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. Click for FHA Apartment Loans Video
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.
FHA Apartment Loans Terms Sheet
Minimum loan amount substantial rehab $5 million.
- 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.
- 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.
- FHA statutory per unit limits adjusted for local high cost factor;
- Cost of offsite improvements, FF&E, marketing, construction contingency and operating deficit reserve are excluded from loan amount.
- 83.33% for market rate apartments.
- 87% for affordable apartments.
- 90% for apartments with 90% or greater rental assistance.
- 1.20×1 for market rate apartments.
- 1.15×1 for affordable apartments.
- 1.11×1 for project based rental assistance apartments.
- Replacement reserves required in accordance with HUD guidelines;
- Taxes and Insurance escrowed monthly (post construction);
- Working Capital Reserve equal to 4% of loan amount (post in cash or LOC);
- Operating Reserve 3% of loan amount or greater as determined by HUD at commitment.
- Appraisal
- Phase One Environmental Assessment (ESA)
- Market Study
- Construction Cost Review
- Plans and Specs Review
- 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
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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.
Related And Similar Loan Products
- FHA 223f Apartment Acquisition Loans – HUD insured apartment loan with some of the same great terms, but for acquisitions.
- FHA 223a7 Streamline Refinance Loans – Refinance existing FHA multifamily and healthcare loans at historically low mortgage rates.
- FHA 207 Mobile Home Park Loans – Loans for acquisition, construction, rehab or refinancing of mobile home parks with 50+ units.