeting. Floating-rate loans, on the other hand, adjust with market conditions. While there is a degree of uncertainty, they can provide savings when interest rates decrease. Agency loans often come with caps to limit how much the rate can increase, providing some protection against rising interest rates. A Reliable Source of Capital: The Role of Government-Sponsored Enterprises Government-Sponsored Enterprises play a significant role in the agency loan market. They provide a stable, reliable source of capital that is consistently available, even during economic downturns. These agencies work with approved lenders to guarantee the loans, which mitigates risk for lenders and keeps interest rates low for borrowers. Assessing Property Eligibility for Agency Loans Qualifying for an agency loan involves assessing both the borrower and the property. Borrowers should have good credit, sufficient net worth, and relevant property management experience.  The property itself should be in a stable market, demonstrate solid cash flow potential, and be in good condition. Location, occupancy rates, and the property’s financials will also factor into eligibility. Bottom Line Agency loans stand as a premier and versatile financing choice for multifamily property investments. With their competitive interest rates, flexible terms, non-recourse protection, consistent capital availability, and added benefits like promoting sustainability and enabling unrestricted cash-out refinancing, agency loans offer a comprehensive package that caters to the diverse needs of real estate investors.  By leveraging the advantages of agency loans and working with

section 8

Section 8 Loans for Homes: Financing Affordable Housing

Affordable housing forms the cornerstone of a thriving society. A home serves as a shelter and provides a sense of security and belonging, fostering overall well-being. Yet, for many low-income families, securing a home remains an unattainable dream. However, the U.S. government’s Section 8 Housing Assistance Program aims to bridge this gap. This article will delve into the intricacies of the Section 8 loans that form a critical component of this program. We will explore the benefits, loan parameters, and how lenders manage associated risks. By offering housing assistance payments (HAP) contracts, the Section 8 program enables many to finance affordable homes. We will also examine how these contracts increase leverage and mitigate risks for lenders and borrowers alike. Furthermore, we will elucidate the essential expenses and reserves securing Section 8 loans. Understanding the Section 8 Housing Assistance Program The Section 8 Housing Assistance Program, also known as the Housing Choice Voucher (HCV) program, is a federal initiative designed to assist low-income families, the elderly, and the disabled to afford decent, safe, and sanitary housing in the private market. Participants can choose any housing that meets the program’s requirements rather than being limited to subsidized housing projects. The U.S. Department of Housing and Urban Development (HUD) provides federal funds to Public Housing Agencies (PHAs) that administer the HCV program. Participants typically pay 30% of their adjusted gross income towards rent, and the PHA pays the rest directly to the landlord through the HAP contract. Financing Affordable Homes with HAP Contracts Projects with HAP contracts are unique in housing finance. The HAP contract guarantees a steady stream of rental income from the PHA for the landlord or property owner. This provides a higher level of assurance than traditional rental agreements, making financing these projects more attractive to lenders. In a typical HAP contract, the PHA agrees to pay the property owner for a specified number of units for a fixed term. This results in consistent, reliable cash flow that can be used to service the mortgage, which is why these projects often have a lower risk profile than non-subsidized housing projects. Benefits of Section 8 Loans for Homebuyers Section 8 loans offer various benefits to potential homebuyers, including lower interest rates and flexible repayment terms. Moreover, the consistent income from HAP contracts can make it easier to secure these loans. Furthermore, if a tenant defaults, the property owner will still receive a portion of the rent through the HAP contract, reducing the financial risk. Additionally, these loans are often non-recourse, meaning the borrower’s liability is limited to the property’s value. Loan Parameters for Fannie Mae, Freddie Mac, FHA Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) all offer loans for properties with HAP contracts. These government-sponsored enterprises provide competitive loan terms for Section 8 properties, including low-interest rates, high loan-to-value ratios (up to 85-90%), and long-term repayment options (up to 30 years). Fannie Mae Freddie Mac FHA Maximum LTV 85% 90% 87% Minimum DSCR 1.20x 1.25x 1.176x Term (Years) Up to 30 Up to 30 Up to 35 Table 1: Loan Parameters for Fannie Mae, Freddie Mac, and FHA Leveraging HAP Contracts for Increased Leverage The steady income from HAP contracts can be used as leverage to secure more favorable loan terms. Since lenders are assured of a continuous income stream, they may be more inclined to offer lower interest rates, longer repayment terms, and a higher loan-to-value ratio. This allows property owners to maximize their borrowing power and acquire more properties, thus expanding their portfolios. This is especially advantageous for landlords focusing on affordable housing, as the guaranteed income can help offset lower rental rates. How Lenders Handle HAP Overhang Risks “HAP overhang” occurs when the HAP contract rents exceed the Low-Income Housing Tax Credit (LIHTC) or market rents. This risks lenders, as the property’s income may drop significantly once the HAP contract ends. Lenders may underwrite loans to the LIHTC or market rents to mitigate this risk rather than the higher HAP contract rents. In some cases, lenders may also require a “HAP overhang” reserve, a set amount of money to cover potential losses. This ensures that the property owner can continue to service the mortgage even if the income from the HAP contract decreases. Expenses and Reserves in Section 8 Loans When underwriting Section 8 loans, lenders consider a variety of expenses, including operating expenses, capital expenditure reserves, debt service, and any necessary repairs or improvements. Additionally, lenders may require certain reserves, such as a replacement reserve or a HAP overhang reserve, to ensure the long-term financial stability of the project. The amount of these reserves can vary depending on the property’s age, condition, and the remaining term of the HAP contract. For example, a property with an older building and a short remaining HAP contract term might require larger reserves. Bottom Line Section 8 loans provide a viable financing option for affordable housing projects. By leveraging the steady income from HAP contracts, property owners can secure competitive loan terms and ensure the long-term viability of their projects. However, it’s essential to understand the associated risks, including the potential for HAP overhang and the required reserves. The Housing Choice Voucher program is a vital resource for low-income families seeking affordable housing. It’s a prime example of how government initiatives can foster social equity and financial stability for individuals and families, and the entire community. FAQ Section What is the Housing Choice Voucher (HCV) program, and how does it help low-income families? The HCV program is a federal initiative that provides financial assistance to low-income families, the elderly, and the disabled to afford decent housing in the private market. Participants typically pay 30% of their adjusted gross income towards rent, and the PHA pays the rest directly to the landlord through a HAP contract. How are projects with HAP contracts treated differently in financing compared to other multifamily projects? HAP contracts provide a steady rental income stream, making these projects more attractive to lenders. They typically

