HUD and FHA Loans

Some investors may not know what a HUD loan is, but it is important to understand its impact on a select commercial real estate (CRE) investment. Having a HUD-insured loan can mitigate risk, provide attractive loan terms and overall help ensure the longevity of the project.

When it comes to building, acquiring, or refinancing multifamily properties, the U.S. Department of Housing and Urban Development (HUD) offers some of the best financing options on the market today. HUD-insured multifamily loans offer competitive interest rates, long terms, high leverage allowances, and are fully amortizing and non-recourse. In addition, HUD multifamily loans are fully assumable (with HUD/FHA approval). That makes these loans highly effective for borrowers who want to maximize their profits and reduce their financial risk.

While HUD loans are excellent for all kinds of properties, including market-rate apartment buildings, they offer additional benefits for affordable properties, and are a great candidate for Low-Income Housing Tax Credits (LIHTCs), as well as housing located within Opportunity Zones. They can also work well with the Rental Assistance Demonstration (RAD) program, which allows certain properties under HUD legacy programs for affordable properties to convert their housing to the HUD Section 8 program.

Similar to HUD/FHA financing, Fannie Mae and Freddie Mac are other government sponsored programs that provide federally backed multifamily loans. The key difference is the the loan minimums. Whereas HUD loans tend to start at $4M (with typical loan amounts starting at $10 million), Fannie Mae loans can go much, much lower. Fannie’s Multifamily Small Loan program, for example, starts at just $750,000. Freddie Mac loans also start lower than HUD at around $1 million.

Also, the markets where Fannie Mae loans prevail are smaller than HUD or Freddie Mac. HUD/Freddie Mac loans typically prevail in more tier 1 type markets (like Chicago or NYC).

Additionally, Fannie Mae offers fixed- and variable-interest financing where as HUD and Freddie Mac loans lock once you sign the term sheet. In a rising rate environment, it may therefore be preferable to go with a HUD loan. However, if rates are anticipated to decrease, a variable-to-fixed or floating-rate loan from Fannie could be more advantageous.

HUD/FHA, Fannie Mae and Freddie Mac all offer roughly the same programs. The difference is the markets and terms.

Freddie Mac Small Balance Loan:
This product provides loan amounts from $1 million to $7.5 million in all markets, with loans up to $6 million in top and standard markets. Lending for cooperative buildings in New York City is also available. This program offers flexible terms and prepayment options, competitive low rates, and streamlined pricing, underwriting, closing, and funding process.

Product Highlights

• Loan Size: $1 million – $7.5 million
• 20-year term with initial 5- 7-, 10-year hybrid ARM and fixed 5,7, and 10 year options available
• 30-year Amortization Standard in All Markets

Eligible Uses

• Acquisition
• Refinance

Fannie Mae Small Mortgage Loan Program:
With flexible loans up to $6 million, the Fannie Mae Small loan program offers flexible terms and loans up to $6 million.

Product Highlights

• 5 – 30-year terms
• Loans from $750,000 to $6 million in eligible markets

Eligibility:

• Conventional properties
• Multifamily Affordable Housing Properties
• Cooperative Properties (market rate)
• Manufactured Housing Communities

HUD/FHA Section 221(d)(4):
The 221(d)(4) product is a fixed-rate construction and 40-year permanent loan covering the substantial rehabilitation or new construction of a multifamily property.

Product Highlights

• Multifamily construction or substantial rehabilitation financing
• 40-year terms
• Northeast Region and others on case-by-case basis
• Minimum loan size: $2 million

Eligible Uses

• New Construction
• Rehabilitation

HUD/FHA Section 223(f):
This loan product is for the purchase or refinance of existing multifamily housing with rehabilitation work allowed.

Product Highlights

• Multifamily refinance and acquisition
• Long-Term fixed rate
• Up to 90% LTV

Eligible Uses

• Acquisition
• Refinance

Freddie Mac Targeted Affordable Housing:
Freddie Mac Optigo Targeted Affordable Housing (TAH) loans are available to preserve affordable rental housing in underserved communities. Eligible properties are affordable to families with low and very-low incomes and may include Section 8 financing, Section 236 financing, tax abatement, or other affordability components.

