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June 09, 2020

HUD 223(f) Loan Program Offers the Most Competitive Terms in this Market for Multifamily Properties

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As the country continues to deal with the effects of COVID-19, many multifamily borrowers have experienced hardships as lenders of all types; banks, bridge, and CMBS, are increasingly reluctant to close on their loan commitments (or are significantly modifying their terms). It has long been understood that if a borrower needs financing during uncertain economic times, the most reliable financing comes from loans insured by government agencies. Most borrowers are familiar with Fannie Mae and Freddie Mac but fewer are aware of the most favorable program available, the 223(f) loan offered by HUD.

Property eligibility for HUD 223(f) loans is often misunderstood as being accessible only to affordable or low-income housing, but that is not the case. The vast majority of HUD 223(f) loans finance market-rate properties that have no affordability restrictions.

HUD 223(f) loans are non-recourse and offer comparatively high leverage, low interest rates, a lengthy term and amortization, and a favorable prepayment schedule.

Advantageous terms of the HUD 223(f) program:

  • Eligible Properties: Multifamily properties of any class, cooperatives, and affordable housing

  • Borrower: Single asset entity, either for profit or not-for-profit

  • Recourse: Non-recourse

  • Term and Amortization: 35 year fully amortizing loan

  • Interest Rate: Fixed rate determined by market conditions at time of rate lock; currently < 3%

  • Leverage: Up to 85% LTV for market-rate properties, max LTV for cash-out refinance is 80% LTV

  • DSCR requirements: 1.18x for market-rate properties; 1.15x for affordable; 1.11x for Broadly Affordable

  • Prepayment Schedule: 10 Year step-down, starting at 10% and declining 1% every year

The HUD 223(f) application process involves the following steps: It takes 45-60 days to prepare and submit the application to HUD. HUD then reviews the application within 60 days before issuing a Firm Commitment, which is typically when rate lock occurs. Closing typically happens approximately 45 days thereafter. The total timing involved in this process is approximately 5-6 months, with the understanding that timing is loan dependent and may vary outside of these estimates.