USDA 538 Loans

USDA 538 Loans: Affordable Financing for Rural Housing Projects

Rural communities face significant challenges in securing stable and affordable housing in a society where urban living has seen a surge in preference. One notable source of aid comes in the form of USDA 538 loans, an initiative by the United States Department of Agriculture to assist rural areas in their quest for housing stability. This program has been a lifeline for rural communities and the people therein, addressing the housing gap by making funds more accessible for housing projects. The USDA 538 loan program targets developers and lenders to stimulate rural community growth and development. Its primary purpose is to increase the supply of affordable multi-family housing in rural areas through public-private partnerships. Providing government-backed loans at favorable interest rates and terms, creates opportunities for developers to construct, rehabilitate, or acquire rural rental housing. What Are USDA 538 Loans and How Do They Work? USDA Section 538 loans are government-guaranteed rural rental housing loans meant to improve, construct, or purchase multi-family housing in rural areas. Named after Section 538 of the Housing Act of 1949, this program serves rural communities by attracting private sector financing to build or renovate housing for lower-income families in these areas. The loans are not directly given to the applicants but are guaranteed by the USDA to lenders. This security encourages lenders to provide funds for rural housing projects. If the borrower defaults, the USDA will reimburse the lender for a significant portion of the loan, thus minimizing risk for lenders and facilitating more substantial investment in rural housing. Benefits of the USDA 538 Loan Program USDA 538 loans present several vital advantages, serving both lenders and borrowers: Lower Interest Rates: The USDA guarantees up to 90% of the loan, resulting in lower interest rates. This affordability is a significant boon for developers and non-profit organizations looking to finance housing projects in rural communities. Extended Loan Terms: With USDA 538 loans, developers can enjoy terms of up to 40 years, which further reduces monthly payment amounts and increases project viability. Flexible Use of Funds: The loans can be used for new construction, rehabilitation, acquisition, or the preservation of affordable housing. Negotiable Equity Requirements: The required equity contributions can be negotiated, providing further flexibility for developers and non-profit entities. Eligibility for USDA 538 Loans Eligibility for USDA 538 loans is relatively broad, encompassing for-profit developers, non-profit organizations, public agencies, and tribal entities. To qualify, the following conditions must be met: The proposed housing projects must be located in eligible rural areas, defined as towns, villages, cities, or places with a population of 35,000 or less. The property to be financed should be used primarily for residential purposes for individuals with low or moderate incomes. Applicants must demonstrate a successful track record in developing multi-family housing, displaying financial capacity and managerial ability to ensure project success. Borrowers should have an acceptable credit history and the ability to repay the loan. The Two-Stage Application Process Applying for a USDA 538 loan involves a two-stage process: Pre-application: The pre-application stage allows the USDA to assess the preliminary feasibility of the project. Applicants submit preliminary plans, specifications, and a market study. If approved, they move to the application phase. Application: During the application phase, applicants provide a full proposal, including detailed project plans, environmental reviews, and architectural plans. After approval, the USDA issues a Letter of Conditions outlining the loan terms. Terms and Conditions of USDA 538 Loans The terms and conditions of USDA 538 loans vary according to the nature of the project and the borrower’s financial capacity. However, they typically involve the following: The maximum loan amount is up to 90% of the project’s total development costs. The loan term can extend up to a maximum of 40 years. Interest rates are negotiated between the lender and borrower but must be fixed and subject to USDA approval. No balloon payments are allowed. Securing Stable Housing for Rural Communities The USDA 538 loan program offers a tangible solution for improving housing conditions in rural areas. Incentivizing private sector participation creates an opportunity for these often overlooked areas to thrive. Beyond simply providing accommodation, it nurtures community development and aids in the eradication of rural poverty. Mitigating Risks and Ensuring Success with USDA 538 Loans As with any lending program, there are inherent risks involved. The USDA 538 loan program, while advantageous, requires due diligence from both lenders and borrowers to ensure the sustained success of housing projects. Lender’s Perspective: The USDA’s guarantee of up to 90% of the loan mitigates a substantial portion of the risk. However, lenders should assess the viability of the proposed housing project, the reliability of the developer, and the long-term sustainability of the project. Borrower’s Perspective: Developers and non-profit organizations should ensure that they not only meet the eligibility criteria but also have a concrete plan to maintain the project post-construction. This includes considering the long-term operational costs, potential occupancy rates based on the locality’s demand, and plans for periodic maintenance and renovations. Collaborative Measures: Regular communication between lenders, borrowers, and the USDA can facilitate the smooth progression of housing projects. Periodic reviews, updates, and checks can ensure that projects remain on track and continue to serve the intended purpose of providing affordable housing in rural communities. Bottom Line The USDA Section 538 Loan Program is a strategic initiative designed to bolster housing development in rural regions. Through its structured support and comprehensive guidelines, this program facilitates the construction of affordable housing, thus playing a pivotal role in the sustainable growth and advancement of rural communities. In essence, it’s not just about brick and mortar; it’s a commitment to the enduring progress of these areas. FAQ Section What is the USDA Section 538 Loan Program? The USDA Section 538 Loan Program is a government-backed initiative to increase the availability of affordable multi-family housing in rural areas. It does this by providing guaranteed loans to developers and non-profit organizations to construct, rehabilitate, or purchase rural rental housing. How does the application process for

