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Apartment Developers Rediscover FHA Multifamily Mortgages

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FHA Multifamily Mortgages
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Apartment Developers Rediscover FHA Multifamily Mortgages

FHA multifamily mortgages are being rediscovered in California as the state continues to be one of the most vibrant rental housing markets in the nation. Class A multifamily housing in desirable communities always has been a popular alternative for many middle-income individuals and families priced out of the ownership market.

The cutbacks or outright shutdowns of multifamily construction lending by commercial banks, insurance companies, FNMA and FHLMC have blocked the flow of capital for development and refinance of multifamily housing. California multifamily developers have been forced to sit on their hands during a time of historically low interest rates when their contribution to the nation’s economic recovery could be significant.

Historically, FHA multifamily mortgages have played little role as a conduit for multifamily mortgages in California. Statutory mortgage limits that worked fine in Texas and the Southeast simply didn’t cover the high cost of land in desirable California markets.

But recently, HUD has made significant changes to its programs to help open up capital access to high cost markets. HUD has also waived Davis-Bacon prevailing wage requirements for previously completed multifamily projects which have been unable to refinance existing construction loans.

It is time for California multifamily developers to reacquaint themselves with FHA multifamily mortgages, construction perm loan and refinance programs.

FHA Multifamily Mortgages For New Construction

  • Term: Construction period plus 40 years fixed-rate fully amortizing.
  • Rates: In the current market, note rates are averaging about 4.25 percent.
  • Personal guarantees: None.
  • Loan to cost: Currently 90 percent, but HUD is indicating it may soon lower this to 83.3 percent.
  • Debt service coverage ratio: 1.11, but HUD is indicating it may soon raise this to 1.20.
  • Learn more about FHA multifamily mortgages for new construction

FHA Multifamily Mortgages For Refinance

  • Term: 35 years fixed-rate fully amortizing
  • Rates: In the current market, note rates are averaging about 3.25 percent.
  • Personal guarantees: None.
  • Loan to value: Currently 85 percent, but HUD is indicating it may soon lower this slightly.
  • Debt service coverage ratio: 1.17, but HUD is indicating it may soon raise this slightly.
  • Learn more about FHA multifamily mortgages for refinance

Kathryn Thompson is the founder and managing director for Apartment Financing America and has more than 40 years of experience in all phases of real estate and mortgage banking. She is a builder and developer of more than 25,000 homes. Kathryn Thompson can be reached at kathryn@apartmentfinancingamerica

About Author

Kathryn ThompsonApartment Financing America founder and managing partner Kathryn Thompson is former Chief Executive Officer of KGT Construction Company, a company she founded in 1967 and sold to The Koll Company in 1994. Based in Orange County, California, Kathryn Thompson has been continuously active in all phases of real estate for more than 40 years. Ms. Thompson earned an enviable reputation during her many active years in the real estate industry and has come a long way since buying her first property at age 16. This Dallas born entrepreneur owned her first company at age 25. She has received numerous industry and civic awards, including induction into the California Building Industry Hall of Fame in 1991. Ms. Thompson’s national reputation in home building was recognized by Presidential appointment in 1994 to the Fannie Mae Board of Directors. Ms. Thompson considers this one of the most honored achievements, due to her appreciation of Fannie Mae’s commitment to helping families achieve the “American Dream” of home ownership, a commitment that reflects the very heart of her career.View all posts by Kathryn Thompson →

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