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FHA
LOANS
221(d)(4) Multifamily Housing Program Summary
Purpose
To encourage new construction or substantial
rehabilitation of multifamily housing programs.
Benefits
- One loan for construction and permanent
financing.
- Securitization. Once approved, the mortgage is
saleable as an investment grade bond. This bond becomes marketable to
institutions and pension funds.
- There are no rent control restrictions, rental
subsidies, or limitations on the owner's return.
Eligible Properties
- New Construction
- Substantial rehab of existing rental housing.
Rehab costs are greater than:
* 15% of the property's value after completion
* $6,500/unit times HUD's "high cost factor" or more than
one(1) building component is being replaced.
Mortgage Amount
Subject to these limitations:
- New construction - the lesser of:
* 90% of lender's estimate of replacement cost.
* HUD's statutory mortgage limits, as adjusted by location.
* A loan amount, which could be serviced by 90% of the property's NOI.
- Substantial rehab: In addition to the above, rehab loan must be
no greater than 90% of the project's value.
Amortization - Up to 40 year basis.
Interest Rate - Set at commitment.
Personal Liability - None.
Second Mortgages - May be allowed.
Assumability - The 221(d)(4)loans are fully assumable with approval.
Rental Requirement - HUD requires any property financed via 221(d)(4)
remain rental housing for five years.
Section 223(f) Multifamily Mortgage Program 
Purpose
To facilitate the acquisition or refinancing of multi-family housing projects
at least three years old.
Benefits
- 35 year amortization
- Prepayment options are flexible.
- There are no rent control restrictions, rental
subsidies, or limitations on the owner's return.
Eligible Properties
- Existing rental housing more than three years
old. Commercial space may not exceed 20% of the total net rentable
area, or 25% of gross income.
- Subsidized properties are eligible.
- The program is geared toward market-rate
housing. There are no rent control restrictions, rental subsidies, or
limitations on the owner's return.
Mortgage Amount
Subject to the following maximum
mortgage amounts:
- Purchase: 85% of all acquisition, closing and
repair costs.
- Refinancing: the greater of:
* 100% of all refinance, closing and repair costs.
* 70% of the lender's estimate of value.
- The loan may not exceed 85% of value.
Term - Maximum of 35 years
Amortization - 35 year basis
Interest Rate - The rate will be fixed for the 35 year life of
the loan and will be set at commitment.
Personal Liability - None
Discounts
- Can be included in the loan and counted as
legitimate project costs.
- Paid to "buy down" the permanent
interest rate.
- May be required in non-participating loans
where mortgage rates have escalated between the commitment date and time
of loan closing.
Secondary Financing
- In certain cases, second mortgages may be
permitted where acquisition or refinancing costs are greater than the
mortgage amount.
- The second mortgage can not exceed 7.5% of the
project's value, or:
* in a purchase transaction 7.5% of costs
* in a refinance transaction: 50% of the difference between total costs
and the mortgage amount.
Prepayment
Prepayment penalties are a function of the
market and can be negotiated prior to loan funding. Generally, there is a
five-year lockout, followed by five years of declining penalties.
Repairs
Repair and rehab costs up to a maximum of
$13,650 per unit (depending on the location) or 15% of the project's value
can be included in the mortgage.
Required Fees and Escrows
Mortgage Insurance Premium. A 1% fee must be paid at closing. In addition, a
monthly fee equal to 0.5% per annum will be added to the monthly mortgage
payment.
Replacement Reserve. A replacement reserve must be established to
provide for future replacement of capital items. This cash reserve will be
held by AMC in an interest-bearing account and can be drawn on by the
borrower for capital improvements. Monthly additions to the reserve are also
required. Interest earned on the account benefits the property and can be
paid out periodically.
Taxes, Insurance, Etc. These escrows will be established at closing and
held in a non-interest bearing account by AMC.
