Eligible Properties |
The 221(d)(4) (for profit) and 221(d)(3)
(non-profit) programs provide loans for the
construction or rehabilitation of detached,
semidetached, row, walkup, or elevator-type
rental or cooperative housing containing 5
or more units. Independent living facilities
may qualify as long as all services are
optional and fees from services and meals
are not included in underwritten rents.
The program is available for market rate
rental housing or for properties accepting
rental assistance, either tenant based or
project based.
Commercial space permitted up to 10% of
gross rentable square feet and a maximum of
15% of gross rental income.
|
HUD FHA 221 (d)(3) |
In 2013, HUD has suspended the Section
221(d)(3) program unless the subject
property receives Low Income Housing Tax
Credits (LIHTC). Without LIHTC the program
would require positive credit subsidy which
is Congressionally appropriated and higher
Mortgage Insurance Premiums (MIP). |
Statutory Mortgage
Limits |
The (d)(4) and (d)(3) programs have
statutory mortgage limits which vary
according to the size of the unit, the type
of structure, and the location of the
project. |
Prevailing Wage Standards |
Contractors for new construction and
substantial rehabilitation projects must
comply with prevailing wage standards under
the Davis-Bacon Act. Section 221(d)(3)
mortgages require appropriated credit
subsidy, which is limited. |
Insured Mortgage Amounts |
Maximum loan amount will be the lesser
of:
1. A total percentage of eligible
development cost,
including as is value of land for new
construction and as is value of property for
substantial rehabilitation, as follows:
- 83.33% for market rate transactions
- 87% for affordable transactions
- 90% for projects with 90% or greater
rental assistance
2. FHA mortgage
statutory per unit limits
adjusted for local high cost factor;
3. An amount that achieves a minimum debt
service coverage, as follows:
- 1.20 DSC for market rate properties
- 1.15 DSC for affordable transactions
- 1.11 DSC for projects with 90% or
greater rental assistance
Cost of offsite improvements, FF&E,
marketing, construction contingency and
operating deficit reserve excluded from loan
amount.
|
Substantial Renovation |
Cost of improvements must exceed:
1.
$6,500 per unit (adjusted for local high
cost factor);
2. 15% of the ?as rehabbed? appraised
value.
Replacement of 2 or more major building
systems is required.
|
Eligible Locations |
All 50 states, Puerto Rico, U.S. Virgin
Islands, Guam. |
Fixed Rate Term |
Actual construction period plus 40 years
(fully amortizing with interest only payable
during construction period). |
Minimum DSCR |
1.20.
1.15 for affordable properties.
1.11 for project based rental assistance
properties.
|
Minimum Occupancy |
Underwritten to a maximum of 93%
occupancy. |
Prepayment Penalty |
Negotiable – typically a two-year lock
out followed by a step down premium (e.g.
8,7,6,5,4,3,2,1). |
Guarantee |
Non-recourse for most loans subject to
standard carve-outs. |
Assumable |
Yes, subject to lender approval. |
Escrows |
1. Replacement reserves required in
accordance with HUD guidelines;
2. Taxes and Insurance escrowed monthly
(post construction);
3. Working Capital Reserve equal to 4% of
loan amount (post in cash or LOC);
4. Operating Deficit Reserve equal to 3% of
loan amount, or greater as determined by HUD
at commitment (post in cash or LOC). |
Mortgage Insurance Premium |
Payable at Closing in an amount equal to
0.60% of the loan amount for each year of
construction. |
Fees and Expenses |
1. HUD application fee of 15 basis
points due with submission of
pre-application and 15 basis points;
due with submission of firm application;
2. FHA Mortgage Insurance Premium due at
closing;
3. Lender Financing and Placement fee up to
3.5% payable at closing;
4. Actual cost of Third Party Reports. |
Third Party Reports |
Appraisal, Market Study, Phase I
Construction Cost Review, and Plans and
Specs Review are required. |
Sponsor Requirements |
-
Experienced owner operators.
-
Minimum credit and financial
capacity requirements.
-
HUD experienced development
team highly recommended.
|
Application Process |
Working with Capital Assets,Inc under Sections
221(d)(3) and 221(d)(4), sponsors are
eligible for Multifamily Accelerated
Processing (MAP). The first step of the
process (Pre-Application) is to complete an
initial due diligence package to be
submitted to HUD. HUD reviews the
Pre-Application package and will either
invite the lender to apply for a Firm
Commitment for mortgage insurance, or
decline to consider the application further.
If HUD determines that the Pre-Application
package meets its minimum underwriting and
eligibility requirements, a full
underwriting package is completed and
submitted along with a the Firm Commitment
application to the local Multifamily Hub or
Program Center for review. The application
package is reviewed to determine whether the
proposed loan is an acceptable risk. HUD
will consider market need, zoning,
architectural merits, strength of
sponsorship, availability of community
resources, etc. If the proposed project
meets program requirements and is determined
to be of acceptable risk, the local
Multifamily Hub or Program Center issues a
commitment to the lender for mortgage
insurance. |
