Different loan products to acquire MultiFamily Apartments (Part 2)

Last month we discussed about different loan products to acquire MultiFamily Apartments which constitutes 80%+ of the volume. There are FHA (Federal Housing Administration) loans done by HUD (Department of Housing and Urban Development) Apartments Loans which have completely different set of loan terms which are not compared to any loan products out there. For example you can get up to 40 years amortization and 40 year loan term on a loan which is virtually unheard of in typical mortgage markets. If you are doing a substantial redevelopment or a brand new construction or a typical cookie cutter value-add apartment you can tap in to HUD loans. But caution, these loans are not for every one. These loans will take anywhere between 9 to 12 months and its a long and painful process. But if you get one you will be really pleased with the terms. Lets dig in more.
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1) FHA/ HUD 221(d)(4) - New Construction and Substantial Rehabilitation of Apartments
Substantial Rehabilitation Definition:
Construction work on an existing facility is generally considered “substantial rehab” when more than $35,000 per unit in work is being completed, or two or more major building systems (plumbing, electrical, mechanical, building envelope, structural) are being replaced. The latter is determined as part of initial due diligence. 

In this scenario of new apartment construction or substantial rehab projects which have more than 35k per door work, you can qualify for 40 year loan term, 40 year fixed, 40 year amortized, 85% to 90% LTC (Loan to Cost), Non-recourse loan. This is extra-ordinary leverage that you cannot get anywhere in the world. Construction Interest is also capitalized in the mortgage.  The permanent 40 year fixed rate term and loan amortization does not start until
construction completion. The interest rate is locked prior to closing. (Current rates are low to mid 3% !!). HUD Loans are always assumable.

Zovest Properties is working with our HUD Lending partners and we will be using this program in near future.

Caution: These loans take anywhere between 250 to 350 days (Close to an year) and these are expensive loans.

2) FHA/ HUD 223(f) financing for typical cookie cutter value-add Apartments 
You can use this program to get typical value-add Apartments as well. Since the loan process takes so long, people opt for Bridge-to-HUD programs where they take bridge loan first and then exit to HUD in 12 to 18 months to hold for really long term.

This program has upto 35 years term, upto 35 years amortization, fixed rate, 85% to 90% LTV, Non-recourse, assumable. Cash-out is also available upto 80% LTV. You can get upto 35k per door in rehab money as well included into the loan. 

Caution: These loans take anywhere between 250 to 350 days (Close to an year) and these are expensive loans.

There are other creative ways to get 100% financing using HUD and LIHTC (Low Income Housing Tax Credits) Tax credits if you build affordable housing as per AMI (Average Median Income) rules.

Also, HUD has really good green program (energy efficient building construction) which will provide you another 30 to 40 basis points reduction in interest rate.

Please reach out to me at [email protected] so i can refer you really good providers for FHA/ HUD programs.

Thanks
​Rama Krishna