FHA-HUD APARTMENT LOAN
The FHA HUD 221(D)(4) program is the best product in terms of pricing and terms for apartment construction loans. It is a hybrid product where the permanent and construction loan are rate locked at the same time. This helps developers determine future interest rate cost and prevents the potential of interest rate creep which can be detrimental to the future earnings of a project.
With a 40 Year fixed rate loan and a 2 Year construction period, the FHA 221(D4) program is tough to beat.
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Provides mortgage insurance for the new construction and substantial rehabilitation of apartment projects, including independent living projects for seniors (age 62 years and older with no services). This program provides for both construction and permanent financing.
Profit motivated single purpose entities (note: a non-profit can be the general partner of a profit motivated single purpose ownership entity).
Eligible Asset Type:
Market rate, affordable(1) or rental assisted(2) properties.
For loans less than $40 million, the lesser of:
40 years plus a construction period.
Maximum underwritten physical occupancy of 93% for market rate or affordable(1) properties. Maximum underwritten physical occupancy of 95% for rental assisted(2) properties, or properties where all units have rents at least 20% below comparable market rents.
Qualifies for Ginnie Mae guaranteed mortgage-backed securities, direct placement or may be used to credit enhance tax-exempt bonds.
Subject to market conditions. The construction and permanent financing interest rate is set at initial closing.
MORTGAGE INSURANCE PREMIUM:
The annual MIP is .65% of the outstanding loan amount. (.45% for LIHTC deals)
Typically closed for 2 years then open to prepayment at 108% in year 3, declining 1% per year. Other variations are possible based on market conditions and borrower preferences.
Market rate applications must be submitted under MAP two-stage processing (pre-application/firm application). HUD may allow MAP one-stage processing for substantial rehabilitation of market rate properties that will not have (i) major unit reconfiguration, (ii) tenant displacement except for a short period of time, (iii) a reduction in current occupancy, (iv) negative cash flow, or (v) for properties in stable markets where an invitation letter recently expired. Affordable(1) or rental assisted(2) properties may utilize MAP one-stage processing.
Section 221(d)(4) processing usually takes about 5 to 7 months assuming a MAP one-stage application and about 8 to 10 months assuming a MAP two-stage application (subject to deal specifics).
A Builder's and Sponsor's Profit and Risk Allowance (BSPRA) equal to 10% of all costs other than land can be utilized for sponsors with an identity of interest general contractor.
Yes, subject to HUD and lender approval (0.05% of the original loan amount).
Permitted in the form of a surplus cash note and only from a governmental source. Low income housing tax credit deals with less than 50% of cost mortgages may also carry secondary financing.