FHA Multifamily Programs

Mac Investment Company, LLC.

 

FHA Multifamily Programs

 

Rental Housing for New Construction and Substantial Rehabilitation - Section 221(d)(4)
Rental Housing for Refinancing of Existing Properties - Section 207/223(f)

FHA multifamily mortgage insurance, in conjunction with HUD assisted housing programs, has provided multifamily lenders and owners with the ability and the incentives to create tens of thousands of rental projects which otherwise may not have existed.

Thousands of American residents who live in apartment projects, nursing homes, hospitals, and group homes benefit indirectly from FHA multifamily mortgage insurance. They benefit directly from HUD's assisted housing programs.

FHA has two primary multifamily programs:

• New construction or substantial rehabilitation Section 221(d)(4)
• Refinance or purchase of existing multifamily rental housing Section 223(f)

FHA multifamily housing also:

• Administers grants for special needs and supportive services that relate to rental housing
• Administers Neighborhood Networks, computer centers in subsidized housing to promote self-sufficiency
• Participates as a major partner in the Rental Housing Integrity Improvement Project, a presidential initiative

FHA multifamily handles the following:

• Oversight of regulated property ownership and management
• Routine mortgage servicing, default servicing, acquisition and disposition of loans (mortgage notes) and properties
• Management of HUD-owned properties

Rental Housing for New Construction and Substantial Rehabilitation - Section 221(d)(4)

FHA provides mortgage insurance to facilitate the development of rental housing. The 221(d)(4) program is FHA's primary program for the new construction and substantial rehabilitation of multifamily rental properties by profit motivated sponsors.

The 221(d)(4) program is not a direct loan program. FHA insures loans originated by private, HUD-approved lenders. Prospective project sponsors/mortgagors are responsible for selecting an approved lender, making a loan and submitting an application for commitment to the HUD office with jurisdiction over the property.

Benefits:

• Long-term (up to 40 years), fixed rate financing is always available
• Mortgage amount up to 90% of project replacement cost
• Rates may be fixed before start of construction
• Many developers obtain FHA insurance commitments and then pick the best time to lock the rate
• Federal guarantee results in AAA rating on financing
• Eligible for securitization by the Government National Mortgage Association (Ginnie Mae)
• Provides construction and permanent financing
• Non-recourse loans

Program Eligibility:

• Properties must contain 5 or more rental units
• Projects may be designated for elderly (age 62 or older) or handicapped residents
• Properties must comply with specified HUD and local standards
• Owner must sign regulatory agreement with FHA governing project operations
• Projects are subject to cost certification
• Prevailing wage requirements under the Davis-Bacon Act do apply

Rental Housing for Refinancing of Existing Properties - Section 207/223(f) - (Top)

FHA provides mortgage insurance to ease the refinancing or purchase of rental housing that does not require substantial rehabilitation. The Section 207/223(f) program is FHA's program for insuring such properties, which could require minor repairs and improvements.

The Section 207/223(f) program is not a direct loan program. FHA insures loans originated by private, HUD-approved lenders. Prospective project sponsors/borrowers are responsible for selecting an approved lender to make a loan and submit an application to the HUD office with jurisdiction over the property.

Benefits:

• Long-term (up to 35 years), fixed-rate financing, with interest rates negotiated between the lender and the borrower
• Mortgage amount up to 85% of the project's value
• Eligible for securitization by the Government National Mortgage Association (Ginnie Mae)
• Federal guarantee with Ginnie Mae securitization, resulting in AAA rating on financing
• Non-recourse loans

Program Eligibility:

• Properties must contain 5 or more rental or cooperative units
• Properties must not require substantial rehabilitation (minor repairs and improvements are permitted)
• Properties must be at least 3 years old prior to filing of an application
• Projects must be continually occupied before insurance endorsement or an operating deficit escrow is required
• Eligible mortgagors (borrowers) include individuals, partnerships, corporations or other legal entities approved by FHA
• No construction financing is available
• Owner must sign a regulatory agreement with FHA governing project operation
• Projects are subject to cost certification
• Prevailing wage requirements under the Davis-Bacon Act do not apply