HUD 223(f)
HUD 223(f) loans refinance apartment properties of any class – from subsidized Section 8 properties to high upper-end market-rate Class “A”. 223(f) loans have a fixed rate for 35 years, with no balloon. They are nonrecourse. They finance up to 85% of the property’s value for market-rate properties, 87% LTV for income/rent-restricted properties and 90% LTV for Section 8 subsidized properties.
Cash-out refinancings are permitted up to 80% of value. HUD values affordable and subsidized properties at market rents; and HUD values properties being renovated at prospective post-renovation rents. So, there are many opportunities for cash-out refinancings with rent-restricted properties or on value-added acquisitions.
As of March 4, 2022 rates for 223(f) loans were only 2.96%
The Only Way to Refinance or Purchase Apartment Buildings
The HUD 223(f) program offers financing with longer terms and longer amortization at a lower interest rate than Fannie Mae, Freddie Mac, CMBS loans, and even life company multifamily loans.
In the past, FHA 223(f) loans gained a reputation as being solely for nonprofits, low-income housing, and affordable housing projects. Because of this, many market-rate multifamily owners/operators have, and continue to, miss out on the industry's most affordable (and highest-leverage) financing mechanism.
HUD 223(f)-insured loans carry the stigma, and rightfully so, of taking longer to originate. That's true, as average origination times remain around four months from application to closing. However, if you're not in a great hurry (and if you are, we can arrange bridge financing at attractive rates), that's only 60 days longer than the average amount of time it takes to close a Freddie Mac multifamily loan or even a Fannie Mae D.U.S. multifamily mortgage.
FACTS TO CONSIDER
35 years fixed and fully amortizing loan. There is also a mortgage insurance premium of 0.6% for market rate non-green projects, 0.35% for “affordable properties” and 0.25% for “broadly affordable” properties or any property type that is green. If your project doesn’t qualify as green, our lender partners’ consultants can generally show you how to make them so at relatively little cost. Monthly funding of replacement reserves is required at levels dependeon project age, with initial funding of replacement if reserves also required—generally $1,000 per unit.An annual CPA audit of operations is required.The minimum loan amount is $5 million, with some exceptions for borrowers with more than one loan to be refinanced.
ELIGIBLE PROPERTIES
The purchase or refinancing of detached, semi-detached, row, walkup, and elevator-type multifamily properties, including market-rate, rent/income-restricted affordable properties, and subsidized multifamily, cooperative housing with at least five units.
COMMERCIAL SPACE LIMITATION
Commercial and retail space is limited to the lesser of 20% of the net rentable area or 20% of the effective gross income.
ELIGIBLE BORROWERS
Single-asset, bankruptcy-remote, for-profit or nonprofit entities. Tenant-in-common structures or Delaware statutory trusts or sole proprietorships are not allowed.
LOAN AMOUNT/LEVERAGE/DSCR
The loan amount will be the lesser of:
- 83.3% LTV or the amount of debt that can be serviced by 83.3% of net operating income for Market Rate Properties
- 85% LTV or the amount of debt that can be serviced by 87% of net operating income for Affordable Housing Properties
- 87% LTV or the amount of debt that can be serviced by 90% of net operating income or more for Rental Assistance Properties
However, for cash out refinancings, only the greater of 80% LTV or 100% of the total cost of refinancing the existing indebtedness and other mortgageable transaction costs is allowed.Also, loans over $75 million are subject to more conservative leverage and DSRC requireme
