The key differences between HUD 223(f) and HUD 221(d)(4) loans are:

• HUD 223(f) loans are intended for the acquisition and refinancing of multifamily properties, while HUD 221(d)(4) loans are designed for multifamily property construction and substantial rehabilitation.
• HUD 221(d)(4) loans have a slightly longer term length, at 40 years (plus a three-year, interest-only construction period), when compared to 223(f) loans, which have a maximum term length of 35 years.
• HUD 223(f) loans have slightly higher interest rates than 221(d)(4) loans.
• HUD 221(d)(4) loans have a higher minimum loan amount, at $2 million, compared to $2 million for a HUD 223(f) loan.
• HUD 221(d)(4) loans can take significantly longer to close; up to 11 months for loans processed through TAP (Traditional Application Processing), while 223(f) loans can usually be closed within 5 months, as long as no complexities arise.

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HUD 223(f) loans offer some of the best terms in the industry for the acquisition and refinancing of multifamily and apartment properties. These loans are non-recourse, offer high leverage, low interest rates, and lenient DSCR requirements.

The advantages of a HUD 223(f) loan include:

• Loan amount: $1 million, no set maximum
• Terms: Between 10 and 35 years
• Leverage: Up to 85% LTV for market-rate properties, 87% LTV for affordable properties, 90% LTV for properties using rental assistance.
• Interest rates: Fixed for the life of the loan. Includes a mortgage insurance premium, or MIP.
• DSCR requirements: 1.18x for market-rate properties, 1.15x for affordable properties, and 1.11x for rental assistance properties.

The HUD 221(d)(4) loan program offers several advantages for borrowers, including:

• A 40-year loan term (+3 years construction, for a 43-year total)
• Competitive, fixed interest rates
• Non-recourse
• High LTV allowance (up to 90% for properties with significant rental assistance)

HUD 223(f) loans offer incredibly generous terms-- including 35-year, fully amortizing, fixed-rate financing, and nearly unbeatable leverage. Property types that can be financed with a HUD 223(f) loan include:

• Must have 5+ residential units
• Must have complete kitchens and bathrooms for each unit
• Can be row, walkup, detached, semi-detached, or elevator-type rental or cooperative housing
• Can be student housing, but multiple rents cannot be derived from one unit and rents need to be similar to comparable multifamily properties
• Can be market-rate, affordable, or rental assisted/subsidized (i.e. Section 8, Section 202)
• Cannot be an assisted living, skilled nursing, or memory care property (though independent living facilities for seniors are allowed)
• Must have all construction and major rehabilitation finished three or more years before beginning the HUD loan application process

HUD 221(d)(4) loans are available for a variety of multifamily property configurations, including row homes, walkup apartments, detached, semi-detached, and elevator-type multifamily properties. This includes market rate and low-to-moderate income housing, subsidized affordable housing properties and multifamily, cooperative housing with a minimum of 5 units.

If you're interested in getting a low-cost, non-recourse, fixed-rate loan for a multifamily real estate development, a HUD 221(d)(4) loan could be a great option. But what kind of properties can you build or renovate with this kind of HUD multifamily loan?

HUD 223(f) loans have terms including:

• Loan Amount: Minimum loan amount of $1 million (exceptions can be made on a case by case basis)
• Loan Term: Minimum loan term of 10 years, and a maximum term of 35 years (or 75% of the property's remaining economic life)
• Leverage:
  • Market rate properties: 83.3% LTV
  • Affordable properties: 85% LTV
  • Rental assistance properties: 87% LTV, 90% LTV for properties with 90% or more rental assistance
• Interest Rates: Fixed, terms range from 4.10% to 4.75% (including MIP), as of Jan. 2019
• DSCR:
  • Market rate properties: 1.17x minimum DSCR
  • Affordable properties: 1.15x minimum DSCR
  • Rental assistance properties: 1.11x minimum DSCR
• MIP: 1% upfront mortgage insurance premium for all property types, then, annual MIP of:
  • 0.65% for market rate properties
  • 0.45% for affordable properties (typically must be Section 8 or new money LIHTC projects to qualify)
  • 0.25% for Energy Star SEDI (Statement of Design Intent) certified properties
• FHA Application Fee: 0.30% of the total loan amount
• Cash Out: For 223f refinances, cash out is allowed under specific conditions. LTV must be at least 80% (including transaction costs in the loan amount). At that point, 50% of funds above 80% adjusted LTV are released, with the remaining 50% to be released after property rehab is complete.
• Repair Limitations: While the 223(f) program is not intended for substantial rehabilitation, loan funds may be used for repairs of up to $6,500/unit (more in high-cost areas), or 15% of the property value, or 20% of the mortgage. If the second or third calculation is used, repairs are limited to $15,000/unit (more in high-cost areas). No more than half of any essential structural component (e.g. roofing, HVAC) may be replaced.

In addition, properties being acquired or refinanced with a HUD 223(f) loan must:

• Be at least three years old (for new properties), or have had the last substantial renovation three years ago or more (for renovated properties)
• Owner/developer must place funds monthly in a replacement reserve account
• Must meet additional HUD requirements and items for consideration