HUD Multifamily Loans

FHA multifamily loans present real estate investors and developers with highly advantageous financing alternatives. Although the Federal Housing Administration (FHA) doesn't directly originate these loans, they provide insurance for multifamily loans extended by third-party lenders to real estate investors. Following FHA guidelines, the third-party lender will process and underwrite the loan to secure the insurance. There are two main types of FHA-insured loans available for multifamily investors: the FHA 223(f) multifamily loan program and the FHA 221(d)(4) multifamily loan program. Continue reading for more details on these multifamily loan options.

LOAN TYPES

Our Best HUD Multifamily Loan Rates

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HUD Multifamily Loan Benefits

An Allied Mortgage broker with over 30 years of lending experience

No upfront application or processing fees
Simplified application process
Up to 85% LTV on multifamily
Terms and amortizations up to 35 years
Loans for purchase and refinance, including cash-out and construction
Quick pre-approvals with no cost and no obligation.

HUD 223(f) Multifamily Loan Program

The HUD 223(f) multifamily loan program was established to assist investors in purchasing and refinancing multifamily properties. Contrary to popular belief, HUD insures loans for various types of multifamily properties across the United States, not just affordable and Section 8 housing. The HUD 223(f) multifamily loan insurance program provides one of the most attractive financing options for multifamily investors in the market.

HUD 221(d)(4) Multifamily Loan Program

HUD-insured multifamily loans offer investors some of the longest terms and amortizations in the market. The HUD 223(f) loan program offers fully amortizing terms of up to 35 years, while the HUD 221(d)(4) loan program offers up to 43-year loan terms. The multifamily construction loan under HUD 221(d)(4) provides up to three years of interest-only financing during the construction period, followed by a fully amortizing term of up to 40 years. Monthly payments on multifamily HUD loans are typically lower than those from traditional lenders due to longer amortization periods. Another significant benefit of these programs is that HUD does not discriminate based on geographical locations and markets. While many lenders may choose not to lend in small and rural markets, HUD insures loans in these areas. The main drawbacks of HUD-insured multifamily loans are the time it takes to close the loan and the bureaucratic processes involved. Depending on the property's location and HUD's current workload, these loans can take anywhere from 5 to 10 months to close. HUD-insured loans also require annual financial audits and are generally more expensive compared to traditional multifamily loans.

Mortgage Insurance Premium

A common misconception in the multifamily industry is that HUD directly provides loans to developers and real estate investors. In reality, these loans are made by third-party lenders, and HUD underwrites and insures them. This is where the mortgage insurance premium comes into play. All HUD borrowers must pay a mortgage insurance premium at the time of closing and on an annual basis. Typically, borrowers pay 1% of the loan amount to HUD at closing and 0.6% annually thereafter. However, affordable properties and green properties are eligible for MIP discounts (0.25%-0.35% for affordable and subsidized properties, 0.25% for Green/Energy Star certified properties). HUD pools this money and utilizes it to insure the loans made by third-party lenders. If a borrower defaults on the loan, HUD uses this pool of funds to compensate the third-party lender. Essentially, the mortgage insurance premium paid to HUD allows these loans to be offered at attractive rates with extended terms and amortizations.

2023 HUD Multifamily Loan Data

In 2023, HUD insured approximately 1,800 loans worth over $29 billion for commercial real estate investors and developers. These loans were issued for multifamily and healthcare properties throughout the United States. HUD implemented several new policies that made their loan insurance programs even more desirable for investors. Previously, HUD required developers of newly constructed apartment buildings to wait at least three years before being eligible to refinance their property into a HUD-insured loan. However, in 2020, HUD eliminated this rule, allowing developers to refinance immediately upon stabilization. Many developers took advantage of this rule change in 2023, contributing to HUD's record loan volume year over year. Additionally, HUD began allowing investors to acquire multifamily properties using bridge loans and still qualify for up to 85% loan-to-value (LTV) through the 223(f) program. This policy change was beneficial for investors because the HUD loan process can take over six months, and most sellers are unwilling to wait that long for a sale to close. This policy allowed investors to purchase multifamily properties with short-term bridge loans and later transition into HUD loans after the initial acquisition. Many real estate investors capitalized on this policy change in 2023, further boosting HUD's loan volumes.Due to historically low interest rates and the aforementioned policy changes, HUD experienced a significant increase in activity throughout 2023. Many loans took more than 10 months to close as HUD offices across the country faced backlogs of deals worth billions of dollars. Investors were able to secure long-term fixed rates below 3% in the low-rate environment. As a result, HUD captured a substantial share of the multifamily loan market in 2023.

Multifamily Bridge to HUD Loans

One of the major challenges for potential HUD borrowers is the lengthy timeline to close a multifamily HUD loan. These loans can take anywhere from 5 to 10 months to close, depending on the property's location and market conditions. This extended timeframe poses a particular problem for investors interested in purchasing multifamily buildings since most sellers are unwilling to wait for such a long period. To address this issue, we assist borrowers in obtaining bridge-to-HUD financing. This solution allows for smoother transactions by resolving the timing problem and facilitating the purchase of multifamily properties using short-term bridge loans, followed by a transition to HUD loans after the initial acquisition.