HUD Multifamily – The Perfect Introductory Guide

 March 27, 2020

The U. S. Department of Housing and Urban Development (HUD) offers several programs that provide HUD multifamily financing. These are important programs that help eligible investors obtain the funding they need to develop or purchase multifamily properties.

It’s important to understand the benefits of these programs but also their limitations. We’ll discuss the pros and cons in this article along with other important topics such as HUD multifamily data. If you need financing and can handle the long, tedious process, HUD multifamily financing may be a viable solution.

HUD Multifamily Financing

HUD offers the following multifamily programs. In general, the statutory mortgage limits caps loan-to-replacement costs to 90%.

Rental Housing (Section 207)

This program insures mortgage loans for the construction and rehabilitation of various types of rental properties, including multifamily properties. It is still on the books, but developers use other programs instead.

Rental and Cooperative Housing (Section 221(D)(4))

Developers prefer this loan insurance program for new construction and rehabilitation of multifamily, SRO, and cooperative properties. The properties are for moderate-income households, the elderly, the displaced, and the handicapped. The program insures non-recourse mortgages of up to 40 years from HUD-approved lenders.

Eligible activities extend to the construction or rehab of the following types of rental/coop properties that contain at least five units:

  • Detached
  • Semi-detached
  • Walkup
  • Row
  • Elevator-type

Limits on the amount financed vary according to unit size, structure type, and project location. Borrowers can include mortgagors, investors-sponsors, builders-sellers, nonprofit coops, and public profit-motivated sponsors. There are no income limits on eligible tenants.

The first three years of a construction loan are interest-only. The subsequent loan amortization for a construction loan is 40 years. The minimum loan amount is $2 million. Typical loans average more than $15 million.

The maximum mortgage amounts insured per unit as of 2019 are as follows:


These limits adjust for local high-cost factors (frequently 190% to 270%).

Loan-to-value caps are:

  • 83.33% for market rate apartments
  • 87.00% for affordable apartments
  • 90.00% for apartments with 90.00% or greater rental assistance

Debt service coverage ratio (DSCR) minimums are:

  • 1.20x for market rate apartments
  • 1.15x for affordable apartments
  • 1.11x for project-based rental assistance apartments

Mortgage insurance premium requirements are:

  • 0.65% for market-rate properties
  • 0.25 – 0.35% for affordable and subsidized properties
  • 0.25% for energy-efficient properties (Energy Star certification required)

There is a 0.3% FHA application fee and 0.5% FHA inspection fee. Pre-construction loans require 2% to 4% escrow for working capital and 3% for operations.

Cooperative Housing (Section 213)

Section 213 insures investors who construct, rehabilitate, or purchase nonprofit cooperative housing projects. Coop members own stock in the coop corporation entitling them to occupy a specific unit. The eligible activities are the same as they are for the Section 221(D)(4) program. The loans are non-recourse.

The mortgage limits per unit are:


Maximum LTV loan amount is based on the lesser of:

  • 98% of HUD allowed replacement costs
  • 100% of net operating income
  • The statutory limit based on the type of structure and location of the project

The minimum DSCR (debt service coverage ratio) is 1.00x for coop properties. These loans are often age-restricted requiring the head of household to be at least 62 years old.

The mortgage insurance premium (MIP) requirement is 0.70% annually, with first year paid in advance. The property must be at least 60% pre-sold before closing.

Condominium Projects (Section 234(D))

This program insures blanket mortgages for construction or rehab of multifamily condominium units. The program is available to private, profit-motivated developer and other sponsors.

The mortgage limits per unit are:


Urban Renewal and Concentrated Development Areas (Section 220)

This program provides mortgage insurance for rental housing in code enforcement areas, urban renewal areas, and other designated areas. The purpose is to create good-quality rental housing in targeted areas. The program insures mortgages for new or rehabbed properties sponsored by local public agencies.

The mortgage limits per unit are:


Refinancing of Existing HUD Multifamily Loan (Section 223(a)(7))

These loans refinance existing HUD multifamily loans. These are non-recourse loans with a maximum term of 12 years beyond the current mortgage. Qualified borrowers are for-profit or non-profit single asset, or single purpose entity.

Up to a $1,500/unit repair amount is allowable and may roll into the cost of refinancing.

The maximum loan size is the lesser of:

  • Original principal amount of existing insured mortgage
  • DSCR of 1.11x (1.05x for non-profit borrowers)
  • 100% of eligible transaction costs, including repairs, existing indebtedness, third party costs, fees, and initial reserve deposit.

