Low Rates, Long Terms: HUD 221 Construction Loans

FHA – HUD 221 Construction Loans (d)(4) offer multifamily investors the highest leverage and lowest cost for non-recourse construction loans.  These popular programs allow interest only payments for up to 3 years, and then a fixed rate for the remainder of the loan term.

HUD 221 (d)(4) Construction Loans
  • High leverage: Finance up to 85% of the project cost.
  • Long-Term Financing: HUD 221(d)(4) loans have a maximum term of 40 years.
  • Non-Recourse Financing: HUD Section 221(d)(4) loans are non-recourse loans.
  • Fixed Interest Rates: Helps developers and builders budget for future costs.

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FHA-Insured Construction Loans: Explore HUD 221 for Apartments

The multifamily housing market offers a compelling path for real estate investors, with steady rental income and potential for appreciation. But embarking on a new construction or substantial rehabilitation project often requires significant upfront capital.

This is where HUD 221(d)(4) loans, commonly referred to as HUD 221 construction loans, come into play. Backed by the Federal Housing Administration (FHA), these loans provide attractive financing options for developers and investors looking to build or revitalize multifamily properties.

FHA-HUD 221 Construction Loans

Eligibility for HUD 221 Loans

To qualify for a HUD 221 construction loan, borrowers need to meet specific criteria set by the FHA. Here are some key factors considered during the application process:

  • Project Experience: A proven track record in developing and managing multifamily properties is generally preferred. However, some lenders may work with first-time developers with a well-defined business plan and a strong team in place.
  • Financial Strength: A strong credit history and sufficient financial resources to cover project costs beyond the loan amount are essential.
  • Project Feasibility: The project proposal needs to demonstrate a viable market demand, realistic construction budget, and projected rental income sufficient to cover debt service.

Two-Phase Conversion to Permanent Financing

The initial stage involves the construction or substantial rehabilitation phase, during which the project is supported by a short-term loan. Once construction is complete, the loan converts seamlessly into a permanent mortgage. This dual-phase approach simplifies the financing process and provides a smoother transition from construction to long-term ownership.

HUD 221 construction loans play a pivotal role in supporting the development and preservation of affordable multifamily housing. With their long-term, fixed-rate financing, competitive interest rates, and two-step funding process, these loans provide a valuable tool for developers committed to addressing the nation’s housing needs.

Section 8 Housing and LIHTC Programs

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Mortgage Insurance Premium

FHA/HUD 221 programs require investors to pay MIP on an ongoing basis. MIP rates vary for Market Rate, Section 8, LIHTC, or Green Loans.

Reduced MIP - Green Upgrades

Investors that incorporate green upgrades and energy-efficient improvements can qualify for reduced Mortgage Insurance Premiums.