Top HUD Lenders of 2023: Choosing the Best Partner for Your Multifamily Financing

When it comes to multifamily financing, choosing the right lender is crucial for a successful investment. HUD (U.S. Department of Housing and Urban Development) lenders offer attractive loan programs, competitive rates, and a commitment to supporting multifamily property owners.  Benefits of Choosing a Top HUD Lender for Your Multifamily Financing Selecting a top HUD lender can offer numerous benefits. These include competitive loan programs, attractive interest rates, high loan-to-value (LTV) ratios, long loan terms, and non-recourse loans. Working with a reputable HUD lender can provide the financial resources and flexibility needed for your multifamily investment. Key Factors to Consider When Selecting a HUD Lender Several key factors must be considered when choosing a HUD lender for your multifamily financing. These include the lender’s experience and expertise in HUD financing, their reputation in the industry, the range of loan programs they offer, their interest rates and terms, and the eligibility criteria for their loans. You can find a lender that aligns with your financing needs and goals by carefully evaluating these factors. How to Evaluate and Compare HUD Lenders for Your Multifamily Loan Conducting thorough research and gathering relevant information is essential to evaluate and compare HUD lenders for your multifamily loan. Compare the interest rates and terms different lenders offer, considering factors such as fixed-rate options, loan-to-value ratios, and amortization periods.  Additionally, assess the lender’s expertise in HUD financing and their successful loan closings track record. Reviewing customer testimonials and seeking recommendations from trusted sources is also beneficial. Top 10 HUD Lenders of 2023 1. Stratton Equities: Loan Programs: Hard money loans, fix and flip loans, multifamily loans, and more. LTV: Up to 80% in select cases. Loan Terms: 12-24 months. Notable Feature: Offers foreclosure bailout loans. 2. Asset Based Lending, LLC (ABL): Loan Programs: Rental property loans, fix and flip loans, bridge loans, and more. LTV: Up to 80% with 30-day rate locks. Loan Terms: Most loans close in as little as 30 days. Notable Feature: One of the largest private real estate lenders, funding over $1.6 billion in loans. 3. Titan Funding: Loan Programs: Traditional hard money loans, fix and flip loans, ground-up construction loans, and more. LTV: Up to 100% with cross-collateralization. Loan Terms: Permanent loans are available for up to 30 years. Notable Feature: Offers specialized loans for fix and flips and property repositioning scenarios. 4. Griffin Funding: Loan Programs: Conventional loans, reverse mortgages, non-QM loans, and more. Notable Focus: Primary residence financing. Unique Feature: Provides asset-based loans without traditional proof of income documents. 5. Capital Fund 1: Loan Programs: Hard money and asset-based loans for fix and flip deals, cash-out refinancing, and more. Notable Feature: Specializes in fast turnaround times, often funding deals within 24 hours. Loan Terms: Offers loans with LTVs up to 90% for experienced real estate investors. 6. CoreVest Finance: Loan Programs: Rental portfolio loans, bridge loans, multifamily loans, and more. LTV: Up to 85% loan-to-cost (LTC). Notable Feature: Provides non-recourse loans, safeguarding borrowers’ assets. 7. EquityMax: Loan Programs: Fix and flip loans, cash-out refinances, non-recourse loans, and more. LTV: Up to 80% or 65% ARV for fix and flip loans. Notable Feature: Offers fast closing times, as little as 2-3 days after completing title and lien search. 8. HouseMax Funding: Loan Programs: Fix and flip loans, rental loans, construction financing, and more. LTV: Up to 75% of the after-repair value (ARV). Notable Feature: Extensive experience in fixing and flipping properties. 9. Private Capital Investors: Loan Programs: Commercial real estate funding (focuses on commercial properties). Loan Sizes: $1 million to $50 million. Notable Feature: Offers highly flexible loan terms and structures to meet borrowers’ unique needs. 10. Visio Lending: Loan Programs: Rental loans for single-family and multifamily properties. LTV: Up to 80%. Notable Feature: Streamlined online application process for efficient loan origination. Conclusion Choosing a top HUD lender for your multifamily financing needs can provide numerous benefits, including competitive loan programs, favorable interest rates, and long loan terms. By considering factors such as experience, reputation, loan programs, and customer support, you can make an informed decision when selecting a lender.  Conducting thorough research and comparing different lenders will help you find the best fit for your financing requirements. Remember to carefully review the terms and conditions, assess the lender’s reputation, and be aware of any additional fees associated with HUD loans. With the assistance of a top HUD lender, you can secure the financing you need to achieve your multifamily investment goals. FAQs What factors should I consider when choosing a HUD lender for multifamily financing? When selecting a HUD lender, consider their experience, reputation, loan programs, interest rates, and eligibility criteria. What are the criteria used to determine the top HUD lenders? The criteria for determining the top HUD lenders may include loan volume, customer satisfaction, industry reputation, and expertise in HUD financing. Can I find a HUD lender that specializes in my specific financing needs? Yes, some HUD lenders specialize in various financing needs, such as new construction, refinancing, or affordable housing projects. How can I assess the reputation and reliability of a HUD lender? You can assess a HUD lender’s reputation and reliability by reviewing customer testimonials, checking their industry credentials, and researching their successful loan closing track record. Are there differences in loan terms and rates among the top HUD lenders? Yes, there may be variations in loan terms and rates among the top HUD lenders. It’s essential to compare and evaluate the offerings of different lenders to find the most favorable terms for your multifamily financing. What services and support can I expect from these top HUD lenders? Top HUD lenders typically provide personalized customer service, guidance throughout the loan application process, and support in navigating HUD regulations and requirements. Do the top HUD lenders assist in the application process? Yes, reputable HUD lenders offer assistance throughout the application process, helping borrowers with document preparation, underwriting, and ensuring compliance with HUD guidelines. Can I negotiate the terms and conditions with the top HUD lenders? While specific