Product Highlights

• Fixed or floating-rate financing
• Interest-only options available
• Up to 80% – 90% LTV
• 30-year or 35-year amortization
• Up to 3.5 year forward rate-lock available

Eligible Uses

• Acquisition
• Refinance
• Rehabilitation

Fannie Mae Multifamily Affordable Housing:
The Fannie Mae Multifamily Affordable Housing Preservation product provides options for preserving the availability and affordability of subsidized rental housing for low-income renters.

Product Highlights

• Flexible underwriting to specific affordable developments
• Competitive pricing
• Flexible loan terms, and fixed-or
  variable-rate financing options
• Certainty and speed of execution

Eligible Uses

• Expiring Low-Income Housing Tax Credit deals
• Refinancing of existing tax-exempt bond deals
• Properties eligible for the Rental Assistance Demonstration (RAD) program
• Properties with HUD Section 8 HAP Contracts
• Properties with existing Rural Housing Service (RHS) Section 515 loans
• Loans insured under Sections 202 or 236 of the National Housing Act

FHA Section 221(d)(4):
The 221(d)(4) product is a fixed-rate construction and 40-year permanent loan covering the substantial rehabilitation or new construction of a multifamily property.

Product Highlights

• Multifamily construction or substantial rehabilitation financing
• 40-year terms
• Northeast Region and others on case-by-case basis.
  Minimum loan size: $2 million

Eligible Uses

• New Construction
• Rehabilitation

FHA Section 223(f):
This loan product is for the purchase or refinance of existing multifamily housing with rehabilitation work allowed.

Product Highlights

• Multifamily refinance and acquisition
• Long-Term fixed rate
• Up to 90% LTV

Eligible Uses

• Acquisition
• Refinance

Freddie Mac Conventional Financing:
Fixed-rate and floating-rate loans are available ranging from $5 million to $100 million, with 5- to 10-year terms.

Product Highlights

• Loan Size: $5 million – $100 million
• 5, 7, 15 -Year Terms; 30 Year Amortization Standard
• Fixed Rate

Eligible Uses

• Acquisition
• Refinance

FHA Section 221(d)(4):
The 221(d)(4) product is a fixed-rate construction and 40-year permanent loan covering the substantial rehabilitation or new construction of a multifamily property.

Product Highlights

• Multifamily construction or substantial rehabilitation financing
• 40-year terms
• Northeast Region and others on case-by-case basis
• Minimum loan size: $2 million

Eligible Uses

• New Construction
• Rehabilitation

FHA Section 223(f):
This loan product is for the purchase or refinance of existing multifamily housing with rehabilitation work allowed.

Product Highlights

• Multifamily refinance and acquisition
• Long-Term fixed rate
• Up to 90% LTV

Eligible Uses

• Acquisition
• Refinance

The products can be used for acquisitions, refinancing, rehabilitations and new construction of multifamily, cooperatives, manufactured housing, mixed use, student housing and rental properties nationwide

You must have a minimum 660 credit score and debt-to-income ratio of < 36% (up to 46% under extenuating circumstances), and the property must meet certain standards such as appraising for a fair market value. The property must also have a clear and marketable title, and be properly zoned for its intended use. In addition, you must be able to show that you have the financial ability to make the mortgage payments.

• Non-recourse
• Up to 80% LTV in certain markets
• Interest-only available
• 30-year amortization
• Declining prepayment options
• Certainty of execution
• No cash out restrictions

Longer turnaround than traditional bank loans (60 – 120 days)

Some thing we’ll need are:

• Operating Statement*
• Trailing 12 months operating history*
• Rent Roll*
• Personal Financial State
• Schedule showing real estate owned
• Your story (we’ll have to write a brief executive summary highlighting your experience)

We can provide a soft quote/feedback within 24 hrs after receiving a detailed rent roll & operating statements.

Letter of Intent in 1-2 days after receiving a T12

*We have templates which can be used

If declined, we’ll know within 24 hrs. In that case, the only thing we’ve lost is time. We have several other loan products we can use to ensure your goals are met.