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Understanding HUD Loan Programs: HUD 221(d)(4), HUD 223(f), and 232/223(f)

Jul 30, 2024

Understanding HUD Loan Programs

The U.S. Department of Housing and Urban Development (HUD) offers several loan programs to support the development, refinancing, and rehabilitation of multifamily housing and healthcare facilities. This blog will explore the primary HUD loan programs, including HUD 221(d)(4), HUD 223(f), and 232/223(f) loans, highlighting their key features and benefits.


Apartment condos under construction. Development of residential housing in North Port, Florida. Real estate market in the USA

#### HUD 221(d)(4) Loans
**Purpose:** New construction or substantial rehabilitation of multifamily rental housing.

**Key Features:**
- **Loan Term:** Up to 40 years, plus a construction period of up to 3 years.
- **Loan-to-Cost Ratio (LTC):** Up to 85% for market-rate properties, 87% for affordable properties, and 90% for projects with 90% or more low-income units.
- **Interest Rates:** Fixed for the duration of the loan.
- **Non-recourse:** Protects borrowers from personal liability, except for standard carve-outs (fraud, misrepresentation, etc.).
- **Assumable:** Can be transferred to a new owner, subject to HUD approval.

**Benefits:**
- Long-term, fixed-rate financing.
- High leverage, reducing the equity requirement.
- Non-recourse nature attracts many developers and investors.

New aprtment building in a housing deveopment on a sunny autumn day

#### HUD 223(f) Loans
**Purpose:** Refinancing or acquisition of existing multifamily rental housing.

**Key Features:**
- **Loan Term:** Up to 35 years or 75% of the remaining economic life of the property.
- **Loan-to-Value (LTV):** Up to 85% for market-rate properties, 87% for affordable properties, and 90% for projects with 90% or more low-income units.
- **Interest Rates:** Fixed for the duration of the loan.
- **Non-recourse:** Protects borrowers from personal liability, except for standard carve-outs.
- **Assumable:** Can be transferred to a new owner, subject to HUD approval.

**Benefits:**
- Long-term, fixed-rate financing.
- Allows for moderate rehabilitation (up to $40,500 per unit as of 2024).
- Streamlined application process compared to new construction loans.

#### HUD 232/223(f) Loans
**Purpose:** Refinancing or acquisition of existing healthcare facilities, including assisted living, skilled nursing, and board and care facilities.

**Key Features:**
- **Loan Term:** Up to 35 years or 75% of the remaining economic life of the property.
- **Loan-to-Value (LTV):** Up to 85% for market-rate properties, 87% for affordable properties, and 90% for projects with 90% or more low-income units.
- **Interest Rates:** Fixed for the duration of the loan.
- **Non-recourse:** Protects borrowers from personal liability, except for standard carve-outs.
- **Assumable:** Can be transferred to a new owner, subject to HUD approval.

**Benefits:**
- Long-term, fixed-rate financing.
- Supports the refinancing or acquisition of essential healthcare facilities.
- Streamlined application process compared to new construction loans.

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### Additional HUD Loan Programs
In addition to the primary programs mentioned above, HUD offers other loan options to support various housing and healthcare needs:

#### HUD 223(a)(7) Loans
**Purpose:** Refinancing existing HUD-insured loans to reduce interest rates, extend loan terms, and/or increase loan amounts for needed repairs.

**Key Features:**
- **Loan Term:** Up to 40 years or the remaining term of the existing loan plus up to 12 years.
- **Loan Amount:** Limited to the original principal amount or the current unpaid principal balance.
- **Interest Rates:** Typically lower than the original loan.
- **Non-recourse:** Protects borrowers from personal liability, except for standard carve-outs.
- **Assumable:** Can be transferred to a new owner, subject to HUD approval.

**Benefits:**
- Lower interest rates and reduced debt service payments.
- Extended loan terms improve cash flow.
- Facilitates property improvements and repairs.

#### HUD 232 Loans
**Purpose:** Construction or substantial rehabilitation of healthcare facilities, including assisted living, skilled nursing, and board and care facilities.

**Key Features:**
- **Loan Term:** Up to 40 years, plus a construction period of up to 3 years.
- **Loan-to-Cost Ratio (LTC):** Up to 85% for market-rate properties, 87% for affordable properties, and 90% for projects with 90% or more low-income units.
- **Interest Rates:** Fixed for the duration of the loan.
- **Non-recourse:** Protects borrowers from personal liability, except for standard carve-outs.
- **Assumable:** Can be transferred to a new owner, subject to HUD approval.

**Benefits:**
- Long-term, fixed-rate financing.
- High leverage, reducing the equity requirement.
- Non-recourse nature attracts many developers and investors.

Real estate agent with woman closing a deal and signing a contract

### Conclusion
HUD loan programs offer diverse and advantageous financing options for multifamily housing and healthcare facility projects. Whether you are looking to construct new buildings, substantially rehabilitate existing structures, or refinance current loans, HUD provides a range of solutions to meet your needs. By understanding the specific features and benefits of each program, developers and investors can make informed decisions to optimize their real estate investments.

For more information on HUD loan programs and how they can benefit your project, contact Atlantic Commercial Lending Broker today.