HUD FHA 221(d)(4) Transaction FAQs

•    Pay interest only during construction period at the same rate of the permanent loan
•    Secure both the construction and permanent loan at the same time
•    Non-recourse

•    Prior multifamily or HUD experience of the development team members which include the borrower/developer, general contractor and management company
•    Include detailed Proforma Operating Statements with as much information as possible on number of units, unit mix, rent projections, and expense projections
•    Estimated construction costs of the project
•    Market research or market study reflecting the demand for additional units that can be quickly absorbed after construction is completed

•    Appraisal
•    Market Study
•    Environmental Site Assessment
•    Architectural Plan & Cost Review

The Davis-Bacon Act requires the payment of wages that prevail in the locality on projects of a character similar to the work that will be performed on direct federal contracts. The National Housing Act (§ 212) requires Davis-Bacon compliance on multifamily projects assisted with FHA mortgage insurance under Section 221(d)(4).

Yes, a working capital escrow of 4% of loan amount is required (2% allocated to construction contingency and 2% to working capital expenses).

The timing usually takes about 6 to 8 months assuming a MAP one-stage application and about 9 to 12 months assuming a MAP two-stage application (subject to deal specifics).

They are based on Loan-to-Cost. (LTC) is a ratio used to determine how much of a development project will be financed by debt versus equity. LTC is defined as the value of the loan divided by the cost of the project. The Loan-to-Value (LTV) is the ratio of the value of a loan to the market value of the property, as opposed to the cost of construction for a project.  LTV is the mortgage amount divided by the appraised value of the property.

Cost Driven Mortgage Limits for HUD/FHA 221 (d)(4)

*Note: Loan amounts in excess of $75MM have higher Debt Service Coverage Ratio (DSCR) limits and decreased Loan-to-Value (LTV) limits.

Yes. Many class A and B market rate multifamily apartment developments qualify. HUD is known for providing programs that provide financing programs for Section 8, affordable housing, and elderly and disabled, many of their programs can be taken advantage without these components.

Yes. Cash flow distribution allowed up to two times per year upon HUD approval of audit. Submission of annual audited financial statements is required.

Yes. The loan is fully assumable with approvals from both the lender and HUD and assumption fee of 0.05% of the original loan amount.

Monthly escrows are required for property insurance, real estate taxes, reserves for replacement and mortgage insurance premiums.

Yes. The maximum allowable percentage of total net rentable area is 25%, and the maximum allowable percentage of effective gross income is 15%.

•    That there is demand for the units proposed and there is not an oversupply in the current proposed market, as well as other proposed units coming online.
•    Environmental remediation at the site that there is removal of pollution or contaminants from environmental media such as soil, groundwater, sediment, or surface water.

The repairs, replacements, and improvement costs for an existing multifamily apartment property must be more than:

• 15% of the property’s replacement cost after of all work is completed OR
• Renovation costs of more than $15,000 per unit as adjusted by the local HUD office OR
• The cost of replacing two or more buildings, regardless of the cost

• Appraisal
• Market Study
• Environmental Report
• Projected Capital Needs Assessment

A review of the architectural documents and final construction by a HUD approved third party contractor is also needed.