HUD Multifamily Loans

What is Substantial Renovation?

What is Substantial Renovation?

As defined by HUD, substantial renovation can occur in several situations. First, it can occur if a renovation involves making required replacements, repairs, and improvements that involve the replacement of two or more major building components. It can also happen when rehab costs exceed certain thresholds, including $6,500 per dwelling unit (adjusted by HUD's authorized high-cost percentage), 15% (exclusive of soft costs) of the property's replacement cost/ fair market value after required repairs, replacements, and improvements, or 20% of mortgage proceeds for rehabilitation expenses.

What is Subsidized Affordable Housing?

What is Subsidized Affordable Housing?

With subsidized affordable housing properties, residents receive rent assistance but are required to pay at least 30% of their income for rent and utilities. Examples include HOPWA Facility-Based Housing, Section 8 Public Housing, and Homeless Project-Based Units.

What is SPRA (Sponsor's Profit and Risk Allowance)?

What is SPRA (Sponsor's Profit and Risk Allowance)?

SPRA (Sponsor's Profit and Risk Allowance) is no more than 10% of the total estimated cost of: architect's fees, legal, organizational, carrying and financing charges, and audit expenses. It is included in the Replacement Costs and used if there is no identity of interest between the mortgagor and general contractor.

What is a Single Room Occupancy (SRO) Housing?

What is a Single Room Occupancy (SRO) Housing?

Single Room Occupancy (SRO) housing is housing with single room dwelling units which are the occupants’ primary residences. HUD requires new construction, reconstruction of SRO units, and the conversion of non-residential space to contain either food preparation areas or bathrooms (or both).

What is a Single Asset Entity (SAE)?

What is a Single Asset Entity (SAE)?

A single asset entity, or SAE, is usually a limited liability company (LLC) that owns real estate but no other assets. In real estate, an SAE is typically set up for the ownership of a property. HUD multifamily loans typically require that borrowers hold their property in a single asset entity, which is also often referred to as a single-purpose entity (SPE).

What is a Seismic Report?

What is a Seismic Report?

A seismic report, also referred to as a seismic assessment, gauges the seismic risk (probability of an earthquake) of a particular property. It may include calculations of the SML (Scenario Expected Loss) and PML (Probable Maximum Loss) consistent with current building codes.

What are Replacement Reserves?

What are Replacement Reserves?

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.

What are Rental Assistance Properties?

What are Rental Assistance Properties?

Rental assistance properties are defined as properties in which low-income or very low-income tenants qualify for monthly rental assistance. The most common rental assistance program is the HUD Section 8 program. Many properties funded with HUD 221(d)(4) and HUD 223(f) loans participate in Section 8, and Section 8 properties financed with these loans can also be refinanced through the 223(a)(7) program.

What is Renovation?

What is Renovation?

In terms of HUD multifamily loans, renovation can be defined as repairs or reconstruction activities involving 75% or less of a facility or building’s value before rehabilitation. While HUD 221(d)(4) loans can finance the renovation of multifamily properties, HUD 223(a)(7) loans typically cannot.

What is Rehabilitation?

What is Rehabilitation?

Rehabilitation is defined as any costs (including materials, tools, and labor) associated with improving buildings. This usually excludes routine and/or minor repairs. While HUD 221(d)(4) loans are equipped to handle the substantial rehabilitation of multifamily properties, HUD 223(a)(7) loans can typically only finance moderate repairs.

What is a Recourse Loan?

What is a Recourse Loan?

If a loan is recourse and the borrower defaults (fails to repay the loan), the lender can go after both the collateral and the borrower’s assets which are not used as collateral. Fortunately for borrowers, all HUD multifamily loans are non-recourse, which means the lender cannot go after any non-collateral assets in the case of a loan default. However, most HUD multifamily loans do include “bad boy” carve-outs, which state that if a borrower commits certain bad acts, like fraud or embezzlement, the loan will become recourse.

What is a Pro Forma Financial Statement?

What is a Pro Forma Financial Statement?

Pro forma calculations are financial results which highlight current or projected figures. For example, in order to showcase the potential profitability of a multifamily property which has not yet been constructed, investors and developers may send a pro forma income statement to lenders.

What is Prepayment?

What is Prepayment?

Prepayment occurs when a borrower pays off a mortgage balance before maturity (the end of the loan term). The FHA requires prior approval for the prepayment of HUD multifamily loans. In most cases, HUD multifamily loans require a prepayment penalty, which reimburses the lender if the borrower attempts to pay off the loan early. Most HUD multifamily loans have a two-year lockout (a period in which the borrower cannot repay the loan at all), followed by an 8-1% declining prepayment penalty.

What is OAMPO?

What is OAMPO?

OAMPO (The Office of Asset Management and Portfolio Oversight) is an office that helps direct various parts of HUD’s multifamily housing programs. In particular, this office develops and interprets policies, controls a number of field operations, manages partner relationships, and is responsible for multifamily assets after the development phase.

What are Non-Recourse Loans?

What are Non-Recourse Loans?

Non-recourse loans are typically secured by collateral such as real estate. Unlike recourse loans, if a borrower defaults, the lender can’t hold the individual personally liable for the unpaid debts. Because of this, lenders can’t seize personal property or garnish wages. With a non-recourse loan, the lender accepts a certain amount of loss. All HUD multifamily loans, including HUD 221(d)(4) loans, HUD 223(f) loans, HUD 223(a)(7) refinance loans, and HUD 232 healthcare loans are fully non-recourse.

What is a Multifamily Rental?

What is a Multifamily Rental?

Multifamily rentals, which are also known as multi-dwelling units/MDUs, comprise multiple but separate living units within a structure or structures. A common example is an apartment building, but multifamily rentals can also come in the form of duplexes, triplexes, quadplexes, mixed-used properties, and independent living facilities. Smaller HUD loans, like the FHA 203(b) loan can finance 1-4 unit properties. HUD multifamily loans, such as HUD 221(d)4) and HUD 223(f) loans, can finance apartment buildings, mixed-used properties (with limits on the amount of commercial space), and independent living units.

What is MIP (Mortgage Insurance Premium)?

What is MIP (Mortgage Insurance Premium)?

MIP (Mortgage Insurance Premium) consists of annual payments on HUD mortgages. MIP is first paid at closing, and typically costs 1% of the loan amount, though this varies. MIP for HUD multifamily loan programs must then be paid annually. Specific costs also vary by program.

What is MAP (Multifamily Accelerated Processing)?

What is MAP (Multifamily Accelerated Processing)?

MAP (Multifamily Accelerated Processing) establishes national standards for approved lenders to prepare, process, and submit applications for FHA/HUD multifamily financing. Lenders that are MAP-approved will typically see their borrower’s applications processed much more quickly than those that use TAP (Traditional Application Processing.)

What is Low-to-Moderate Income Housing?

What is Low-to-Moderate Income Housing?

Low-to-moderate income housing is housing designed for people whose incomes are low to moderate when compared to prevailing incomes in their area. HUD attempts to promote the supply of low-to-moderate income housing via the Section 8 and LIHTC programs, both of which are available to properties financed with HUD 221(d)(4) and HUD 223(f) loans. HUD 223(a)(7) loans are fully equipped to refinance HUD 221(d)(4) and HUD 223(f) properties with low-to-moderate income housing-based income restrictions.