FHA Multifamily – Step-By-Step Financing Guide

 June 20, 2020

The Federal Housing Administration (FHA) within the U.S. Department of Housing and Urban Development (HUD) guarantees multifamily property loans. These are multi-tenant properties with five or more units. The FHA multifamily loan can fund new construction, acquisitions, major repairs, and refinancing. An FHA multifamily loan can also apply to health care facilities, co-ops, elderly housing, and special needs housing.

In this article, we won’t go through an exhaustive description of each available FHA multifamily loan program. Rather, we’ll concentrate on Section 223(f) mortgage insurance for the purchase or refinancing of existing multifamily rental housing. Our emphasis is on the steps necessary to obtain a Section 223(f) FHA multifamily loan.

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Assets America® is a high-end commercial brokerage focused on debt placement starting from $20 million with no upper limit. We can finance multifamily properties (5+ units) through many programs, although we specialize in Fannie Mae financing and large, ground-up construction projects.  Whatever your funding needs, call us at 206-622-3000 for a free, no-obligation consultation to see how we beat the competition, or simply fill out the below form for a prompt response!

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Description of Section 223(f) Program

The FHA or conventional lenders may have originally financed the Section 223(f) projects. This section excludes properties that need significant rehabilitation. Rather, HUD mandates completion of critical repairs before investors can apply for Section 223(f) guaranteed FHA multifamily loans. However, borrowers can complete non-critical repairs after the FHA endorses mortgage insurance.

As you’ll learn, the purpose of Section 223(f) is to ensure that lenders will not suffer a loss if the borrower defaults on the FHA multifamily loan. The program guarantees mortgage terms of up to 35 years. Government National Mortgage Association (Ginnie Mae) mortgage-backed securities finance these mortgages, providing liquidity and lower interest rates.

General Characteristics

Additionally, the FHA Section 223(f) program has the following characteristics:

  • Includes refinancings under FHA 202 Refi Program.
  • You can use it for buying or refinancing existing multifamily properties.
  • Rates are at historical lows and LTV values are high.
  • FHA multifamily loans are assumable and self-amortizing.
  • You conserve cash because of the lower annual debt service.
  • Your realize/recoup equity when you refinance.
  • You can roll eligible refinance costs, including prepayment penalties, into the FHA multifamily loan.
  • Helps you expand tenant services and complete necessary improvements/repairs.
  • You can apply cash-out proceeds toward other senior housing properties that receive rental assistance from HUD.

Only HUD-approved lenders can qualify for FHA-insured mortgages. The maximum after-repair loan-to-value ratios for Section 223(f) FHA multifamily loans are:

  • 87.0% for projects receiving 90% or greater rental assistance
  • 85.0% for Affordable Housing projects
  • 83.3% for market-rate projects

FHA Multifamily Loan Section 223(f) Guidelines

The following guidelines apply to Section 223(f) FHA multifamily loans.

Eligible Properties

  • The property must have five or more residential units (5+) with complete baths and kitchens.
  • Property completion or rehabilitation no less than three years before borrowers can apply.
  • Applicants must finish non-critical repairs within 12 months of the closing of the FHA multifamily loan.
  • Projects encompass market-rate rental housing or rental assistance (tenant-based or project-based) housing.
  • Commercial area cannot exceed 25% of gross revenue and 20% of net rental area
  • Excludes student housing with room rental rather than unit rental.
  • Minimum lease term is 30 days.
  • The section excludes projects needing significant rehabilitation, including replacing two or more major systems.
  • Repair costs cannot exceed the greater of 15% of loan value after repairs or a maximum of $6,500 per unit (except in high-cost areas).
  • The project must have an economic life going forward that is long enough to allow for a 10-year mortgage.
  • Davis Bacon wage requirements don’t apply to Section 223(f) projects.

Eligible Borrowers

  • Non-profit and for-profit borrowers can apply.
  • All tenants can occupy approved projects within the constraints of normal occupancy.

Cash-Out Refinancing

  • Allowed when 80% of value exceeds existing debt plus transaction costs.
  • Only 50% of net cash released at closing.
  • Remainder escrowed until completion, inspection, and approval of the non-critical repairs.

