New Construction 221(d)(4)

Construction or Substantial Rehabilitation of Multifamily Properties

Eligible Properties

Market rate, low-to-moderate income and subsidized multifamily properties.

Commercial Space Limitation

Limited to 10% of gross floor area and 15% of gross income.
(Limits double in certain urban renewal areas under Section 220)

Use of Proceeds

New construction or substantial rehabilitation which is defined as:
a) Cost of improvements more than higher of:
   i) 15% of post-rehabilitated appraised value, or
   ii) $15,000 per unit adjusted for local high cost factor, or
b) Replacement of two or more major building components

Davis Bacon Wages

Payment of prevailing wages is required by HUD; wages are determined by the Department of Labor.


Single asset, special purpose entity, either for profit or non-profit

Loan Amount

No maximum (limited by loan parameters)



Interest Rate

Fixed for term of loan, determined by market conditions at time of rate lock (rate lock deposit is ½%and is refunded within 3-4 weeks following closing.)

Loan Parameters

Maximum loan amount will be the lesser of:
a) A percentage of replacement cost, including as-is value of land for new construction and as-is value of property for substantial rehabilitation, as follows: (i) 85% for market rate transactions;
   i) 85% for market rate transactions;
   ii) 87% for affordable transactions;
   iii) 90% for projects with 90% or greater rental assistance.
b) FHA mortgage statutory per unit limits adjusted for local high cost factor, or
c) An amount that achieves a minimum debt service coverage, as follows:
   i) 1.176 DSC for market rate properties;
   ii) 1.15 DCS for affordable transactions;
   iii) 1.10 DSC for projects with 90% or greater rental assistance.
* Cost of offsite improvements, marketing, construction contingency and operating deficit reserve excluded from loan amount.

Term and Amortization

Actual construction period plus 40 years (fully amortizing with interest only payable during construction period).

Prepayment and Assumption

Negotiable with best pricing for 10 years of call protection (can be a combination of lockout and/or penalty); loan is fully assumable subject to HUD approval.


a) Replacement reserves required in accordance with HUD guidelines
b) Taxes and insurance escrowed monthly (post construction)
c) Working Capital Reserve equal to 4% of loan amount (post in cash or LOC)
d) Operating Deficit Reserve is typically 6-9 months of debt service or greater as determined by HUD at commitment (post in cash or LOC)

Mortgage Insurance Premium

Payable at Closing is an amount equal to as low as 0.25% of the loan amount for each year of construction for those projects built utilizing the HUD Green Initiative Program; 0.65% for projects not built under the aforementioned Green Program, (0.45% for Section 8 or new money projects; 0.7% for Section 220 urban renewal projects that are not Section 8 or LIHTC). There is also annual payments ofMIP at the same percentages.

Fees and Expenses

a) HUD application fee of 15 basis points due with submission of pre-application and 15 basis points due with submission of firm application. 30 bps due at final for affordable.
b) FHA Mortgage Insurance premium due at closing
c) Lender Financing and Placement fee up to 3.5% payable at closing; and
d) Actual cost of Third Party Reports.

Third Party Reports

Appraisal, Market Study, Phase I Construction Cost Review, and Plans and Specs Review are required


9-12 months depending on whether Borrower wants to submit a pre-application (pre-application is mandatory if not affordable housing).

Multifamily Financing Overview

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Typical Loan Structure

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