{"id":4643,"date":"2022-02-13T13:40:16","date_gmt":"2022-02-13T13:40:16","guid":{"rendered":"https:\/\/loanbase.com\/uncategorized\/hud-221d4\/"},"modified":"2023-11-16T19:50:49","modified_gmt":"2023-11-16T19:50:49","slug":"hud-221d4","status":"publish","type":"post","link":"https:\/\/loanbase.com\/learn\/loans\/hud-221d4\/","title":{"rendered":"HUD 221(d)(4) Loans – 2022 Guide"},"content":{"rendered":"
The demand for multifamily properties has surged.<\/p>\n
That means finding the right financing option for multifamily properties can be difficult.<\/p>\n
Not every loan option works in a given investing scenario.<\/p>\n
If you’re looking to finance the construction or major rehabilitation of a multifamily property<\/a>, consider the HUD 221(d)(4) loan!<\/p>\n The HUD 221(d)(4) loan is the multifamily property industry’s highest leverage and lowest cost loan.<\/p>\n It provides a minimum of $4 million on up to a 43-year term, fully amortizing over 40 years.<\/p>\n Are you interested to learn more about this fantastic financing tool?<\/p>\n 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!<\/p>\n The Department of Housing and Urban Development, or HUD, isn’t the party that’s providing the loan to you.<\/p>\n Instead, they work with partnered lenders and cover some of the losses in the event of a default on the loan.<\/p>\n Typically, the loans they cover are for multifamily property financing.<\/p>\n The HUD 221(d)(4) loan is a type of loan that the Department of Housing and Urban Development will guarantee.<\/p>\n HUD 221(d)(4) loan terms last for a maximum of 40 years, with an additional 3 years (43 total) for the construction period.<\/p>\n The initial 40 years are amortized with fixed interest rates.<\/p>\n To protect the lenders, borrowers will need to pay a mortgage insurance premium at closing.<\/p>\n These loans come with an annual audit, and you’ll need a general contractor to close the deal.<\/p>\n Most lenders will offer a minimum of $4 million, but the HUD does make exceptions.<\/p>\n For construction purposes, lenders will usually offer a minimum of $10 million.<\/p>\n 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.<\/p>\n Here are a few things to keep in mind.<\/p>\n The HUD 221(d)(4) loan is meant to finance the construction of multifamily properties<\/a> or significant rehabilitation.<\/p>\n These properties can be considered market-rate, moderate-income, and subsidized properties.<\/p>\n The properties need to have at least five units for occupation, and each unit must have a kitchen and bath.<\/p>\n There can also be some space used on the property for commercial purposes<\/a>.<\/p>\n This area cannot exceed 25% of the rentable area or account for more than 15% of the property’s net income.<\/p>\n The property can be either for-profit or non-profit.<\/p>\n Borrowers that are eligible for the HUD 221(d)(4) loan should be single-asset, bankruptcy-remote property owners.<\/p>\n To be eligible for financing, the property must meet one of the two requirements:<\/p>\n HUD 221(d)(4) loans are used to construct or rehabilitate a multifamily property.<\/p>\n These properties include detached, semi-detached, row, walkup, and elevator properties.<\/p>\n Loan amounts, LTC ratio<\/a>s, and DSCR<\/a> will differ based on the type of property you’re dealing with.<\/p>\n There are 7 primary sections that you’ll be concerned with:<\/p>\n During underwriting, the lender highlights the value of the loan.<\/p>\n They’ll discuss terms, ask for HUD-related documentation, and assess your risk as a borrower.<\/p>\n You’ll need to submit documents about what you plan on doing with the loan.<\/p>\n You can continue once the lender and HUD verify all your information. Until then, it’s a waiting game!<\/p>\n There are a variety of third-party forms that the HUD will require from you.<\/p>\n Here, you’ll be responsible for submitting documents on who will manage the property.<\/p>\n This might be an individual, a party of your choosing, or a management firm.<\/p>\n You’ll submit their resume, plans, and the actions they’ll take in the event of tenant complaints.<\/p>\n You will submit your floor plans and planned rehabilitation changes here.<\/p>\n Be ready to show the approval documentation!<\/p>\n This is all the personal documentation you’re going to need for the project.<\/p>\n This includes IDs, certifications of obligations, and any HUD authorization letters.<\/p>\n Property documents highlight aspects of the property that might be of concern.<\/p>\n This includes zoning and building codes, construction permits, and code violations.<\/p>\n Financial documents include lease agreements, any personal tax forms, and any existing income forms.<\/p>\n You’re going to need an organizational chart that breaks down how you plan on spending the loan as well.<\/p>\n At this stage, you’ll present your mortgagor’s resume.<\/p>\n This can be an individual or, more likely, the project sponsor and their development team.<\/p>\n List all the principals and submit a credit report for each of them.<\/p>\n The final step before closing is finding or finalizing your general contractor.<\/p>\n The HUD and lender can recommend contractors if you haven’t decided on one yet.<\/p>\n Upon selection and agreement, submit select contractor-related documentation to the HUD.<\/p>\n After this, you’re all set!