What are Replacement Reserves?

Replacement Reserves Definition

Replacement reserves consist of money set aside to fund the replacement of a building’s equipment and components as they wear out. All HUD multifamily loans require a minimum amount of replacement reserves, but this varies based on loan type. For example, HUD 221(d)(4) loans require a minimum replacement reserve of $250/per unit, per year. Exact replacement reserve requirements are typically determined by a PCNA (project capital needs assessment), which must be completed every ten years.

For HUD 223(a)(7) loans, the minimum replacement reserve requirements will be determined by the specific type of loan that is being refinanced. A new PCNA is required during the loan approval process, so this will impact the exact amount of replacement reserves that will be required. All existing replacement reserves will also be used in the new mortgage.

To learn more about the HUD 223a7 refinance program, fill out the form below to speak to a HUD/FHA loan expert.