Should you use the HUD 221(d)(4) loan program?

Should you use the HUD 221(d)(4) loan program for your next apartment development or acquisition? You get a 40-year fixed mortgage, assumable and non-recourse. Any drawbacks? ow.ly/QXOx

Good article. I was thinking about this the other day. I know HUD offers loans for complexes at market rent as well. Do you happen to know if HUD for market rent complexes still requires the REAC and strenuous inspections?

Our last acquisition was a HUD loan. This is a market rent property. It was not as bad as I feared. The entire process took 4 months, but with a LOT of pushing. The inspection process was strenuous and detailed. They did require more money in our reserve acct up front and also $350/door. We scrambled at the last minute to come up with additional money we did not expect.
The loan is great at 35 year and assumable for 1/2 point. We are also in the process of an audited financial report required by HUD. I would recommend looking into HUD as an option.

I am looking at the HUD multi-family loans. Any recommendations on who to work with on one of these loans? cronspirit at comcast dot net

I am with an architectural firm who specializes in Multifamily work. We did our first 221d4 loan in 1996 and found the program to be a very good one. It requires small changes to the scope of our work which in the end produces a better quality set of documents. For the developers it requires more time and paperwork.

221(d)(4) is for construction or major rehabilitation. It is a good choice in certain circumstances, given a large enough project and long-enough expected holding period. 223(f) allows minor rehab (which can be $14K+/door in certain markets) on a purchase or refinance of seasoned property. Realistic timimg to close in the market right now may be pushing 6-7 months, because FHA-insured financing, along with Fannie and Freddie, is pretty much the only game in town for non-recourse options. HUD is swamped. RE who to work with, you need to find a source with presence in your market who will educate you upfront on the application process, conveying realistic timelines, flow of information, and application budget. Reserve account requirements and $350/door HUD inspection fees should never be a surprise - all should be known upfront and considered as part of the decision to use this type of financing instead of alternatives. Also considered in prudent upfront analysis should be the ongoing load - administrative (regular audited financial reporting to HUD), operational (you've got to maintain the property), and financial (FHA mortgage insurance premium, etc.).

Ashton,

A good friend of mine, Greg Bonifield of Woodfield Investments -- www.woodfieldinvestments.com -- has done several of these types of loans lately. Here is his contact if you are interested:

Lee F. McNeer, CPA
Red Mortgage Capital, Inc.
[email protected]
tel 614.857.3101
cell 614.325.1375

Best regards,
Leigh