Articles by
Jeff Hamann
Janover's editorial director, Jeff Hamann, has written extensively about all things CRE since 2017. He previously worked as an editor for Commercial Property Executive and Multi-Housing News. Prior to his journalism experience, Jeff worked as a human resource analyst, a musician, a teacher, and a war-time conflict mediator across eight countries. He currently lives with his wife and two children in The Netherlands, where he's failing at learning Dutch while avidly training for his next marathon.
Do HUD 223(a)(7) Loans Allow Prepayment?
Yes, HUD 223(a)(7) loans typically allow prepayment. However, there is often a 0-2 year lockout period, during which the loan cannot be prepaid at all, followed by an 8-10% declining prepayment penalty. This means that the prepayment penalty will decline by 1% each year, starting after the lockout period ends.
What are the Terms and Amortization for the HUD 223(a)(7) Refinance Program?
When refinancing with the HUD 223(a)(7) loan, the existing loan term may be extended by up to 12 years. At the same time, the new term cannot exceed the initial loan term.
What is the Maximum Loan Amount for HUD 223(a)(7) Loans?
HUD 223(a)(7) loans cannot exceed 100% of eligible refinancing costs. These include the principal amount of existing debt (the existing loan balance), fees, repairs, third-party costs, and initial reserve deposits. A minimum Debt Service Coverage Ratio (DSCR) is required - 1.11x for for-profit borrowers or 1.05x for non-profit borrowers.
How Long Does it Take a HUD 223(a)(7) Loan to Close?
Because there are fewer requirements for the HUD 223(a)(7) refinance program, these loans typically close about 60 days after the application is submitted.
What Types of Properties are Eligible for the HUD 223(a)(7) Loan?
Multifamily and healthcare properties with existing HUD-insured debt are eligible for the HUD 223(a)(7) refinance loan program.
Are HUD 223(a)(7) Loans Assumable?
Just like other HUD multifamily loans, HUD 223(a)(7) loans are fully assumable subject to FHA approval and a fee of 0.05% of the original FHA-insured loan amount. The fact that these loans are assumable can be a significant benefit to borrowers; especially those who want to sell their property after a few years. This is because having a new borrower assume the loan prevents the previous borrower from having to pay a prepayment penalty.
What are the Fees for HUD 223(a)(7) Loans?
HUD 223(a)(7) loans require a HUD application fee (0.3% of the loan amount) which is due at application. Half of this is refunded after closing. Other fees and costs for the HUD 223(a)(7) program are usually capped at 2.0%.
Do HUD 223(a)(7) Permit Cash Out?
In general, the HUD 223(a)(7) loan program does not allow for cash out refinancing. Instead, the 223(a)(7) loan can only finance certain eligible costs, including 100% of the property’s existing mortgage, third-party reports, minor/moderate property repairs, replacement reserves, prepayment penalties (if the borrower is paying off their HUD multifamily loan early), and certain other costs. Borrowers who wish to get cash out from a multifamily property may wish to look towards other types of financing, such as a CMBS loan.
Pros and Cons of HUD 223(a)(7) Refinancing
HUD 223(a)(7) multifamily refinancing has several advantages and disadvantages. While they provide an incredibly streamlined application and approval process, are non-recourse, and fully assumable, they are only available to current HUD multifamily loan borrowers, and do not permit borrowers to take cash out.