Mortgage insurance premium requirements are:

  • 1.0% upfront
  • 0.25% of loan annually for 90%+ LIHTC and/or 90%+ Section 8 properties or GREEN
  • 0.50% of loan annually for market rate

There is a 0.15% HUD application fee. The finance placement fee is:

  • Up to 2.0% for loans over $2 million payable at closing
  • Up to $40,000 for loans less than $2 million, payable at closing

These refinancing loans do not permit equity take-outs.

HUD 223(f) Multifamily Loans – Advantages & Disadvantages

Advantages and Disadvantages of HUD Multifamily Housing

In this section, we’ll look at the pros and cons of HUD multifamily housing.


  1. These loans feature low equity requirements and a high LTV allowance. DSCR minimums are generous. There are no financial capacity, geographic, or population requirements.
  2. Mortgage terms up to 35 or 40 years. In addition, construction projects get a three year interest-only term for a total of 43 years.
  3. Non-recourse and fully assumable loans shield investors and developers from undue financial risk.
  4. Low, fixed interest rates without balloon payments. These programs allow supplemental financing.
  5. Allow for improvement and repair funds.


  1. It can take the better part of a year to apply and receive final approval.
  2. HUD doesn’t lock in rates until you receive a commitment from HUD. This can take three to four months.
  3. You must supply copious amounts of documentation and paperwork.
  4. Fees can be expensive and the first year MIP is due upfront. You must pay for annual MIPs, inspection fees, third-party reports, title and recording fees, financing fees and legal fees.
  5. You must submit to HUD property inspections, annual audits, and escrows for replacement reserves, taxes, and insurance.
  6. Restrictions on cash-outs and owner distributions.

HUD Multifamily Data

HUD gives the public access to several databases containing HUD multifamily data, such as:

  • 202 Direct Loans
  • Currently Insured Mortgages
  • HUD firm commitments and endorsements database
  • Historical Production Tables
  • HUD multifamily mortgage database
  • HUD terminated mortgages database
  • Limited Denials of Participation
  • Maturing Subsidized Mortgages
  • Multifamily Assistance and Section 8 Contracts Database
  • Multifamily Property / Contract / Rent & Utility Allowance Datasets
  • Physical Inspection Scores
  • Section 8 Preservation Tool
  • TRACS Tenant Characteristics Report

Important Considerations

You should carefully review the advantages and disadvantages (discussed above) for these loans.

There are several important factors to consider before you decide to apply for HUD multifamily financing, including:

  • You must wait three years to refinance with HUD after construction is complete.
  • You must pay workers prevailing federal wages according to the Davis-Bacon Act.
  • Cash-out rules are complicated and restrictive.

Are These Loans Right for Me?

These loans can be a good choice if you don’t mind:

  • Waiting three to nine months to receive loan approval
  • Paying heavy fees and insurance costs
  • Not knowing the interest rate for several months until HUD commits to the loan
  • Providing large amounts of paperwork and documentation
  • Submitting to various HUD procedures, such as inspections, audits, and escrow funding
  • Restrictions on recouping some of your investment through owner distributions and cash-out refinancing
  • Paying top-dollar for all your workers based on federal rather than local wage rates

How Assets America® Can Help

While HUD multifamily housing can be useful for certain investors, many others will prefer a faster, less intrusive lending source. Assets America® finances multifamily projects of $10 million or more without all the delay and red-tape that HUD requires. We can offer you loans without restrictions on your wage rates or cash-out rules.

Talk to us before making any definitive decisions about applying for HUD multifamily loans. If it turns out that a HUD loan is the best deal for you, then Assets America® can go that route.

Frequently Asked Questions

What is necessary to run a HUD-funded multifamily unit?

You must submit to HUD rules such as MIP requirements, annual audits, and various inspections. That’s on top of any state requirements that mandate management or staff living on-premises.

How do you underwrite a HUD/FHA multifamily loan?

To qualify for accelerated processing, underwriters must possess the requisite skills. In addition, they must conform to HUD’s Multifamily Asset and Counterparty Oversight Division (“MACOD”). Also, the lender’s first three loan transactions will be subject to the processing restrictions.

Which HUD chapter covers multifamily housing?

Chapter 3 of the HUD Programs Handbook covers HUD multifamily housing programs. Specifically, this chapter address audits and other financial oversight procedures. There are several other handbooks that cover different aspects of HUD multifamily properties.

How often does the HUD change rents for multifamily apartments?

HUD requires an annual verification and recertification of tenant income to support gross rent changes. However, HUD permits interim recertifications. These occur when a tenant experiences a change in income or family composition between annual recertifications.

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