HUD 223(f) Loan

Eligible Borrowers

• Single asset, special purpose entities that are either for profit or non-profit

Eligible Properties

• Market Rate, Affordable Housing (affordable apartments for low-income families, the elderly, and people with disabilities), Unsubsidized Housing, and Subsidized Housing (HUD helps apartment owners offer reduced rents to low-income tenants);
• Properties must be at least 3 years old; and a waiver may be granted if the property is affordable and less than 3 years; and
• The property must have an average physical occupancy of 85% for 6 months prior to the loan application and maintain until close.

*Note: If there is any identity of interest between the buyer and seller in a purchase transaction, it will be considered a refinance transaction.

Amortization and Loan Term

• Maximum Loan Term up to 35 years fully amortizing, not to exceed 75% of the remaining economic life.

Cash Out

• Up to 80% LTV. 50% of cash will be released at closing, and the remaining 50% will be held in escrow until all required non-critical repairs are completed.  
• A waiver can be requested to receive 75% cash at closing with 25% held in escrow until repairs are completed.

Interest Rate

• Fixed, subject to market conditions.

Commercial Space 

• 223(f) 25% of net rental area and 20% of effective gross income.

Rate Lock Deposit

• 0.50% of mortgage amount collected at time of client’s acceptance of the Firm Commitment. The rate lock deposit will be fully refunded at the transaction closing.

Non-Recourse

• The HUD mortgage note will contain a non-recourse provision as to the mortgagor entity. Notwithstanding this provision, certain parties may be held personally liable to the extent of losses arising from certain “bad acts” and malfeasance, as set forth in the Regulatory Agreement. Such parties will be identified in the Firm Commitment.

Repairs/Replacements

• Repairs can’t exceed $15,536 per unit multiplied by the high cost factor for the area.  
• Repairs and replacements are limited to a maximum of one major building component.

Prepayment

• 2-year lockout followed by 8 years of declining pre-pay of 8%, 7%, 6%, 5%, 4%, 3%, 2%, and 1% (other terms may be negotiated).

Assumable Mortgage

• Fully assumable, subject to HUD approval. 
• This feature makes the property very appealing for a buyer to assume a low rate in increasing rate environments.

Replacement Reserves

• Annual deposits of a minimum of $250 per unit per year or higher as identified by the Physical Capital Needs Assessment (PCNA).  
• An initial deposit will be required at closing which can be capitalized in the transaction and the amount is based on the PCNA.

Davis-Bacon Wage Rates

• Not applicable for this program.  

The borrower is responsible for HUD fees.

• Appraisal
• Phase I Environmental Assessment
• Physical Capital Needs Assessment (PCNA)

• lender financing and placement fees (up to 3.5% of the final loan amount, and payable from mortgage proceeds at closing),
• lender legal fees,
• recording fees,
• survey,
• title insurance, and
• borrower’s legal expenses.