HUD Announces Beneficial Changes in DSCR and LTC/LTV Requirements for FHA-Insured Multifamily Loans

HUD has officially published two Mortgagee Letters (MLs) announcing rule changes to address current market needs and to boost housing production (ML 2025-02 and ML 2025-03). The updated guidelines, effective January 8th, 2025, adjust the existing programmatic Debt Service Coverage Ratio (DSCR), Loan-to-Cost (LTC) ratio, and Loan-to-Value (LTV) ratio requirements for 221(d)(4) loans and 223(f) loans yet to reach initial endorsement. These changes, detailed below, will increase loan proceeds for borrowers utilizing these programs.

Market Rate: HUD 221(d)(4) and HUD 223(f)

• DSCR reduced from 1.176x to 1.15x

• LTC/LTV increased from 85% to 87%

Middle Income Housing: HUD 221(d)(4)

• DSCR reduced from 1.176x to 1.11x

• LTC increased from 85% to 90%

• Maintains no LTV requirement for 221(d)(4) loans

Requires 50% of units to be restricted up to 120% AMI through a 10-year locally monitored use restriction.

Affordable Housing: HUD 221(d)(4) and HUD 223(f)

• DSCR reduced from 1.15x to 1.11x

• LTC/LTV increased from 87% to 90%

Requires either 40% of units restricted to 60% AMI or 20% of units restricted to 50% AMI through a 15-year locally monitored use restriction or alternatively a Section 8 HAP Contract covering at least 90% of the units.

Please reach out to info@dwightcap.com with any questions or for a deeper dive into these updates.