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HUD – FHA Apartment Loan 223(f)

 

The FHA 223(f) program is an excellent product for operators who are looking to refinance or acquire existing apartment/multifamily projects.  This apartment loan is a fixed rate, non-recourse and assumable product with longer terms and amortization schedule.

With a 35 Year fully amortizing loan, the FHA 223(f) program is great for long term holds in your portfolio.  Contact Trillium Capital Resources today to size HUD Loan for your next project.

 

Program Purpose:
Provides mortgage insurance to facilitate funding the refinancing or acquisition of apartment properties that are at least three years old. Independent living projects for seniors (age 62 years and older with no services) are also eligible.Eligible Borrowers: 
Profit motivated, non-profit motivated and public owners are eligible.Eligible Asset Type:
Market rate, affordable(1) or rental assisted(2) properties.Maximum Loan:

 

REFINANCING: 
The lesser of:

  1. The amount of debt that can be serviced by 83.3%, 85%, 87%, or 90% of net operating income for market rate, affordable(1), rental assisted(2), or Section 202 properties, respectively
  2. 83.3%, 85%, 87%, or 90% of value for market rate, affordable(1), rental assisted(2), or Section 202 properties, respectively;
  3. The greater of 80% of value or 100% of the total cost of refinancing the existing indebtedness and other mortgageable transaction costs;
  4. 100% of mortgageable transaction costs less the portion of grants, public loans and tax credits applied to mortgageable costs;
  5. Statutory per unit limits.

ACQUISITION: 
The lesser of:

 

  1. The amount of debt that can be serviced by 83.3%, 85%, 87%, or 90% of net operating income for market rate, affordable(1), rental assisted(2), or Section 202 properties, respectively;
  2. 83.3%, 85%, 87%, or 90% of value for market rate, affordable(1), rental assisted(2), or Section 202 properties, respectively;
  3. 83.3%, 85%, or 87% of acquisition cost (i.e. total cost to close) for market rate, affordable(1), or rental assisted(2) properties, respectively;
  4. 100% of mortgageable transaction costs less the portion of grants, public loans and tax credits applied to mortgageable costs;
  5. Statutory per unit limits.

MAXIMUM TERM:

35 years, not to exceed 75% of remaining economic life.

OCCUPANCY:

All properties must demonstrate average physical occupancy of at least 85% for a period of 6 months prior to submittal of the application and maintain through final endorsement (i.e. stable occupancy). 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.

Funding:

Qualifies for Ginnie Mae guaranteed mortgage-backed securities, direct placement or may be used to credit enhance tax-exempt bonds.

INTEREST RATE:

Subject to market conditions.

MORTGAGE INSURANCE PREMIUM:

The annual MIP has historically been 0.45% of the outstanding loan amount. The first year MIP is set at 1% of the loan amount.

Prepayment: 

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.

Timing:

Section 223(f) processing usually takes about 4 to 5 months (subject to deal specifics).

FHA Application Fees:

0.30% of the loan amount (non-refundable).

PERSONAL LIABILITY:

None. The FHA insured loan is non-recourse; however, identified principal(s) will be required to sign “Bad Boy” carve outs at closing.

Secondary Financing:

Permitted in the form of a surplus cash note, combined loan-to-value cannot exceed 92.5% unless the secondary financing is from a governmental source.

ASSUMABLE:

Yes, subject to HUD and lender approval (0.05% of the original loan amount).

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