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HUD 223(a)(7) FAQs
1 min read

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.

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Prepayment and the HUD 223(a)(7) Refinance Program

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.

For instance, if a loan had a 1-year lockout period, followed by an 8% declining prepayment penalty, and a borrower wanted to pay off the loan after the first year, they would need to pay a penalty of 8% of the remaining loan. However, if they waited until after the fourth year, they would only need to pay 5% of the remaining loan amount. After the ninth year, there would be no penalty to prepay the loan.

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

Related Questions

What are the benefits of a HUD 223(a)(7) loan?

The HUD 223(a)(7) loan program offers many benefits, including:

  • Extending the original loan term and reducing the current interest rate.
  • Financing up to 100% of eligible costs.
  • No new appraisals, market studies, or environmental reviews required.
  • Fewer fees and a lower overall cost.
  • Non-recourse and fully assumable.
  • A streamlined application process.

For more information, please visit this page and this page.

What are the requirements for a HUD 223(a)(7) loan?

HUD 223(a)(7) loans have terms including:

hud-223a7-loans.jpg

  • Loan Size: Loans are allowed up to 100% of the eligible transaction costs, including:
    • Existing debt principal
    • Eligible repairs
    • Initial replacement reserves
    • Prepayment penalties
    • Third-party reports (the only one required is a project capital needs assessment, or PNCA)
  • Loan Term: May be increased up to 12 years, as long as the new loan doesn't have a term greater than 40 years (for HUD 221(d)(4) loans and HUD 232 loans) or 35 years (for HUD 223(f) and HUD 232/223(f) loans)
  • DSCR:
    • Non-profit entities: 1.05x minimum Debt Service Coverage Ratio (DSCR)
    • For-profit entities: 1.11x minimum DSCR

Eligible Properties for HUD 223(a)(7) Loans: Multifamily and healthcare properties with existing HUD-insured debt are eligible for the HUD 223(a)(7) refinance loan program.

What are the terms of a HUD 223(a)(7) loan?

HUD 223(a)(7) loans have terms including:

hud-223a7-loans.jpg

  • Loan Size: Loans are allowed up to 100% of the eligible transaction costs, including:
    • Existing debt principal
    • Eligible repairs
    • Initial replacement reserves
    • Prepayment penalties
    • Third-party reports (the only one required is a project capital needs assessment, or PNCA)
  • Loan Term: May be increased up to 12 years, as long as the new loan doesn't have a term greater than 40 years (for HUD 221(d)(4) loans and HUD 232 loans) or 35 years (for HUD 223(f) and HUD 232/223(f) loans)
  • DSCR:
    • Non-profit entities: 1.05x minimum DSCR
    • For-profit entities: 1.11x minimum DSCR

For more information, please refer to our easy-to-understand HUD 223(a)(7 loan term sheet.

What types of properties are eligible for a 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.

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

What is the maximum loan amount for a HUD 223(a)(7) loan?

The maximum loan amount for a HUD 223(a)(7) loan is 100% of eligible refinancing costs, including the principal amount of existing debt, 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. Source and Source.

Does a HUD 223(a)(7) loan allow for 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.

For instance, if a loan had a 1-year lockout period, followed by an 8% declining prepayment penalty, and a borrower wanted to pay off the loan after the first year, they would need to pay a penalty of 8% of the remaining loan. However, if they waited until after the fourth year, they would only need to pay 5% of the remaining loan amount. After the ninth year, there would be no penalty to prepay the loan.

In this article:
  1. Prepayment and the HUD 223(a)(7) Refinance Program
  2. Related Questions
  3. Get Financing
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