Fees and Expenses

  • Third-Party Reports: Flood certification, appraisal, environmental analysis, engineering report.
  • FHA Inspection Fee: 1% of repair costs or $30 per unit if repairs are less than $3,000 unit.
  • FHA Exam Fee: $30 per $10,000 of the FHA multifamily loan balance.
  • Financing Fee: 1% – 3% depending on loan complexity and size.
  • Permanent Placement Fee: 1% – 2%.
  • First Year Mortgage Insurance Premium: 0.25% – 0.35% of loan amount for affordable properties and 1% for market rate properties.
  • Monthly Mortgage Insurance Premium: 0.25% – 0.35% of loan amount for affordable properties and 0.60% for market rate properties.
  • Borrower’s Legal: Approximately: $10,000 – $20,000.
  • Title & Recording Fees: To be determined.



Up to 35 years

Current Rate

Below 4.0% for 35-year loan


Tax, replacement reserve, initial deposit to reserve, repairs, and insurance.

Interest accrual

Actual/360 or 30/360

Interest-only available?


Loan size

$1 million and up

Loan term

Lesser of 75% of the estimated life of the physical improvements or 35 years

Maximum loan-to-value ratio

83.3% to 87.0%

Minimum debt service coverage ratio

1.15 to 1.17

Minimum occupancy

Stable occupancy for at least six months prior to application and maintained until closing

Prepayment penalty

Typically, two-year lock out and then step-down premium

Rate locks

At commitment

Rate type



Non-recourse with standard carve-outs

Replacement reserves required?


Supplemental loan?

Available 12-months from closing, subject to loan agreement



Subordinate debt permitted?

Up to 7.5% on exception basis

The FHA Financing Process

The procedures differ for Multifamily Accelerated Processing (MAP) and non-MAP lenders.

Multifamily Accelerated Processing Lenders

  1. The borrower uses a MAP-approved lender who submits the necessary exhibits for the Firm Commitment application.
  2. These exhibits include complete underwriting packet for review by to the local Program Center or Multifamily Hub.
  3. The Program Center or Multifamily Hub analyzes the application to decide whether the risks surrounding the loan are acceptable. Considerations include the capabilities of the borrower and market need.
  4. FHA underwriting must conclude that the project will generate sufficient income to repay the loan. The underwriters must assess all of the project’s required expenses.
  5. For approved loan guarantee, the local Program Center or Multifamily Hub commits to mortgage insurance for the lender.

Non-MAP Lenders

  1. HUD field office staff processes applications from non-MAP lenders under Traditional Application Processing (TAP) rules. TAP has two processing stages: the conditional commitment stage and the firm commitment stage.
  2. The borrower must participate in a pre-application conference during the conditional commitment stage. The conference determines the appraised value and maximum mortgage amount.
  3. At the firm commitment stage, the local Program Center HUD or Multifamily Hub decides the available mortgage amount.
  4. If the loan meets FHA program requirements, the local Program Center or Multifamily Hub commits to the lender for mortgage insurance.

Are These Loans Right for Me?

To understand whether a Section 223(f) loan is right for you, consider the following pros and cons:


  • Section 223(f) loans offer long-term, fixed-rate financing for purchase or renovation of eligible properties.
  • Low interest rates facilitated by Ginnie Mae securitization.
  • Highest LTV in the market.
  • Loans are non-recourse.
  • Loans are assumable.
  • There are no geographical or population restrictions.
  • Supplemental financing is available.
  • Maximum required equity only 15% and as little as 10%.


  • Process can take a long time and require huge amounts of documentation.
  • You must provide audited operating statements annually
  • Fees can be high.
  • You may need to pay mortgage insurance premiums.
  • You must reserve replacement escrow.
  • The property must receive a HUD inspection.
  • The mortgage must not exceed FHA multifamily loan limits
  • Owner distributions restrictions exist.
  • Cash-out refinancing maximum is 80%.

Frequently Asked Questions

How do I prequalify for FHA loan for multifamily?

Typically, you’ll need to demonstrate verifiable income sufficient for housing payments and existing debt. You’ll also need to save at least 3.5% for your down payment. It helps to have an established credit history with a score of at least 680. The mortgage must not exceed FHA multifamily loan limits.

How many FHA multifamily loans can I get?

Normally, you can have just one property that you finance through the FHA. However, you may be able to qualify for an exception that would allow you to obtain multiple loans.

How long does FHA financing take for multifamily?

Generally, you should expect it to take from 45 to 60 days to submit your FHA multifamily loan application to HUD. Then, it will take another two to three months for HUD to make its commitment and up to 45 days to close. So, the total time will probably take 4.5 months to close.

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