Top 10 Fannie Mae Multifamily Lenders: Expert Financing Solutions for 2023

Securing financing for multifamily properties is a critical step in the real estate investment process. Fannie Mae multifamily loans have emerged as a popular choice among the various options available. These loans offer competitive rates, flexible terms, and reliable funding options tailored to meet the specific needs of multifamily property investors.  This article will explore the top 10 Fannie Mae multifamily lenders for 2023. These lenders have established themselves as leaders in the industry, providing expert financing solutions for multifamily investments. 1. Walker & Dunlop Walker & Dunlop is widely recognized as a trusted leader in multifamily lending. With decades of experience and a strong reputation, they offer a comprehensive range of financing options for multifamily properties. Their team of experts provides personalized service and support, ensuring a smooth financing process from start to finish. 2. CBRE CBRE is a renowned commercial real estate service and investment firm. Their multifamily lending division offers comprehensive financing solutions for multifamily properties. With their extensive market knowledge and expertise, CBRE provides competitive rates and flexible loan programs to meet the diverse needs of investors. 3. Berkadia Berkadia is a premier commercial real estate finance company focusing on multifamily lending. They offer various financing options, including acquisition, refinancing, and construction loans. Berkadia’s expertise and strong industry relationships enable them to provide innovative financing solutions to investors across the multifamily sector. 4. Wells Fargo Wells Fargo is an established financial institution offering various financial products and services, including multifamily lending. With a dedicated team specializing in multifamily financing, Wells Fargo provides competitive rates, flexible terms, and reliable funding options for investors in the multifamily market. 5. Greystone Greystone is a leading provider of commercial real estate lending and advisory services. They have extensive experience in multifamily financing and offer a wide array of loan programs to meet the unique needs of investors. Greystone’s commitment to exceptional customer service and its ability to navigate complex transactions make them a top choice for multifamily financing. 6. Newmark Newmark is a prominent commercial real estate advisory firm offering multifamily lending services. Their expertise spans various sectors, including multifamily properties. Focusing on providing tailored financing solutions, Newmark’s team of professionals assists investors in achieving their financial goals. 7. JLL JLL, a global professional services firm, specializes in real estate and investment management. Their multifamily lending division offers a range of financing options for investors. JLL’s worldwide presence and extensive network allow them to provide comprehensive solutions and support to multifamily investors worldwide. 8. Capital One Capital One is a trusted financial institution with a strong presence in multifamily lending. They offer a range of loan programs designed to meet the needs of multifamily investors, including acquisition, refinancing, and construction loans. Capital One’s expertise, competitive rates, and personalized service make them a preferred choice for multifamily financing. 9. KeyBank KeyBank is a leading regional bank known for its expertise in multifamily financing. They offer a range of loan programs and financing options tailored to meet the needs of multifamily investors. KeyBank’s commitment to building long-term relationships and providing exceptional service sets them apart in multifamily lending. 10. Arbor Arbor is a specialized lender focusing on multifamily and commercial real estate financing. With their in-depth industry knowledge, Arbor offers a range of loan programs, including Fannie Mae multifamily loans. They have a strong track record of successful transactions and provide personalized service to investors seeking multifamily financing solutions. Freddie Mac Freddie Mac, also known as the Federal Home Loan Mortgage Corporation, is another prominent player in the multifamily lending market. As a government-sponsored enterprise, Freddie Mac offers a variety of multifamily loan products to meet the needs of investors. They provide competitive rates, flexible terms, and a streamlined financing process. With their commitment to supporting affordable housing and sustainable multifamily properties, Freddie Mac has become a trusted choice for many investors in the multifamily sector. Conclusion Choosing the right lender is crucial when seeking financing for multifamily properties. The top 10 Fannie Mae multifamily lenders mentioned in this article have established themselves as leaders in the industry, offering expert financing solutions tailored to meet the unique needs of multifamily investors.  Whether you are acquiring, refinancing, or developing multifamily properties, consulting with these reputable lenders will provide you with competitive rates, flexible terms, and personalized service. With their extensive expertise and commitment to customer satisfaction, these lenders are well-positioned to meet your multifamily financing needs in 2023. FAQs How do I choose the right Fannie Mae multifamily lender? When selecting a Fannie Mae multifamily lender, consider factors such as their expertise in the market, reputation, range of loan programs offered, and the level of personalized service they provide.  Research and compare multiple lenders to find the one that best aligns with your financing needs and goals. Can I work with a Fannie Mae lender for small loan amounts? Yes, Fannie Mae lenders offer loan programs specifically designed for small multifamily properties. These programs typically start at loan amounts as low as $750,000, providing financing options for investors interested in acquiring or refinancing smaller multifamily properties. Do Fannie Mae lenders provide non-recourse financing? Yes, Fannie Mae multifamily loans are commonly structured as non-recourse loans. Non-recourse financing limits the borrower’s personal liability in the event of loan default, providing an added layer of protection for investors. Are Fannie Mae lenders limited to specific property types? Fannie Mae multifamily lenders offer financing options for various property types, including conventional apartment buildings, affordable housing properties, senior housing communities, student housing, and manufactured housing communities.  The flexibility in property types allows borrowers to explore financing options for various multifamily investment opportunities. How long does the financing process take? The timeline for Fannie Mae multifamily financing can vary depending on several factors, including the complexity of the transaction and the responsiveness of all parties involved. The financing process typically takes 45 to 60 days from application to closing.  However, it’s important to note that timelines may vary, and it’s advisable to work closely with your lender to

