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Multi Family HUD Financing

HUD and the FHA

HUD (short for the U.S. Department of Housing and Urban Development) and the Federal Housing Administration may have been founded as two separate entities, but they typically both operate within the same space almost interchangeably. HUD is tasked with overseeing and guaranteeing both residential and commercial real estate lending and insurance programs.

The FHA, integrated into HUD back in 1965, operates in the same capacity as HUD with a heavier focus on primary residences for Americans. FHA programs provide loan insurance for single family homes and apartment properties with up to four units. The FHA is considered an official subsidiary of HUD, and is responsible for the overall management and administration of HUD’s Multifamily (apartment) Housing Programs, while HUD ultimately provides the insurance.

HUD Loans

While it’s not exactly a secret, many apartment investors still don’t realize that the Department of Housing and Urban Development (HUD), offers some of the lowest-rate and longest-term apartment loans in the industry. In fact, the HUD’s flagship apartment construction loan, the HUD 221(d)(4), offers 40-year fixed-rate and fully amortizing loans to qualified borrowers. This type of non-recourse apartment financing also offers leverage up to 85% for market-rate properties and up to 90% for certain subsidized housing properties.

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  • Purchase
  • Refinance
  • Construction

It’s important for borrowers to realize that HUD does not actually issue loans, it simply insures lenders against potential borrower defaults. So, in the case that a borrower does not pay back their loan, the lender can seek an insurance payout from HUD. That’s why borrowers are typically required to pay a one-time, upfront and annually recurring mortgage insurance premium (MIP).

HUD Loans for Refinancing, Rehabilitating, or Acquiring Apartment Properties

The FHA or HUD 223(f) program is HUD’s flagship product for the refinancing or acquisition of multifamily properties. An all too common misconception is that HUD only focuses on Section 8 properties, subsidized housing, or low-income housing when in reality, the HUD 223(f) loan program insures loans for the acquisition and refinancing of market-rate multifamily properties across the spectrum, albeit with further considerations for low income housing, rental assistance, LIHTC, and other affordability components.

The HUD and FHA insurance programs are specifically meant to both promote and ensure the ongoing availability of capital for the acquisition, rehabilitation, development and refinancing of all apartment properties including market-rate apartments, affordable properties, and subsidized housing.

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What is the purpose of your loan?
  • Purchase
  • Refinance
  • Construction
HUD Loans for Apartment Construction

The HUD 221(d)(4) program insures financing for apartment property developers looking to build properties across market-rate, low-income, rental assistance and other multifamily developments. HUD construction loans generally range between $2,000,000 to $100,000,000 and occasionally even higher based on the lender’s discretion. Technically speaking, there is no predetermined cap or floor for HUD 221(d)(4) loan amounts.

Because of the costs involved with originating HUD-insured multifamily development loans, however, many developers of smaller multifamily projects overlook the program because they are often intimidated by this form of financing. Thankfully, the FHA (having oversight over multifamily deals) has rapidly evolved with current trends and new operational efficiencies over the years. Even so, HUD 221(d)(4) loans can still take roughly 8-12 months to close, and in most cases, require an experienced financial intermediary to assist throughout the entire process.

HUD Amortization and Maturities

HUD-insured financing accounts for the longest loan terms available for commercial real estate. Still, what truly sets these loans apart, is that all HUD loans are fully amortizing, effectively making them the longest amortizations in the industry as well, with the most flexibility on debt service coverage ratios.

HUD 221(d)(4) loans offer up to 40 years of fixed-rate financing with the benefit of 3 years of financing during the construction period. The HUD 221(d)(4) program is a rare example of fixed-rate construction financing options in the multifamily development business, and is arguably the best of all of the fixed-rate financing options a developer may be able to procure.

Under the HUD banner, pre-existing properties for purchase or refinance are similarly qualified to achieve these long term, fully-amortizing loans. For example, the HUD 223(f) insured loans are fully amortizing for up to 35 years; as long as the term and amortization of the loan does not exceed 75% of the property’s remaining economic life.