<\/p>\n It can take anywhere from 5-to 11 months to close the loan application.<\/p>\n HUD 221(d)(4) loans are amortizing for 40 years; you’ll be paying them according to the lender’s payment schedule.<\/p>\n The construction component of the project has its own 3-year, fixed, interest-only term as well.<\/p>\n As for the interest rate of the loan, it’s fixed through the life of the loan, and they’re offered at competitive rates.<\/p>\n You can also choose 30-80 day rate-lock commitments, these need a 1% deposit that you’ll get back at closing.<\/p>\n 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.<\/p>\n FHA exam – 0.30% loan\u00a0<\/span><\/p>\n FHA inspection – 0.5% loan<\/span><\/p>\n Financing and placement – 3.5% loan<\/span><\/td>\n<\/tr>\n Check out this table for a quick overview of the differences between HUD 221(d)(4) loans and HUD 223(f) loans<\/a>.<\/p>\n MIP of 1% at close and up to 0.65% annually\u00a0<\/span><\/td>\n MIP of 1% at close and up to 0.65% annually\u00a0<\/span><\/td>\n<\/tr>\n Additional 3 years for construction at a fixed rate<\/span><\/td>\n As per most loan options out there, there are pros and cons to choosing a HUD 221(d)(4) loan:<\/p>\n 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.<\/p>\n The difficulties come with the large fees and the lengthy application process.<\/p>\n If you plan on rehabilitating or constructing a multifamily property, yes!<\/p>\n It’ll be hard to find a better option with the amazing terms and rates provided by the HUD.<\/p>\n They can be.<\/p>\n There are a handful of fees you’re going to need to cover.<\/p>\n 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.<\/p>\n HUD 221(d)(4) loans are an amazing tool for multifamily property rehabilitators.<\/p>\n With generous terms and rates, it\u2019s no wonder why HUD 221(d)(4) loans get the praise it deserves.<\/p>\n Have a multifamily property you\u2019re planning on rehabilitating or building? Want to get your hands on a HUD 221(d)(4) loan? Check out Loanbase!<\/p>\n Our platform has streamlined the process to connect borrowers and lenders.<\/p>\n","protected":false},"excerpt":{"rendered":" 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 […]<\/p>\n","protected":false},"author":11,"featured_media":3210,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"content-type":"","city-title":"","footnotes":""},"categories":[43],"tags":[82,58],"yoast_head":"\nHUD 221(d)(4) Loans: How they work<\/h2>\n
How to qualify for a HUD 221(d)(4) Loan<\/h2>\n
Property Conditions<\/h3>\n
Borrower eligibility<\/h3>\n
Use of funds<\/h3>\n
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How to use a HUD 221(d)(4) Loan<\/h2>\n
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How to apply for an HUD 221(d)(4) Loan<\/h2>\n
Underwriting<\/h3>\n
Third-Party Reports<\/h3>\n
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Management Agent<\/h3>\n
Construction and Architectural Documents<\/h3>\n
Legal, Property, and Financial Documentation<\/h3>\n
Legal<\/h4>\n
Property<\/h4>\n
Financial<\/h4>\n
Mortgagor<\/h4>\n
General contractor and closing<\/h4>\n
How to pay back your HUD 221(d)(4) Loan<\/h2>\n
Sample HUD 221(d)(4) Loan Terms<\/h2>\n
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\n Maximum Amount<\/span><\/td>\n $5,000,000<\/span><\/td>\n<\/tr>\n \n Guarantee %<\/span><\/td>\n 85% LTC<\/span><\/td>\n<\/tr>\n \n Guarantee Fee<\/span><\/td>\n 3.5%<\/span><\/td>\n<\/tr>\n \n Term\/Timeline<\/span><\/td>\n 40 years + 3 years for construction\u00a0<\/span><\/td>\n<\/tr>\n \n Amortization<\/span><\/td>\n 40 years amortizing\u00a0<\/span><\/td>\n<\/tr>\n \n Interest Rates<\/span><\/td>\n 3.10% (fixed)<\/span><\/td>\n<\/tr>\n \n Additional Fees<\/span><\/td>\n Application Fee – $25,000<\/span><\/p>\n \n Use of Proceeds\u00a0<\/span><\/td>\n Substantial rehabilitation of 1 Multifamily property (7 units)\u00a0<\/span><\/td>\n<\/tr>\n \n Recourse<\/span><\/td>\n Non-recourse<\/span><\/td>\n<\/tr>\n \n Assumability<\/span><\/td>\n Fully assumable\u00a0<\/span><\/td>\n<\/tr>\n \n Prepayment<\/span><\/td>\n 2-year lockout – 8% declining by 1% annually until the 10-year point<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n HUD 221(d)(4) Loans vs HUD 223(f) Loans<\/h2>\n
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\n <\/td>\n HUD 221(d)(4)<\/b><\/td>\n HUD 223(f)<\/b><\/td>\n<\/tr>\n \n Loan Size<\/span><\/td>\n $4 Million Minimum<\/span><\/td>\n $1 Million Minimum<\/span><\/td>\n<\/tr>\n \n Interest Rate<\/span><\/td>\n 3.10 to 4.10% Fixed \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 (no MIP)<\/span><\/p>\n 4.10% to 4.75% Fixed (and MIP)<\/span><\/p>\n \n Terms<\/span><\/td>\n Fixed and fully amortizing (up to 40 years)\u00a0<\/span><\/p>\n Fixed and fully amortizing (up to 35 years)\u00a0<\/span><\/td>\n<\/tr>\n \n Fees\u00a0<\/span><\/td>\n 5 to 11 months\u00a0<\/span><\/td>\n 4.5 to 6 months<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Pros and Cons of HUD 221(d)(4) Loans<\/h2>\n
Pros of HUD 221(d)(4) Loans<\/h3>\n
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Cons of HUD 221(d)(4) Loans<\/h3>\n
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FAQ<\/h2>\n
Is it hard to get a HUD 221(d)(4) loan?<\/h3>\n
Should I take out a HUD 221(d)(4) loan?<\/h3>\n
Are HUD 221(d)(4) loans expensive?<\/h3>\n
Final Thoughts<\/h2>\n