Clearing the Air: Unmasking Myths and Facts About HUD-Insured Loans

When it comes to affordable financing options in the United States real estate market, the Housing and Urban Development (HUD) loans, also interchangeably referred to as Federal Housing Administration (FHA) loans, hold a crucial position.  Administered by the US federal government agency HUD, these loan programs have been designed to facilitate potential property buyers. HUD-insured loans are an appealing option for borrowers considering purchasing or refinancing multifamily rental properties, offering an impressive suite of benefits such as fixed interest rates, non-recourse provisions, and extended amortization periods. However, many misconceptions still surround these loans. Disentangling Myths and Facts: Clarifying Common Misunderstandings About HUD-Insured Loans Some of the most common misconceptions associated with HUD-insured loans include: Myth: HUD loans are reserved solely for first-time home buyers. Fact: Contrary to this common misconception, HUD loans are accessible to all prospective borrowers, not merely first-time home buyers, as long as they meet the necessary financial prerequisites. Myth: If you’re saddled with student loans, you can’t secure a HUD loan. Fact: While student loan debt is indeed factored into your debt-to-income (DTI) ratio, the recent modifications in guidelines dictate that FHA lenders use the actual payment amount for student loans or 0.5% of the outstanding student loan balance if the payment is deferred or zero. Myth: FHA mortgage insurance becomes unnecessary once you make a 20% down payment. Fact: Regardless of your down payment’s size, all borrowers must pay the Mortgage Insurance Premium (MIP), serving as a safety net for FHA lenders in case of loan default. Myth: There are income thresholds for HUD Loans. Fact: Interestingly, no income limits could disqualify or prevent you from obtaining a HUD-insured loan. However, you must provide a two-year employment history and demonstrate an established credit history to qualify. Myth: HUD loans are meant exclusively for single-family homes. Fact: This statement isn’t true. HUD loans can finance the purchase of properties with one to four units. They can also accommodate manufactured homes, provided the property’s value falls within FHA loan limits. Highlighting the Advantages of HUD-Insured Loans HUD-insured loans were crafted with affordability and flexibility at their core. They come with fixed rates, non-recourse attributes, and an option to choose between longer-term periods.  Furthermore, HUD loans also provide a high leverage, up to 85% Loan-to-Value (LTV) for market-rate properties and up to 90% for subsidized properties. These favorable features often lead to a premium price during a property sale, making HUD loans an attractive choice for many borrowers. Who’s Eligible to Apply for HUD-Insured Loans? Eligibility for HUD-insured loans is extended to both non-profit and for-profit borrowers. To qualify, the properties should house at least five residential units, each equipped with a complete kitchen and bath.  Furthermore, these properties should meet a three-year stabilization requirement, implying that any substantial renovations should have been completed at least three years before the loan application. Securing a HUD Loan: A Quick Guide The process of obtaining a HUD loan typically takes 5 to 9 months, which can feel lengthy, but understanding the steps involved can simplify the procedure: Understanding HUD loans: Determine if a HUD loan fits your financial and property situation, possibly with guidance from a real estate or financial advisor. Checking eligibility: Review the specific eligibility requirements related to credit history, income stability, and property type to verify your eligibility for a HUD loan. Locating a HUD-approved lender: HUD loans are provided through approved lenders. Seek banks, credit unions, or specialized mortgage providers offering HUD loans. Submitting the loan application: Fill out the application provided by your lender, including detailed information about your income, employment history, credit report, and the property you’re planning to purchase. Lender and HUD evaluations: After submission, your application is assessed by the lender before being sent to HUD for a final review and approval. Closing the loan: Once HUD approves your application, you can proceed with closing the loan, which includes signing necessary documents, making your down payment, and handling any other closing costs. Remember, HUD loan processing isn’t typically swift, requiring patience. However, “bridge-to-HUD” financing options are available for expediting a property purchase.  As a valuable tool for time-sensitive acquisitions, these short-term loans provide necessary funds while you wait for the HUD loan to be finalized. Conclusion The HUD-insured loans are designed to create possibilities and break down home ownership and property investment barriers. By debunking these myths, we hope we have clarified your understanding and shown you the potential benefits these loans may hold for you.  Whether you are a first-time homebuyer, an existing homeowner, or a property investor, the horizon of HUD-insured loans could be worth exploring for your property financing needs. From here, the path toward making an informed decision becomes clearer, setting the stage for you to make your property ownership dreams a reality. FAQs What are the requirements to qualify for a HUD-Insured loan? The exact prerequisites may differ based on the specific loan program. However, a stable income, an acceptable credit score, and the capacity to make the necessary down payment are standard requirements. Can I get a HUD-Insured loan if I have student loans? Having student loans doesn’t disqualify you from obtaining a HUD loan. FHA lenders must consider the actual payment amount for student loans or 0.5% of the loan balance if the payment is zero or deferred. Do I need FHA mortgage insurance if I make a 20% down payment? Yes, regardless of your down payment size, you are mandated to pay a MIP. Are there income limits for obtaining HUD-Insured Loans? No, there aren’t any income limits. However, a two-year employment history and an established credit history are required. Can I use a HUD-Insured loan to purchase a multifamily property? Yes, HUD loans can be used to finance the purchase of properties with up to four units. How long does it usually take to secure a HUD-Insured loan? Typically, it takes between 5 to 9 months. Can I apply for a HUD loan if I am not a first-time home buyer? Yes,

