Basic Guide to HUD Multi-family loans
Updated: Jun 19
What is HUD?
HUD stands for "Housing and Urban Development", the US federal government agency that manages the Multi-Family Mortgage Insurance of the Federal Housing Administration (FHA). Because they involve multi-family household loan plans, HUD and FHA are usually used interchangeably when citing these plans. If the property defaults, these plans are 100% insured by the government.
Why get a HUD loan?
HUD loans provide extremely favorable conditions. HUD's 223(f) plan will refinance stable assets. The plan provides 35-year and amortized non-recourse loans with a maximum loan-to-value ratio of 80% and a fixed total interest rate of 3.75% (as of 2017 the first season). When carrying out construction or major restoration transactions, the 221(d)(4) plan provides more generous terms with a loan cost of 85% (no recourse), a 40-year term, and an amortization of 4.50%.
Usually, the only change in HUD will be the interest rate fluctuation when the interest rate is locked. The HUD loan is indeed the biggest attraction of the promoters because it is a long-term permanent debt option, but it can be paid off at any time with a simple tax-deductible prepayment penalty, or it can be fully assumed by the new owner after a simple 0.05%. , A one-time fee. These features may result in a premium when sold, because the buyer can choose to pay off the loan or assume existing debt at a market rate below.
Is HUD not only applicable to affordable housing?
No! This is the biggest misunderstanding of the HUD loan plan, because generally everyone thinks that HUD only applies to Section 8 and affordable housing. However, there is a big difference between HUD property owned and operated by the government to provide affordable housing and HUD loaned property. Many A-level, market-rate multi-family real estate properties across the country can apply for HUD loans. HUD loans can also be combined with local tax credits or municipal subsidies to create compelling investment schemes.
Does HUD provide construction loans?
Yes! For multi-family residential development, HUD has a 221(d)(4) construction loan plan for market interest rates and affordable housing developers. The plan is non-recourse, and can provide borrowers with up to 85% of the cost of the loan, with a term of 40 years and amortization at a fixed interest rate. Unlike traditional bank financing, these terms are not affected by market conditions, which makes 221(d)(4) particularly attractive in today's economic environment.
How long does it take to get a typical HUD loan process?
It takes a little patience to arrange a HUD loan, which is usually the biggest disadvantage of using the program. Although the processing time depends on whether the property is stable (Plan 223 (f)) or building (Plan 221 (d) (4)), it usually takes 5 to 9 months from delivery to closure, the longer the construction time, two. Since FHA lenders and HUD each underwrite the transaction, longer lead times are incurred. However, when waiting for 6 months is not a viable option to ensure permanent debt, HUD financing can be used to facilitate acquisition financing.
Rate reference: 3.25% as of Jun 16, 2020 green energy building loan