HUD 221 (d)(4) Construction Loans

FHA - HUD 221 Construction Loans (D)(4)

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.  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.

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h2>Benefits of Using HUD 221 Loans

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  • High leverage: HUD Section 221(d)(4) loans can finance up to 85% of the project cost, which can help developers and builders reduce their upfront equity requirements.
  • Long-term financing: HUD Section 221(d)(4) loans have a maximum term of 40 years, which can help developers and builders achieve more stable cash flow and lower their overall borrowing costs.
  • Non-recourse financing: HUD Section 221(d)(4) loans are non-recourse loans, which means that the borrower is not personally liable for the debt if the project fails. This can help protect the borrower’s personal assets in the event of a default.
  • Fixed interest rates: HUD Section 221(d)(4) loans have fixed interest rates, which can help developers and builders budget for future costs.
  • FHA mortgage insurance: HUD Section 221(d)(4) loans are insured by the Federal Housing Administration (FHA), which can help lenders reduce their risk and make loans more available to borrowers.

In addition to these benefits, HUD Section 221(d)(4) loans can also be used to finance the construction or rehabilitation of multifamily rental or cooperative housing for moderate-income families, the elderly, and the handicapped. This can help to create affordable housing and promote community development.

FHA-HUD 221 Construction Loans

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.
 

In summary, 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.

To learn more call 949-614-1300 or contact one of our advisors.