The Federal Housing Administration (FHA), founded in 1934, is a U.S. government agency under the U.S. Department of Housing and Urban Development (HUD). The main purpose of the FHA is to insure residential real estate loans. While many of the FHA's loans focus on individual homebuyers, the FHA's role in multifamily financing is also important— as it provides financing for multifamily builders and developers through its FHA 221(d)(4) loan program.

The FHA helps first-time homebuyers by providing mortgage insurance to lenders. This insurance helps protect lenders from losses if a borrower defaults on their loan. The FHA also offers a variety of loan programs that are designed to help first-time homebuyers, such as the FHA 203(b) loan, which is a fixed-rate mortgage with a low down payment requirement. Additionally, the FHA offers the FHA 203(k) loan, which is a loan that allows borrowers to purchase a home and make repairs or improvements to it with one loan. The FHA also offers the FHA Energy Efficient Mortgage (EEM) program, which helps borrowers finance energy-efficient improvements to their home.

For more information on FHA loan programs, visit https://www.hud.gov/program_offices/housing/sfh/ins/203b.

Eligible borrowers for an FHA loan include for-profit, nonprofit, and public borrowers such as investors, developers, builders, and nonprofit entities. FHA and HUD require borrowers to be experienced owner-operators of similar facilities and have credit and financial capacity requirements that must be met. Additionally, if required by a designated State agency, a Certificate of Need must be submitted.

Sources:

• FHA 232/223(f) Acquisitions & Refinancing for Healthcare Properties
• Terms, Qualifications, and Guidelines
• Designated State Agency
• Certificate of Need

FHA loans offer some of the best terms in the industry for the acquisition and refinancing of multifamily and apartment properties. These loans are non-recourse, offer high leverage, low interest rates, and lenient DSCR requirements. Additionally, FHA loans are fully assumable, which can be an amazing incentive for a would-be buyer of an apartment community looking to take advantage of an existing loan's lower, fixed interest rates. For more information, see 5 Myths About FHA-Insured Multifamily Loans and What Are the Benefits of HUD 223(f) Loans?.

The drawbacks of an FHA loan include:

• Requires a variety of third-party reports, including environmental assessments, architectural and engineering reports, and full HUD/FHA appraisals (Source)
• Requires an FHA application fee of 0.30% of the loan amount and a 0.50% FHA inspection fee (Source)
• Requires a one-time mortgage insurance premium (MIP) at closing, and payment of monthly MIPs throughout the duration of the loan (Source)
• Requires that borrower/owner makes regular contributions to a replacement reserve fund (Source)
• Requires both an initial, one-time MIP (mortgage insurance premium) at closing, as well as monthly MIPs throughout the life of the loan (Source)
• Requires annual audited financial statements from owners (Source)

To apply for an FHA loan, you'll need to find an FHA licensed lender and get all your documentation and approval from the Federal Housing Administration (FHA). It's important to discuss your project with multiple FHA licensed lenders, so you can understand more about the process and the benefits and drawbacks of potential lenders.

If you're interested in getting financing to construct or renovate a multifamily residential property, getting an FHA 221(d)(4) loan can be one of the most cost effective ways to do so. But, to get an FHA/HUD 221(d)(4) loan, you'll need to do significant preparation.