Fixed-rate loans, while highly convenient, are scarcely sought in the industry because a common investor adage is “the longer the fixed rate, the higher the interest rate” (disregarding an inverse yield curve). The magic of HUD financing, however, is that since they are government-insured, HUD apartment loans earn a AAA credit rating, leading to rates that are lower than the comparable Fannie Mae and Freddie Mac 10-year fixed-rate loans.

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What is the purpose of your loan?

  • Purchase
  • Refinance
  • Construction

HUD Timing and “Red Tape”

HUD-insured loans may have a ton of obvious benefits (rates, leverage, term, amortization, etc.) but there are also a few substantial hurdles to overcome in. Most of these hurdles are minimal in the case of 221(d)(4) and 223(f), wherein the process is not as lengthy or difficult as it typically was in the past — particularly for borrowers working with an intermediary.

One of the major characteristics of HUD financing considered to be one of these “hurdles” is that HUD loans require annual financial audits. These audits can be expensive, and can cost anywhere upwards of $2,500 per year. Additionally, there are more upfront expenses and closing costs associated with the origination of HUD apartment loans. Another common gripe is that they take longer to close (223f loans may take up to 120 days, while 221d4 loans can take up to 10 months to close). Even so, originating a 223(f) loan isn’t that much different from originating a Fannie or Freddie multifamily loan.

A few more considerations for HUD financing include:

Phase 1 environmental assessments MUST include lead-based paint and asbestos reviews for any properties built before 1978
Loans for new properties located within a 100-year flood plain are NOT eligible for HUD financing
Substantial rehabilitation loans require adherence to David Bacon labor standards (Davis Bacon Wage determination can be found online at


The Low Income Housing Tax Credit (LIHTC) program offers apartment investors a dollar-for-dollar income tax credit in exchange for investing in properties that reserve a certain amount of project units for residents earning less than or equal to a certain percentage of the Area Median Income (AMI). The LIHTC program is sometimes, but not always, used in concert with properties utilizing the HUD Section 8 program. Section 8 allows local public housing authorities (PHAs) to distribute federal subsidies to approved landlords for housing pre-approved low-income tenants at a heavily discounted rate. HUD provides special benefits, like increased leverage, for multifamily borrowers who utilize either of these programs.

HUD Loans across Asset Types

In addition to providing serious benefits for affordable housing investors, HUD apartment loans can also be great for those looking to invest in seniors or student housing. Borrowers can use a traditional 221(d)(4) loan to build an independent living facility and a 223(f) loan to acquire or refinance one. However, in order to develop other types of senior living properties, such as assisted living facilities or nursing homes, a borrower will need a 232 loan. Alternatively, borrowers can use the 232/223(f) loan program to acquire or refinance an existing assisted living facility, nursing home, memory care facility or intermediate care center.

Borrowers may use traditional 221(d)(4) and 223(f) loans for eligible student housing properties, albeit with certain restrictions. In particular, no more than one source of rent may be collected from each room⁠—limiting residents’ ability to live with roommates. In addition, rental rates must be comparable to other non-student apartment housing in the area. This means that HUD-financed student housing properties are likely only to work in areas where housing costs are already relatively reasonable.

HUD Loan Assumability

It may also be of interest to note that HUD apartment loans are fully assumable with FHA and lender approval. In essence, when a borrower sells their property they can have the new buyer “assume” the remaining portion of the loan. Upon assumption of the loan, the previous borrower is no longer responsible for prepayment penalties and the new borrower can avoid paying most of the fees associated with loan origination. However, borrowers are stuck with the remaining loan amount, even if that provides far less leverage than they initially wanted.

Apartment Loans

HUD 221(d)(4) For the right type of borrower, the HUD 221(d)(4) program is a dream come true. No other type of apartment loan on the market offers a 3-year interest-only construction loan, followed by a 40-year fixed-rate, fully-amortizing apartment loan. With most loans from banks, conduits and agency lenders ranging from 5-10 years, the HUD 221(d)(4) program allows investors to take advantage of today’s ultra-low interest rates and lock in pricing that’ll still be a good deal in the 2050s.

