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What’s the Difference Between HUD and the FHA?
HUD and the FHA were founded separately but have significant overlap. Find out the difference between the two organizations.
HUD vs. the FHA: What You Need to Know
Although HUD and the FHA, or Federal Housing Administration, were founded separately, they share many things. For example, HUD oversees residential and multifamily insurance programs. In contrast, the FHA primarily deals with residential lending for primary residences.
What Is HUD?
HUD, or the U.S. Department of Housing and Urban Development, was created as a cabinet-level agency in 1965 as a result of President Lyndon Johnson’s Great Society program. When HUD was created, the FHA became a part of it.
In addition to providing mortgage insurance (along with the FHA), HUD also operates programs like the HUD Section 8 programs, which provides subsidies for apartment and multifamily investors who agree to cap their rents at a certain percentage of a location’s area median income (AMI), a statistic created by HUD. Area median income also impacts the Low-Income Housing Tax Credit (LIHTC) program, in which investors and developers can take advantage of a 10-year income tax credit if they agree to cap a certain number of units at a certain percentage of the AMI.
What Is the FHA?
The FHA, or Federal Housing Administration, was created by the Federal Housing Act of 1934 in order to encourage home ownership and increase the supply of housing in the United States. In the decades before the FHA was created, the vast majority of home mortgages were balloon loans and had LTVs of 60% or less. Refinancing options were not widely available, and the market crash of 1929 led many Americans to face foreclosure. In 1935, the FHA began issuing mortgage insurance to apartment buildings, including those intended for veterans. After the housing crisis of 2007-2010, the FHA became one of the largest insurers of home financing in the U.S., as privately insured mortgages became increasingly difficult to find for homeowners.
Also, although the FHA (which became a part of HUD in 1965) focuses on residential properties, it handles the overall management of HUD’s Multifamily Housing Programs. Yet, in the end, HUD ultimately provides the insurance for FHA multifamily loan programs like the HUD 221(d)(4) for multifamily construction and substantial rehabilitation, the HUD 223(f) program for multifamily acquisitions and refinancing, and the HUD 232 and HUD 232/223(f) programs for the construction, substantial rehabilitation, acquisition and refinancing of senior living and healthcare properties.
To learn more about HUD multifamily loans, simply fill out the form below and a HUD lending expert will get in touch.
Related Questions
What is the difference between HUD and the FHA?
HUD and the FHA, or Federal Housing Administration, were founded separately, but share many things. HUD oversees residential and multifamily insurance programs, while the FHA primarily deals with residential lending for primary residences. The FHA was created by the Federal Housing Act of 1934 in order to encourage home ownership and increase the supply of housing in the United States. After the housing crisis of 2007-2010, the FHA became one of the largest insurers of home financing in the U.S. HUD ultimately provides the insurance for FHA multifamily loan programs like the HUD 221(d)(4) for multifamily construction and substantial rehabilitation, the HUD 223(f) program for multifamily acquisitions and refinancing, and the HUD 232 and HUD 232/223(f) programs for the construction, substantial rehabilitation, acquisition and refinancing of senior living and healthcare properties. To learn more about HUD multifamily loans, simply fill out the form below and a HUD lending expert will get in touch.
What types of loans does HUD offer?
HUD offers several types of multifamily financing, including the HUD 223(f) loan and the HUD 221(d)(4) program. The HUD 223(f) loan offers loan-to-value (LTV) ratios up to 85% and debt service coverage ratios (DSCRs) as low as 1.18x for market-rate properties, with higher LTVs and lower DSCRs for affordable properties. The HUD 221(d)(4) program is for apartment construction and substantial rehabilitation, but they can be significantly more risky. All HUD Apartment loans are non-recourse, fixed-rate, and fully amortizing over 35+ years.
For more information, please see the following sources:
What are the benefits of HUD loans?
HUD loans offer a variety of benefits for large-scale owners of senior properties, including:
- Less time and money spent on the approval and origination process
- HUD 232 refinancing of multiple properties can greatly increase cash flow, potentially giving developers the capital to purchase or construct new assets
- HUD fixed-rate financing allows large companies to stabilize expenses and make accurate financial projections well into the future
Benefits of the HUD 221(d)(4) Loan Program include:
- Hugely favorable leverage
- Favorable interest rates
- Work with an experienced intermediary who can guide you through each of the stages of the HUD 221(d)(4) application and approval process
What are the requirements for HUD loans?
HUD loans are designed to help borrowers of all experience levels access the financing they need to succeed in the multifamily housing market. The minimum credit score for most programs is just 620, and there are options for borrowers with even lower scores. Each property must be covered by property and liability insurance for the duration of the loan. The first year’s premiums must be paid in full at closing. In addition, borrowers must provide their lenders with evidence of insurance on or before the closing date or before the policy’s renewal date.
HUD 232 Insurance Requirements and 5 Myths about HUD-Insured Multifamily Loans provide more information about HUD loan requirements.How do I apply for a HUD loan?
Applying for a HUD loan is a two-part process. First, you'll need to submit a loan application to the HUD, which includes providing documentation such as a transmittal letter and an Application for Multifamily Housing Project (Form HUD-92013). You'll also need to pass an intergovernmental review and fill out Byrd Amendment paperwork. Additionally, you'll need to disclose any recent legal actions regarding parties involved in the project. To check out the full list of documents you'll need to apply for an FHA/HUD 221(d)(4) loan, visit our FHA/HUD 221(d)(4) loan checklist.
In addition to getting approval from HUD, you'll need to find an FHA licensed lender. It’s important to keep in mind that the FHA/HUD only insures the loan, and is not actually responsible for loaning the borrower any money. Therefore, it's a good idea to discuss your project with multiple FHA licensed lenders, so you can understand more about process and the benefits and drawbacks of potential lenders.
What is the difference between FHA and conventional loans?
The main difference between FHA and conventional loans is that FHA loans are insured by the Federal Housing Administration, while conventional loans are not. FHA loans are designed to help people with lower incomes or credit scores qualify for a mortgage. They typically offer lower down payments and interest rates than conventional loans. Conventional loans, on the other hand, are not insured by the government and tend to be for higher loan amounts. They also typically require higher credit scores and down payments than FHA loans.
For more information, see SBA Loans vs. Conventional Loans: What's the Difference? and What’s the Difference Between HUD and the FHA?