HUD 223(a)(7) Mortgage Terms and Interest Rates

Maximum Loan Amount

The maximum loan amount for HUD 223(a)(7) refinancing of existing FHA-insured multifamily or healthcare loans can only cover:

  • The existing loan’s principal balance.

  • Additional eligible refinancing costs - fees, repair costs, third-party costs, initial reserve deposits, etc.

Also, the minimum DSCR (Debt Service Coverage Ratio) is 1.11x for for-profit borrowers or 1.05x for non-profit borrowers.

Mortgage Terms

HUD allows a Maximum Term of up to 12 years. But the new term cannot exceed the terms of the existing HUD-insured mortgage. For example, refinancing a HUD 221(d)(4) loan cannot exceed 40 years (the original loan term).

Also, the refinancing cannot exceed 75% of the property’s remaining useful life. In some cases, HUD may allow an additional 12 years of financing. This happens only if the additional time can ensure a project’s economic viability.

Interest Rates

The interest rate on HUD 223(a)(7) refinancing loans remains fixed for the life of the loan. The actual rate is based on the market conditions at rate lock.

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Do HUD 223(a)(7) Loans Allow Prepayment?
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.

Are HUD 223(a)(7) Loans Assumable?
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 Terms and Amortization for the HUD 223(a)(7) Refinance Program?
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.

Do HUD 223(a)(7) Permit Cash Out?
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.

What is the Maximum Loan Amount for HUD 223(a)(7) Loans?
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.

What Types of Properties are Eligible for the HUD 223(a)(7) Loan?
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.

How Long Does it Take a HUD 223(a)(7) Loan to Close?
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 are the Fees for HUD 223(a)(7) Loans?
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%.

How Difficult is the Approval Process for HUD 223a7 Loans?
How Difficult is the Approval Process for HUD 223a7 Loans?

Without a doubt, the HUD 223(a)(7) loan process is faster and has fewer hoops than other FHA/HUD products. The streamlined, affordable process does not require new third-party reports like appraisals, market studies, or environmental reports. In fact, most 223(a)(7) refinances only require a project capital needs assessment (PCNA).

What are the Major Benefits of the HUD 223(a)(7) Loan Program?
What are the Major Benefits of the HUD 223(a)(7) Loan Program?

The HUD 223(a)(7) refinance loan program can reduce interest rates, increase amortization, and improve cash flow while reducing the cost of debt service. It can even absorb prepayment penalty costs. On top of all that, it is one of the fastest, easiest, and most affordable multifamily or healthcare loans that you can get.