HUD 221(d)(4)

HUD's 221(d)(4) program covers new construction or substantial rehabilitation (as defined in the information provided below) for multifamily apartments.  Both market rate and affordable properties can take advantage of this program.

As banks have become more conservative with construction lending, HUD financing has become a viable alternative, with higher LTV and lower DSCR than traditional bank options.  Another benefit of the 221(d)(4) program is the 40 year, fully amortizing term.

HUD 221(d)(4)

HUD Overview: 221(d)(4)

Eligible Properties
New Construction or substantial rehabilitation for multifamily apartments
  • Market rate and affordable properties
  • Affordable housing projects must (1) have recorded regulatory agreement in effect for at least 15 years after final endorsement, and (2) meet at least the minimum Low Income Housing Tax Credit restrictions of 20% of units at 50% of the Area Minimum Income (AMI) or 40% of units at 60% AMI.  Mixed income projects may qualify if they meet the above criteria
Substantial Rehab
Qualifies as sub-rehab by meeting one of the following criteria.
  • The cost of repairs, replacements and improvements exceeds the greater of 15% of the estimated replacement cost after completion of all repairs, replacements and improvements, or $6,500 per unit adjusted by HUD for the high cost percentage, or
  • Two or more major building components being substantially replaced
Single asset and single purpose entity, either for-profit
Maximum Mortgage Limits
The lesser of:
  • 85% (87% for affordable) of HUD's estimated cost plus land/as-is value
  • 1.176x DSCR, 1.15x for affordable, 1.11x for projects with 90% or greater rental assistance
  • HUD Statutory per unit limits (Higher limits for non-profits)
  • 100% of mortgageable transaction costs less grants, public loans and tax credits
Amortization and Term
A maximum term of 40 years
Interest Rate
Interest only during construction phase, amortizing during perm
Mortgage Insurance Premium 
0.65% due to HUD at signing and 0.65% annually.  HUD offers programs for reduced MIP:
  • 0.25% - 0.35% for affordable properties with at least 10% of units meeting affordability criteria.
  • 0.25% for properties with HUD approved energy efficiency certification
Federal Labor Standards
Federal prevailing wage and reporting requirements
Secondary Financing
Permitted under certain conditions at closing
Assurance of Completion
Payments and performance bond or cash deposit/LOC
Builder & Sponsor's Profit & Risk Allowance is used as a credit against the mortgagor's required equity contribution and is capped at 10% of development costs
Fees and Deposits
  • HUD Exam Fee - $3 per $1,000 of requested mortgage
  • HUD Inspection Fee - $5 per $1,000 of requested mortgage
  • Rate Lock Deposit - Typically 0.5% of mortgage amounts
Third Party Reports
  • Market Study
  • Appraisal
  • Plan & Spec Review
  • Phase I ESA
One closing for both loans - Construction and Permanent
Fully assumable
Credit Enhancements
Can be used as credit enhancement for tax exempt bonds and low income tax credits

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