However, the HUD 221(d)(4) loan isn’t for everyone. It’s generally best for investors in secondary and tertiary markets who want to hold onto a property for a longer period of time. Borrowers in major Metropolitan Statistical Area (MSA) may find that banks and conduits lend more aggressively, making HUD comparatively less attractive. Likewise, borrowers wishing to sell a property within a few years may not want to deal with HUD prepayment penalties. Plus, as we just mentioned, HUD has somewhat stringent net worth and liquidity requirements for borrowers, so investors will need to meet these before getting approved.

HUD 223(f)

If the HUD 221(d)(4) loan is the industry’s premier apartment construction financing product, the HUD 223(f) loan is certainly its counterpart when it comes to apartment purchases and refinances. Like the 221(d)(4), the 223(f) is generally best suited to financially strong borrowers in secondary or tertiary markets, particularly those utilizing a long-term holding strategy for their multifamily investments. HUD 223(f) loans provide fixed-rate, fully-amortizing loan terms up to 35 years, with LTVs up to 85% for market-rate properties, and up to 90% for certain subsidized housing properties.

As mentioned earlier, both 221(d)(4) and 223(f) loans can be used to finance independent living facilities and housing communities that generally accept residents between 55-62 and older but do not provide group dining facilities or in-house medical care.

HUD 232

America’s population of senior citizens is growing quickly, with approximately 300,000 Americans turning 65 each month. While 65 may be the new 40, by the time someone reaches their 80s or 90s, they often find that they need more assistance with daily living than their families⁠ or a home healthcare service can handle. So they move into seniors housing; typically, an assisted living facility or if their medical needs are more significant, a nursing home.

In cases where Alzheimer’s or Dementia may be an issue, an individual may reside in a specialized memory care facility, while if they’re recovering from a serious injury, they may stay at an intermediate care facility for a period of weeks or months. Each of these types of housing provides a valuable service to residents and can be a viable opportunity for the right investor. This is particularly true if they have a good source of financing, such as a HUD 232 loan.

232 loans are designed to finance the construction and substantial rehabilitation of senior living and healthcare facilities. In many ways, they’re quite similar to 221(d)(4) loans. Borrowers can still get non-recourse 40-year fixed-rate and fully-amortizing financing (following a 3-year interest-only construction loan) while benefiting from high-leverage and HUD’s ultra-low interest rates.

HUD 232/223(f)

Like its sibling the HUD 232 loan, HUD 232/223(f) is designed to finance senior living and healthcare facilities, including nursing homes, assisted living centers and memory care facilities. However, unlike traditional 232 loans, the 232/223(f) is used for purchases and refinances, not construction and rehabilitation. In some ways, it’s similar to the HUD 223(f) program for apartment financing, as it allows for 35-year terms. However, DSCR requirements and required third-party reports are more comparable to the HUD 232.

HUD 223(a)(7)

If you already have an FHA apartment loan, but you want to refinance it for a lower interest rate or a longer term, the HUD 223(a)(7) program could be the perfect fit. It’s by far the easiest HUD multifamily loan to apply for, as it only requires one third-party report, i.e. a project capital needs assessment, and can close in as little as two months.

HUD 241(a)

The HUD 241(a) program allows current HUD apartment loan borrowers to gain access to supplemental financing in order to make eligible property improvements. These can include making fire safety or energy efficiency building upgrades, such as purchasing and installing energy-efficient insulation or a new building sprinkler system. Like other types of FHA apartment loans, HUD 241(a) loans have highly competitive interest rates, have fixed interest rates and are fully-amortizing and non-recourse. Terms generally must be the same as the current HUD loan but can be extended up to 40 years if there are fewer than 25 years remaining on the original loan’s term.