Apartment Construction Loans FHA 221d4
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FHA 221d4 Apartment Construction Loans

FHA Construction To Permanent Loan For Apartment Construction Or Rehabilitation

FHA 221d4 apartment construction loans provide long-term, non-recourse financing for apartment construction and apartment renovation. FHA 221d4 is an FHA construction to permanent loan that is guaranteed by HUD/FHA. This is the only 40 year, fixed-rate non-recourse construction loan in the world.

Because the security for FHA 221d4 apartment construction loans is wholly asset-based, the underwriting is cautious and driven by market econometrics. Recently HUD has adjusted its underwriting to more carefully review the borrowers and the volatility of the borrowers other assets. The underwriting/processing of these loans can be very frustrating and time-consuming.

Make no mistake, FHA 221d4 apartment construction loans are the very best apartment construction loans in the world, but they are not for the uninitiated.

The application, underwriting and processing of FHA 221d4 apartment construction loans should only be attempted by experienced mortgage brokers who have demonstrated expertise in placing FHA construction to permanent loans. Apartment Financing America and founder Kathryn Thompson have successfully placed more than $1 billion in FHA construction to permanent loans.

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FHA Apartment Loans Terms Sheet

Loan Program
FHA 221d4 Apartment Construction Loans
Loan Purposes
The 221(d)(4) apartment construction loan program provides multifamily construction financing for the construction or substantial rehabilitation of detached, semi-detached, row, walkup, or elevator-type rental or cooperative housing containing 5 or more units. FHA Construction to Permanent Loan Program available for market rate apartments or properties with rental assistance.
Eligible Properties
Conventional market rate apartments, cooperative housing and multifamily affordable housing properties with 5 or more units.
Eligible Borrowers
Both for-profit and non-profit entities are eligible.
Minimum Loan Amount
Minimum loan amount new construction $25 million.
Minimum loan amount substantial rehab $5 million.
Maximum Loan Amount
  1. Percentage of eligible development cost, including as-is value of land for new construction or as-is value of property in the case of substantial rehabilitation:
    • 83.33% for market rate apartments.
    • 87% for affordable apartments.
    • 90% for apartments with 90% or greater rental assistance.
  2. An amount that achieves minimum Debt Service Coverage Ratio:
    • 1.20×1 DSCR for market rate apartments.
    • 1.15×1 DSCR for affordable apartments.
    • 1.11×1 DSCR for apartments with 90% or greater rental assistance.
  3. FHA statutory per unit limits adjusted for local high cost factor;
  4. Cost of offsite improvements, FF&E, marketing, construction contingency and operating deficit reserve are excluded from loan amount.
Loan Term
Actual construction period plus 40 years, fully amortizing, interest only during construction.
Amortization Term
Actual construction period plus 40 years self amortizing.
Loan To Value Ratio
  • 83.33% for market rate apartments.
  • 87% for affordable apartments.
  • 90% for apartments with 90% or greater rental assistance.
Debt Coverage Ratio
  • 1.20×1 for market rate apartments.
  • 1.15×1 for affordable apartments.
  • 1.11×1 for project based rental assistance apartments.
Prepayment Terms
Loans may be voluntarily prepaid subject to a two-year lock out followed by an annual step down premium 8%, 7%, 6%, 5%, 4%, 3%, 2% and 1%.
Personal Liability
FHA apartment loans are non-recourse, with standard carve-outs.
Accrual
Actual/360
Escrow Requirements
  1. Replacement reserves required in accordance with HUD guidelines;
  2. Taxes and Insurance escrowed monthly (post construction);
  3. Working Capital Reserve equal to 4% of loan amount (post in cash or LOC);
  4. Operating Reserve 3% of loan amount or greater as determined by HUD at commitment.
Third Party Reports
  1. Appraisal
  2. Phase One Environmental Assessment (ESA)
  3. Market Study
  4. Construction Cost Review
  5. Plans and Specs Review
Rate Lock
30 to 180 day interest rate lock commitments. An early rate lock feature is available, allowing the borrower to lock a rate after preliminary underwriting.
FHA Application Fee
0.3% of the loan amount due at application (1/2 due at Pre-application and 1/2 due at Firm Application)
FHA Inspection Fee
.5% of the loan amount due and payable at closing.
Loan Origination Fee
Minimum 1.00%, thereafter negotiable based on complexity of the transaction.
Replacement Reserve
At Initial Endorsement the funding of a replacement reserve account will occur and periodic payments will be paid to it after Final Endorsement.
Additional Loan Features
  • Maximum underwritten occupancy 93% for market rate, 95% for rental assistance
  • Pre-review is required by HUD
  • Davis Bacon prevailing wage requirements apply
  • Cost certified audit required at Final Endorsement
  • Bonded general contractor is required
  • A replacement reserve will be funded at closing
  • Annual audit of operations is required
  • Hard second liens not allowed, soft seconds & stock pledge financing allowed with proper structure

FHA Apartment Loan Case Studies


FHA 221d4 Apartment Construction Loan Key Takeaways

  • FHA 221d4 construction to permanent loan is the only 40 year, fixed rate, construction loan available.
  • Loans can be used to finance new apartment construction or substantial rehab of existing apartments.
  • Eligible property types are market rate apartments, cooperative housing and multifamily affordable housing.
  • Minimum loan amount $5,000,000 for rehab, $25,000,000 for new construction.
  • Loan term is the actual construction period  plus forty (40) years.
  • FHA 221d4 apartment construction loans are non-recourse to the borrower.

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