What is a HUD 221d4 loan?

What is a HUD 221(d)(4) Loan?

The HUD 221(d)(4) loan is a government-backed mortgage for constructing or rehabilitating multifamily rental housing, offering long-term, fixed-rate, non-recourse financing. These loans, insured by the FHA, have favorable terms for borrowers and no set limit on the loan amount, based on project feasibility. The program targets moderate-income families, elderly, and handicapped housing, and is key in promoting affordable housing development.

Important aspects of the loan program include:

  1. Purpose: It's specifically designed for the construction and substantial rehabilitation of multifamily rental housing for moderate-income families, elderly, and the handicapped. It can also be used for mixed-use developments, provided the residential component forms a significant part of the project.
  2. Loan Terms: The HUD 221(d)(4) loans offer very favorable terms including long-term (typically 40 years, not including the construction period), fixed-rate, non-recourse financing. This means borrowers are not personally liable for the debt beyond the collateral.
  3. Loan Amount: There's no set limit to the loan amount; it is based on the project’s size, cost, and ability to service the debt.
  4. FHA Insurance: These loans are insured by the Federal Housing Administration (FHA), reducing the risk for lenders and often resulting in more favorable terms for borrowers.
  5. Eligibility and Requirements: Eligible borrowers include developers and investors looking to finance multifamily housing. The projects must meet certain HUD requirements, including size, design, and cost standards, and must promote the availability of affordable housing.
  6. Benefits: The program is popular due to its low fixed rates, long amortization period, and non-recourse nature. It also includes an interest-only period during construction.

The HUD 221(d)(4) loan program helps promote the development and rehabilitation of affordable housing in the United States, providing developers with accessible financing options under favorable terms.

The HUD BSPRA credit can be used to increase the loan amount on a HUD 221(d)(4) loan by raising total development costs based on an 85% Loan-to-Cost (LTC) ratio, which can reduce the cash required at closing by 3-4%.

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