Multifamily Construction or Substantial Rehab Loans
FHA/HUD Section 221 (D)(4)
- 2.75% to 4.5% single fixed rate for interest only construction loan and 40 year fully amortizing permanent loan
- Eligible properties: Market rate, low to moderate income and subsidized multifamily properties
- $3 to 100 Million+
- Commercial space limited to 25% of net rentable area & 15% of gross income (30% underwritten EGI in urban renewal areas under Section 220)
- Term & amortization: interest only construction loan for actual construction period + 2 months for cost certification then 40 years fully amortizing
- No upfront fees. We are paid when your loan is funded at closing.
- High LTC: Subsidized: 90% LTC with 1.11X debt service coverage; Affordable: 87% LTC with 1.15X debt service coverage; Market Rate: 85% LTC with 1.18X debt service coverage; Subsidized and Affordable: 80% LTC with 1.25 debt service coverage
- Minimimum Scope of Work:All construction of new buildings plus renovation of existing buildings that meet one of the following conditions:
a) Renovation costs total more than $15,000 per unit times a local cost factor (typically 190%-270%)
b) Renovation will replace more than 50% of two or more building systems: electrical, plumbing, mechanical, building envelope, structural.
- 0.5% rate lock deposit refunded at closing
- Low fees and points
- Prepayment and assumption: negotiable with best pricing for 10 years of call protection (can be a combination of lock out and/or penalty; loan is fully assumable subject to HUD approval
- 660+ Credit
- Strong borrower/sponsor: experience owning & building similar properties in last 5 years, liquidity, net worth and financials required
- Must close tile in single asset, special purpose entity
- Davis Bacon wages required by HUD and determined by Department of Labor
- Escrows: (1) prior to construction, reserves for interest, taxes, insurance, working capital (2 to 4% of loan) and initial operating deficit; balances released to borrower 6 months after 6 consecutive months of break-even operations; (2) Post construction: taxes, insurance and mortgage insurance premium escrowed monthly and a capital needs reserve maintained with monthly deposits in accordance with HUD guidelines
- Mortgage insurance premium: 0.65% (0.70% for urban renewal projects under section 220; 0.25% to 0.35% for affordable and subsidized properties; 0.25% for Energy Star-certified properties;amount due during construction term paid at closing).
- HUD application fee: 0.15% of estimated loan amount due with submission of initial application; plus 0.15% due with final application (entire 0.30% due with final application for affordable and subsidized properties). Application fees are lower for properties in opportunity zones.
- Third party reports: appraisal, market study, environmental & future Capital Needs Assessment plus a review of final construction and architectural docs by HUD approved 3rd party contractor.
- Timeline: 12+ months from due dilligence to closing
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