Freddie Mac Small Balance Loans

What are small balance loans?  Freddie Mac’s Small Balance loans (SBL Program) are a great way to finance your apartment or multifamily property.  Because these loans range in size from $1-7.5M, they’re perfect for the small borrower market. Plus they offer flexibility with fixed-rate, floating-rate, and interest-only loan options. In this piece, we’ll explain everything you need to know about Freddie Mac’s SBL Program. Let’s dive in.  The Basics Before taking out a SBL from Freddie Mac, you need to know the basic terms:   Loan Amount: $1-7.5M in all markets   The size, rate, and terms of your loan depend on the market your property is located in. Freddie Mac divides markets by 4 tiers: Top, Standard, Small, or Very Small. Top Markets like NYC and LA county will be subject to different terms than Standard Markets like Phoenix. Freddie Mac designates tiers based on rental population size, determined by the Census Bureau. See a detailed breakdown of each market here. Freddie Mac also divides markets by 5 regions: Western, South Central, North Central, Southeast, and Northeast. Interest rates will vary slightly depending on your region.   Unit Limitations   Freddie Mac places limitations on your loan amount based on the number of units in your multifamily property.   For up to 100 units, your loan must be greater than $6M and less than or equal to $7.5M.   Loan Purpose   You can only take out a Freddie Mac SBL for an acquisition or refinance.    Loan Terms – Hybrid ARM or Fixed Rate   Hybrid ARM: 20-year term with an initial fixed-rate period of 5, 7, or 10 years.  Fixed: 5, 7, or 10-year loan term.   Amortization – up to 30 years Interest-only loans   For interest-only loans, Freddie Mac offers both partial-term and full-term loans.    Prepayments   Freddie Mac offers declining schedules and yield maintenance for all loan types. Check out this chart from the Freddie Mac website for more details on each prepayment provision.   Eligible borrowers/entities   Freddie Mac’s SBLs are available to numerous types of eligible borrowers: Limited partnerships  LLCs  Single Asset Entity Special Purpose Entities Tenancy in common with up to 5 unrelated members  Irrevocable trusts with an individual guarantor   Recourse    SBLs are non-recourse loans. Standard carveout provisions are also required—this gives Freddie Mac the legal ability to go after your personal assets if you foreclose on the loan.    Subordinate debt   Subordinate debt is not permitted for SBLs.    Net Worth + Liquidity   To be eligible for a SBL from Freddie Mac, you must have a minimum net worth equal to the loan amount. You must also possess minimum liquidity equal to 9 months of the principal and interest.  Find out if your property is eligible for a SBL Not all multifamily properties are eligible for a SBL from Freddie Mac. Keep reading to find out if your property qualifies!    Eligible Properties   Multifamily properties with 5+ residential units are eligible for a SBL from Freddie Mac. Specifically, this includes: Properties with tax abatements  Age-restricted properties with no resident services Properties with space for certain commercial (non-residential uses)  Properties with tenant-based housing vouchers Low-Income Housing Tax Credit (LIHTC) properties with Land Use Restriction Agreements (LURAs) that are either in the final 24 months of the initial compliance period or the extended use period (investor must have exited) Properties with local rent subsidies for 10% or fewer units where the subsidy is not contingent on the owners’ initial or ongoing certification of tenant eligibility  Properties with certain regulatory agreements that impose income and/or rent restrictions, provided all related funds have been disbursed   Ineligible Properties   Some types of multifamily properties are ineligible for a SBL from Freddie Mac. These include:  Senior housing with senior care services Student housing (+25% concentration) Military housing (+25% concentration) Properties with project-based housing assistance payment contracts—including project-based Section 8 HAP contracts LIHTC properties with LURAs in compliance years 1-12 Historic Tax Credit (HTC) properties with a master lease structure Tax-exempt bonds Interest Reduction Payments (IRPs)   Occupancy   To be eligible for a Freddie Mac SBL, your property must be stabilized with a minimum 90% physical occupancy   Replacement Reserves   Replacement reserves are funds used to finance the periodic maintenance of a building and offset wear and tear. It’s important to include this line item in your annual budget.    Freddie Mac determines underwritten replacement reserves by a rating established in the streamlined Physical Risk Report.    Escrows   For SBL deals with an LTV ratio of 65% or less, Freddie Mac defers real estate tax escrows. Insurance escrows and replacement reserve escrows are also deferred with a SBL. SBL Loan Terms If you take out a Freddie Mac SBL Loan, it’s important to understand the difference in loan terms between markets.  Your LTV and DSCR requirements will vary based on which of the 4 market tiers your property falls under. See the table below for more info:    Minimum Amortizing DCR Maximum LTV Top Markets 1.20x 80%  Standard Markets 1.25x 80% Small Markets 1.30x 75% Very Small Markets 1.40x 75%   Partial-Term Interest-Only (IO) Options   Freddie Mac Part-Term Interest-Only (IO) Options vary based on market.  Top and Standard SBL Markets: 1 year on a 5-year term 2 years for a 7-year term 3 years for a 10-year term   Small and Very Small SBL Markets: 0 years on a 5-year term 1 year for a 7-year term 2 years for a 10-year term   Full-term Interest-Only (IO) Adjustments   Freddie Mac offers two options based on market size. Top & Standard SBL Markets: 0.15x added to the baseline 65% Maximum LTV   Small & Very Small SBL Markets: 0.10x 60% Maximum LTV Final Thoughts Freddie Mac’s Small Balance loans (SBL Program) can be a great way to finance the purchase of your apartment, multifamily property, or other commercial real estate investment—and we can help!  Loanbase is the leading online platform that provides optimal financing solutions for

