HUD has recently introduced key updates affecting HUD loans for multifamily financing, including adjustments to loan-to-cost ratios and debt service coverage ratios (DSCRs) for multifamily new construction, refinancing, and acquisitions. These changes aim to enhance lending flexibility while maintaining financial stability. Additionally, HUD has rolled out new incentives specifically designed to support middle-income housing developments, creating more opportunities for developers and investors.
Updated Loan-to-Cost and Loan-to-Value Ratios for HUD Multifamily Loans
HUD has adjusted key lending ratios for HUD multifamily loans, providing greater financing leverage for developers and investors. The HUD 221(d)(4) loan for multifamily new construction and substantial rehabilitation now offers an increased loan-to-cost (LTC) ratio, rising from 85% to 87%. Similarly, loan-to-value (LTV) ratios for refinances and purchases have also increased from 85% to 87%.
Even more favorable terms apply to affordable housing loans; qualified projects can now benefit from an LTC and LTV increase from 87% to 90%, making it easier for developers to secure higher funding for much-needed affordable housing projects.
Lower Debt Service Coverage Ratios for HUD Multifamily Loans
Alongside adjustments to loan ratios, HUD has also revised debt service coverage ratios (DSCRs), reducing the minimum requirements for various loan programs. The DSCR for market-rate multifamily construction loans under the HUD 221(d)(4) program, as well as HUD 223(f) loans for purchases and refinances, has been lowered from 1.176 to 1.15.
For affordable multifamily financing, HUD has further relaxed the DSCR requirements. Qualified projects under HUD 221(d)(4) rates for new construction, substantial rehabilitation, purchases, and refinances now have a reduced DSCR of 1.11, helping borrowers maximize loan proceeds while maintaining financial feasibility.
New Underwriting Standards for Middle-Income Multifamily Construction
To support middle-income housing development, HUD has introduced a new set of underwriting standards for multifamily new construction projects. Middle-income housing is defined as properties affordable to individuals and families earning between 60% and 120% of the Area Median Income (AMI).
Under the updated guidelines, projects financed through the HUD 221(d)(4) loan program can now be underwritten with a 1.11 debt service coverage ratio (DSCR) and a 90% loan-to-cost (LTC) ratio. These changes provide greater financial flexibility for developers, making it easier to secure funding for housing that serves the growing middle-income market.
HUD’s Multifamily Accelerated Processing (MAP) Guide Updates
Under HUD’s Multifamily Accelerated Processing (MAP) Guide, loan amounts for FHA-insured multifamily properties are determined based on the lowest of the following factors:
- Requested loan amount submitted by the borrower
- Statutory limits set by HUD regulations
- Debt service coverage and the property’s ability to support the loan
- Applicable loan ratios, including loan-to-cost (LTC) and loan-to-value (LTV)
HUD’s proposed updates to the MAP Guide introduce more favorable debt service and loan ratio standards, allowing borrowers greater flexibility in structuring their loans.
These changes provide even greater financing advantages for properties classified as affordable housing, which must meet low-income housing tax credit (LIHTC) requirements or qualify under project-based Section 8 criteria. They further HUD’s commitment to increasing access to affordable multifamily housing.
Unlocking the Benefits of HUD 221(d)(4) Financing
The HUD 221(d)(4) loan program is a premier financing solution for developers seeking to construct or substantially rehabilitate multifamily housing. This program provides high-leverage financing, offering up to 85% loan-to-cost (LTC) for market-rate apartments and up to 90% LTC for subsidized housing projects.
One of its standout features is its construction-to-permanent loan structure, which includes an interest-only period of up to 24 months during construction. Once the project is complete, the loan converts into a 40-year fixed-rate, fully amortizing mortgage. Additionally, these loans are fully assumable, making the property highly attractive to potential buyers, especially during periods of rising interest rates.
Exploring More HUD Multifamily Loan Options
For borrowers interested in refinancing or acquiring multifamily properties, the HUD 223(f) loan program offers an excellent alternative. This program provides a non-recourse, assumable loan with terms of up to 35 years, fully amortizing and not exceeding 75% of the property's remaining economic life.
Ideal for both long-term investors and short-term property holders, HUD 223(f) loans are particularly appealing in a rising interest rate environment. Since these loans are fully assumable with HUD approval, buyers can take advantage of below-market interest rates, making property acquisitions more financially attractive.
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