HUD Apartment Loans
Trillium Capital Resources can successfully execute HUD – FHA Apartment/multifamily loans for our clients. There are several different HUD programs that you can use to finance your apartment project. We have strategic relationships with the top HUD lenders and can provide you with the most competitive apartment loans in the market.
Depending on your apartment project, we can help you with FHA (HUD) Apartment Loans Financing. Each financing option has different terms and rates, Trillium Capital Resources will help you find the right apartment loan for your asset.
Frequently Asked Questions
Are the FHA mortgage insurance programs limited to subsidizing housing?
No. A frequent misconception about the FHA mortgage insurance programs is that it is only limited to low income or subsidized housing. HUD will insure market-rate apartment assets with no income restrictions or subsidies.
Do they restrict a property to low income tenants or control rents?
FHA mortgage insurance programs are not restricted to low-income tenants nor do they control rents charged. The programs, as part of the National Housing Act, were designed to provide financing for new construction or substantial rehabilitation of multifamily projects, in the case of Section 221(d)(3), 221(d)(4), and 231 insurance. Under the Section 231 program, all project residents can be limited to 62 years and older. The Section 223(f) insurance program was created to assure the availability of mortgage capital for the acquisition or refinance of existing multifamily properties. All of these programs involve market rate consideration in underwriting unless they are restricted by requirements associated with other funding sources.
What maturities are available?
Maturities of 35 years or less for Section 223(f) and 40 years or less for Section 221(d) are permissible, however, all debt must be amortized within the term of the loan. Shorter amortization periods increase annual debt service requirements, which decrease the amount a property can borrow based on debt service coverage.
Are FHA insured loans assumable?
FHA-insured loans are assumable through a Transfer of Physical Assets process with HUD, provided the new owner and its principals are acceptable to HUD (0.05% of the original loan amount due at application submittal).
What is the underwriting interest rate and when is the final rate fixed?
Interest rates usually are not fixed prior to the issuance of a HUD firm commitment. In order to reduce the possibility that rising interest rates might hinder proceeding under a HUD firm commitment, RED Mortgage Capital, LLC will submit the application to HUD at a rate slightly higher than the anticipated final rate. Rates typically will be fixed following the issuance of the firm commitment and after the requirements for rate, the lock has been met.
What debt service coverage is typical for approved transactions?
Refinance or acquisition transactions will require a minimum debt service coverage, including a deposit to the replacement reserve, ranging from 1.11x to 1.20x. New construction and substantial rehabilitation transactions will require a minimum debt service coverage, including a deposit to replacement reserve, ranging from 1.11x to 1.20x.
Are there income limitations?
FHA mortgage insurance programs do not dictate income limitations. The borrower, however, must certify to abide by Fair Housing practices.
How long does it take?
With the implementation by FHA of its Multifamily Accelerated Processing (MAP) and LEAN programs, processing time has been reduced. Please see our program-specific term sheets for additional information.
Does HUD require an operating deficit escrow?
For new construction and substantial rehabilitation projects, and operating deficit escrow is dependent upon underwritten rent-up assumptions or program-based minimums. In the case of refinancing, acquisition, or substantial rehabilitation (when significant tenant displacement does not occur), an operating deficit escrow is not required.
What ownership structure is required?
FHA requires that the borrower (or borrowing entity) be a single asset mortgagor. Often, the owning entity is structured as Limited Liability Companies (LLC).
Are there financial reporting requirements?
FHA will require audited HUD financial statements submitted in an electronic format on an annual basis.
HUD-FHA Apartment Loans Pros vs Cons
Highest leverage available for Multifamily Assets – Up to 85% LTV
35 Year Terms Available
Typically the lowest rates in the market
No maximum on cash out proceeds
Operator disbursements limited to twice a year
Longer closing times as compared to other loan vehicles
Ownership annual audits
Replacement Reserve requirements
GENERAL PROPERTY INFORMATION:
Description and photographs of the project (type of construction, number of buildings, elevator, etc.) Amenities/Common areas
Details on commercial space, if any
Details on other sources of funding (tax credits, grants, etc.)
Any third-party reports that have been completed (market study, appraisal, phase I, etc.)
Year the property was built
If applicable, a brief synopsis of any substantial rehabilitations that have occurred since the property was originally constructed
Checklist For Preliminary Loan analysis
Financial & Occupancy Information
Last 3 fiscal year-end financial statements
Year to date monthly unaudited income/expense
Current rent roll and trailing 12 months occupancy history
Capital expenditures from the last 3 years and YTD interim period
If refinance, amount of debt currently outstanding and prepayment premium, if any. Also, include the existing mortgage note and applicable riders
If acquisition, purchase price of the property
Section 8 contract, if applicable
A construction budget of proposed repairs, if any
Any operating expense reductions created as a direct result of repairs (i.e. reduced utility expense as a result of boiler replacement, etc.)
Name of Borrower
Name and experience of Sponsor
Name and experience of Management Agent Real estate owned schedules for major principals