Freddie Mac Loans: 2022 Guide

The Federal Home Loan Mortgage Corporation (Freddie Mac) is a government-backed corporation that buys mortgages from certified lenders and packages these mortgages into mortgage-backed securities.  In this article, we’ll explore key features of Freddie Mac loans, pros and cons, use cases, rates, and more!  Let’s dive in.    Key Features Freddie Mac exists to improve credit flow via mortgages throughout the United States. How?  By purchasing mortgage loans from lenders.  These lenders use the funds from the sale of these mortgages to generate new loans to more homebuyers.  This exchange creates a healthy feedback loop that benefits both borrowers and the housing market writ large.   How does Freddie Mac help lenders and borrowers? Freddie Mac allows banks to provide borrowers with the standard 30-year mortgage.  Without Freddie Mac’s financial backing, banks wouldn’t be able to afford to keep loans on their books for that long of a time period.  Additionally, Freddie Mac resells these new mortgage-backed securities to investors on the secondary market.  These sales allow even more investors to profit from the real estate market. Freddie Mac takes these proceeds to purchase more mortgages, and the cycle repeats.  Freddie Mac makes mortgage lending less risky for banks, expands the pool of buyers, and makes homeownership more affordable for families across the nation.    Freddie Mac: Single Family vs. Multifamily Division To understand Freddie Mac loans, it’s important to understand the difference between its single-family and multifamily divisions. Think of multifamily financing like commercial lending.  Multifamily borrowers are commercial entities (property developers, for example), not individual homeowners.  Additionally, Freddie Mac only buys multifamily commercial loans from approximately 30 commercial real estate lenders—many of these lenders do not offer any single-family loans. For these reasons, Freddie Mac’s multifamily loans are substantially larger than their single-family division—they typically range between $10M and $50M, although they can drop down to $1M and as high as $1B.  Freddie Mac does not automate the underwriting process for its multifamily division; instead, Freddie Mac staff complete the process and price mortgages before purchasing them. The following table helps visualize some of the main differences between Freddie Mac Multifamily and Single-Family loans.   Multifamily  Single-Family Property size  5+ units 1-4 units Freddie Mac lenders About 30 Optigo® lenders 1,700+ Loan size $1M – $100+M — no current limit  Legislated limit of $548,250 for a 1-unit home, $822,375 for high-cost areas Underwriting process Manual Usually automated  Number of parties involved Many, sometimes including government agencies  One borrower Source of mortgage payments Income from rents Borrower’s personal income Servicing involvement  Active in monitoring each loan’s performance Involved if the loan becomes delinquent   Freddie Mac Multifamily Products Freddie Mac offers 4 specific multifamily products.  Visit the links below to learn about each of Freddie Mac’s multifamily products.  Conventional — competitively priced, reliable Optigo® loan products for the acquisition, refinance, or rehabilitation of multifamily communities   Small Balance Loans — Optigo® loans for small apartment buildings targeting 5 to 50 units, $1M to $7.5M   Targeted Affordable Housing — Optigo® loans for properties in underserved areas that are affordable to families with low and very-low incomes including cash loans, bond credit enhancements, tax-exempt loans, and others.   Seniors Housing — Optigo® Senior Housing Loans include independent living properties, assisted living properties, and properties with skilled nursing or memory care.   Pros of Freddie Mac Loans Freddie Mac loans present many benefits to both lenders and borrowers. The specific benefits of Freddie Mac loans depend on the actual mortgage product (see above).  For the sake of example, we’ll examine one of Freddie Mac’s most popular multifamily loan offerings: Small Balance Loans (SBL).  Broadly speaking, these multifamily loans are highly flexible. Additionally, they offer borrowers both generous terms and leverage.  Some specific advantages of Freddie Mac’s SBL program include: Low-interest rates starting at just 4.51%   Flexible loan sizes starting at $750,000 and ending at $7.5M   High leverage of up to 80% LTV   Generous DSCR minimums, often as low as 1.20x   30 amortizations that keep monthly payments low for borrowers    Options for both partial and full-term interest-only loans   Cash-out refinancing available for eligible borrowers    Multiple fixed-rate term options (up to 10-year terms) and hybrid ARM options with 20-year terms   60-120 day rate commitments    Fully assumable loans with 1% fee and Freddie Mac approval    Non-recourse financing (individual exceptions)    Cons of Freddie Mac Loans Freddie Mac loans are not without their downsides.  For example, they require borrowers to pay upfront application fees, and they exclude certain property types—including senior housing, student housing, and other affordable commercial property types.  Again, we’ll look specifically at some disadvantages of Freddie Mac’s SBL Program: Not typically available for standard multifamily properties, properties with 50% or more concentration of student or military housing, Section 8 properties with below-market rents, LIHTC properties still in compliance period, or other affordable housing types   Require numerous third-party reports and assessments: Freddie Mac multifamily appraisals, a property condition report, and a Phase I Environmental Assessment   Requires an application fee ($4500 for Top Markets)    Strict leverage and DSCR requirements in small and very small markets—1.30x and 1.40x DSCR, respectively, and 70-75% LTV   Various limits on subordinate financing    Require replacement reserves up to $300/unit    Freddie Mac Loan Use Cases Freddie Mac can be a great option for different commercial real estate needs. Refinancing, acquiring, or rehabilitating a multifamily community property   Investing in a small apartment building   Purchasing properties located in underserved areas   Purchasing senior living or assisted care properties (skilled nursing, memory care, etc.)   Which Freddie Mac loan should you choose? That depends on your current financial situation and on the type of property you’re purchasing.    Freddie Mac Loan Requirements Freddie Mac requires that all borrowers meet certain credit scores, income levels, work history, DTI ratios, and minimum down payment requirements.  The specific requirements will vary depending on your specific loan.  Generally, lenders will consider the following criteria when assessing your application: Total