Optional Escrows
Operating Deficit. Due to repairs or rehab, a project may be
underwritten using future rent increases and may not always be able to carry
the mortgage during the first 12 - 18 months of the loan. Cash or Letter
of Credit must be provided to AMC to cover the anticipated negative.
Repairs. If repairs or capital improvements are required
for the loan and are not completed prior to closing, the cost of these
repairs will be held back from the initial loan funding and placed in escrow.
The borrower must provide AMC with cash or a letter of credit for 150% of
the repair amount. The repair escrow will be released when the repairs are
completed.
Assumability. The 223(f) loans are fully assumable with
approval.
Rental Requirement. It is a requirement of HUD that any property
financed via 223(f) remain rental housing for five (5) years.
Section
232 Board and Care Homes
Program Summary
To encourage new construction or
substantial rehabilitation of nursing homes or intermediate care facilities
by providing construction and permanent financing in one loan.
Eligible Properties
- New Construction
- Substantial rehab of existing facility:
* The rehabilitation must effect, materially, the livability,
marketability, and competitive position of the project.
* The project must have been completed for more than one year.
Mortgage Amount
- New Construction: the lesser of:
- 90% of FHA's estimate of value
- a loan amount which could be serviced by 90%
of net earnings attributable to the realty and non- realty (major
movable)
- when the mortgagor is a private non-profit
corporation or association HUD-FHA's estimated total replacement cost
of the project, including land, furnishings, and mortgageable items
minus loans, grants or gifts
- Rehabilitation: insurable mortgage amount may
not exceed the lowest of:
- The amounts set forth under new construction
- Property owned HUD-FHA estimated current cost
of rehabilitation plus the lesser of:
*Principal's amount of existing indebtedness
secured by the property, if any, or *90% of HUD-FHA estimates of the As Is
Value of the property before rehabilitation
*Property to be acquired - 90% of the HUD-FHA estimated cost of
rehabilitation plus the lesser of:
1) 90% of the actual purchase price of the property, or
2) 90% of the HUD-FHA estimate of Fair Market (As Is)
Value
Amortization - Up to 40 year basis
Interest Rate - Loans will normally be funded by Pension Funds
Personal Liability - None
Required Fees and Escrows
Mortgage Insurance Premium. A 1% fee must be paid at closing. In addition, a
monthly fee equal to 0.5% per annum will be added to the monthly mortgage
payment.
Replacement Reserve. A replacement reserve must be established to
provide for future replacement of capital items. This cash reserve will be
held by AMC in an interest-bearing account and can be drawn on by the
borrower for capital improvements. Interest earned on the account benefits
the property and can be paid out periodically. Monthly additions to the
reserve are also required.
Taxes, Insurance, Etc. These escrows will be established at closing and
held in a non-interest bearing account by Armstrong Mortgage Company.
Working Capital. At initial closing, a 2% or greater letter of
credit escrow must be established to insure payment of initial operating and
marketing expenses.
Latent Defects. At substantial completion of a project not bonded,
the borrower must provide cash or a letter of credit equal to 2.5% of the
construction contract to cover any latent construction defects.
Optional Fees and Escrows
Operating Deficit. If anticipated the borrower must provide AMC with
cash or a letter of credit (issued by a financial institution acceptable to
AMC) to cover the anticipated negative.
Offsite Improvements. In a case where offsite improvements are required,
an escrow (cash or L/C) equal to 100% of estimated offsite costs must be
established.
Assurance of Completion. The borrower must provide either:
- A payment and performance bond from a bonding
company acceptable to HUD for 100% of construction costs.
- An executed Completion Assurance Agreement
secured by cash or a letter of credit for a minimum of 15% of
construction costs.
Davis-Bacon. The payment of prevailing wages as required by the
Davis-Bacon Act apply.
Retainage. 10% of each advance.
Copyright © 1999. Armstrong
Mortgage Company.
All Rights Reserved.
Send e-mail to info@armstrong-mortgage.com
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