HUD 223(f) Loans – 2022 Guide

Overview There is a multitude of financing options for multifamily properties. But which one is the best? While some may seem appealing, you want to make sure that you select an option that checks all the boxes. Don’t compromise with an option that doesn’t give you the best financing possible! HUD 223(f) loans can be a great option for financing a multifamily property. While many think that these loans are only for nonprofits or low-income housing, this isn’t the case! There’s a reason why they’re called the industry’s most affordable financing tool. In this article, we’ll explain how HUD 223(f) loans work, how you can qualify and apply for them, how to use them, and more! HUD 223(f) Loans: How they work The HUD, or Department of Housing and Urban Development, is in charge of overseeing these loan insurance programs. The loans are available to people seeking to buy or refinance a multifamily property. The HUD isn’t the one that actually provides you with the loan. Instead, they guarantee a loan from an approved lender, like a bank, in the event of mortgage default. The HUD 223(f) loan is one type of loan guaranteed by the HUD. These loans are on a max 35-year term and amortize over that time period. They offer competitive interest rates, but lenders will set a MIP of around 1% at closing. HUD 223(f) loans also come with an annual audit to ensure financing is obtained by borrowers who are actually eligible. Most lenders will offer a minimum of $1M for these loans. There are exceptions on a case-by-case basis. How to qualify for a HUD 223(f) Loan As mentioned, many believe that HUD 223(f) loans are only eligible for non-profit financing. In reality, eligibility conditions are much more wide-reaching. Here are qualities that you need to consider for HUD 223(f) eligibility. Property Conditions Properties need to have at least 5 residential units with kitchens and baths in each unit. Commercial space on the property cannot represent more than 20% of the rentable space. Rehabilitations cannot have happened in the last 3 years. This doesn’t include non-critical repairs. You cannot use this loan on properties that need large rehabilitations. The property can either be for-profit or non-profit. The HUD doesn’t discriminate in this area. Occupancy Prior to the loan application, the property needs to have had an average of 85% occupancy for at least 6 months. Borrower eligibility Borrowers that are eligible for HUD 223(f) loans should be single-asset, bankruptcy-remote property owners. How to use a HUD 223(f) Loan HUD 223(f) loans can be used to purchase or refinance a variety of multifamily properties. They need to fit the property conditions described in the previous section. Some of these properties include detached, semi-detached, row, walk-up, or elevator/apartment properties. It’s important to consider loan amounts, leverage, and debt-service coverage ratios (DSCR). These will change depending on a few factors. Market-rate properties – 83.3% LTV / 83.3% amount of debt that can be serviced by net income Affordable housing properties – 85% LTV / 87% amount of debt that can be serviced by net income Rental Assistance Properties – 87% LTV / 90% amount of debt that can be serviced by net income Refinancing – Whichever is higher between 80% LTV or 100% cost of refinancing Purchasing – 100% of mortgageable costs, not including grants or tax credits How to apply for a HUD 223(f) Loan For a complete overview of the application process, check out this form The application process for HUD 223(f) loans can be broken down into 5 major sections, with some smaller processes at the end. Underwriting This is where the lender presents documents highlighting the value of the loan. They will also assess any risk that the borrower may present. The lender will inquire about your financial projects and history here. Third-Party Reports The HUD will require some third-party forms to be completed by the borrower. You’re going to need: Full property appraisal forms – used to assess the value of the property according to market Environmental Assessment – examines the property to make sure there are no dangerous materials Market study – Examines changes in property value through analyzing market trends Project capital needs assessment – Looks at how much it will cost to maintain a property HUD Seismic report (if the property is located in certain seismic zones) – Report to dictate if a property is safe in the event of an earthquake Management agent This is where you will select a party to manage the property on your behalf. This will be an individual or a firm that specializes in property management. You will submit their resume, management plans, and conflict resolution plans. Documentation (legal, property, financial) During this stage, borrowers will need to get documents that the HUD and the lending party will assess. Legal Legal documentation refers to – IDs, certifications of outstanding obligations, and HUD letters. Property Property documents outline aspects of the property the borrower wishes to finance. This includes zoning and building codes, code violations, utility documents, and repairs. Financial The lender will analyze financial documents here. These are any existing lease agreements, tax forms, and tax statements. Operations and closing Finally, the lending party and HUD will ask about your property management plans. To assess this, they will look at your operating budget. Make sure you draw up a plan for your operating budget. They will also look at your occupancy rates for the last 3 years. Once everything has been submitted, it could take anywhere from 100-150 days to close. How to pay back your HUD 223(f) Loan HUD 223(f) loans are fully amortizing, paid according to a schedule set by the lender. These loans have a minimum term of 10 years and a maximum term of 35 years. Interest rates for these loans are competitive and fixed through the entire term. More often than not, HUD 223(f) loan interest rates are lower than competitors as well! As mentioned though, borrowers

HUD 221(d)(4) Loans – 2022 Guide

Overview 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: Underwriting 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 Legal 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 Property documents highlight aspects of the property that might be of concern. This includes zoning and building codes, construction permits, and code violations. Financial 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. Mortgagor 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