Housing and Urban Development (HUD)

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NEW CONSTRUCTION AND SUBSTANTIAL REHABILITATION

• High leverage construction/permanent financing
• Permanent interest rate locked prior to construction
• Interest rate modification program available post completion

Market Rate Properties

• Maximum 85% loan-to-cost
• 1.176x DSCR with 7% vacancy
• Statutory mortgage limitation (per unit)

Affordable Properties
(LIHTC Minimums)

• Maximum 87% loan-to-cost
• 1.15x DSCR with 5% vacancy
• Statutory mortgage limitation (per unit)

Rent Assisted Properties
(Section 8)

• Maximum 90% loan-to-cost
• 1.11x DSCR with 5% vacancy
• Statutory mortgage limitation (per unit)

Interest Rate and Term

• Fixed interest, same rate for construction and permanent phases
• Construction phase +40-year permanent amortization
• Interest only during construction
• Fully amortizing
• Conversion to permanent phase at construction completion (no DSCR test for conversion)

Prepayment

• Flexible 10 year prepayment structure

Additional Requirements

• Davis-Bacon Act prevailing wages apply
• New Construction Escrows
  (1) Working Capital: 4% of loan amount
  (2) Operating Deficit Escrow: 3% of loan amount
• Substantial Rehab Escrows:
  (1) Working Capital: 2% of loan amount
  Waivable for certain Rent Assisted or LIHTC properties
• Cost certification required for market rate properties
• Limits on commercial income and space apply; 20% minimum vacancy

APPLICATION TIMELINE

Market Rate (Two-Stage Processing)

• 30 days | Concept submission and meeting with HUD
• 45-60 days | Pre-application underwriting by Berkadia (app, mkt study, phase I)
• 45-60 days | HUD pre-application review
• 45-60 days | Firm application underwriting by Berkadia (100% plans/specs)
• 45-60 days | HUD firm application review
• 45-60 days | Rate lock and closing

Affordable/Rent Assisted (Single-Stage Processing)

• 45-60 days | Firm application underwriting by Berkadia
• 45-60 days | HUD firm application review
• 45-60 days | Rate lock and closing

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REFINANCE OR ACQUISITION

• 35-year, fixed-rate financing
• Ability to modify interest rate during term
• High-leverage permanent financing

Market Rate Properties

• 85% loan-to-value (80% if cash-out)
• 1.176x DSCR with 7% vacancy
• Statutory mortgage limitation (per unit)

Affordable Properties
(LIHTC Minimums)

• 87% loan-to-value (80% if cash-out)
• 1.15x DSCR with 5% vacancy
• Statutory mortgage limitation (per unit)

Rent Assisted Properties
(Section 8)

• 90% loan-to-value (80% if cash-out)
• 1.11x DSCR with 3% vacancy
• Statutory mortgage limitation (per unit)

Interest Rate & Term

• 35-year rate (fully amortizing) subject to market conditions at time of rate lock

Prepayment

• Flexible 10-year prepayment structure

Additional Requirements

• Initial deposit to replacement reserve
• Annual deposit to replacement reserve
• Annual audited financial statements
• Surplus cash distributions monthly

Heavy 223(f)

• Non-critical repairs up to $40,000 per unit
• Project architect required
• Lender Needs Assessor reviews planned scope of work
• Detailed plans of scope of work and cost estimate required
• Davis-Bacon Act does not apply to Heavy 223(f)
• General Contractor could be required

APPLICATION TIMELINE

Preliminary Loan Analysis

• Initial loan sizing
• Based on information provided by sponsor

Concept Submission and Meeting | 30 days Optional

• Limited review of property information and sponsor
• No third-party reports required

Berkadia Firm Application Underwriting | 45-60 days

• Third-party due diligence
• Collect required forms, certifications, and documents
• CPA review of property operating statement for prior fiscal year
• Obtain green certification, if applicable

HUD Firm Application Review | 45-60 days

• HUD property inspection
• National/regional loan committee review (depending on loan size)
• HUD firm commitment

Closing (Final Endorsement) | 45-60 days

• Interest rate lock
• Closing and loan documents review
• Completion of critical repairs

Download Program Details | Connect with Mortgage Banker

Download Program Details | Connect with Mortgage Banker

REFINANCE OR ACQUISITION

• 35-year, fixed-rate financing
• Ability to modify interest rate during term
• High-leverage permanent financing

Market Rate Properties

• 85% loan-to-value (80% if cash-out)
• 1.176x DSCR with 7% vacancy
• Statutory mortgage limitation (per unit)

Affordable Properties (LIHTC Minimums)

• 87% loan-to-value (80% if cash-out)
• 1.15x DSCR with 5% vacancy
• Statutory mortgage limitation (per unit)

Rent Assisted Properties (Section 8)

• 90% loan-to-value (80% if cash-out)
• 1.11x DSCR with 3% vacancy
• Statutory mortgage limitation (per unit)

Interest Rate & Term

• 35-year rate (fully amortizing) subject to market conditions at time of rate lock

Prepayment

• Flexible 10-year prepayment structure

Additional Requirements

• Initial deposit to replacement reserve
• Annual deposit to replacement reserve
• Annual audited financial statements
• Surplus cash distributions monthly

Heavy 223(f)

• Non-critical repairs up to $40,000 per unit
• Project architect required
• Lender Needs Assessor reviews planned scope of work
• Detailed plans of scope of work and cost estimate required
• Davis-Bacon Act does not apply to Heavy 223(f)
• General Contractor could be required

APPLICATION TIMELINE

Preliminary Loan Analysis

• Initial loan sizing
• Based on information provided by sponsor

Concept Submission and Meeting | 30 days Optional

• Limited review of property information and sponsor
• No third-party reports required

Berkadia Firm Application Underwriting | 45-60 days

• Third-party due diligence
• Collect required forms, certifications, and documents
• CPA review of property operating statement for prior fiscal year
• Obtain green certification, if applicable

HUD Firm Application Review | 45-60 days

• HUD property inspection
• National/regional loan committee review (depending on loan size)
• HUD firm commitment

Closing (Final Endorsement) | 45-60 days

• Interest rate lock
• Closing and loan documents review
• Completion of critical repairs

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HUD’s Interest Rate Reduction program is designed to reduce interest rates on existing FHA-insured properties. The IRR program allows owners to work with their current servicer to reset their existing mortgages at a lower interest rate, leading to significant savings.

Highlights

• Interest rate is lowered to current market conditions.
• Borrower legal fee is the only out-of-pocket cost.
• A good faith rate lock deposit of 0.5% is credited back to the borrower at closing.
• Timing from start to finish is approximately 30-60 days.
• No finance fees or application fees required.

Loan Sizing and Conditions

• The new loan amount equal to the existing mortgage unpaid principal balance (ie. no additional debt added).
• The new loan maturity will remain unchanged from existing mortgage.
• 1.05x DSCR required.
• The mortgage insurance premium remains unchanged from original FHA-insured loan.

Prepayment and Assumptions

• The IRR resets the prepayment penalty structure to 10 years (ie. 10%/9%/8%/7%….)
• Alternative prepayment structures may be available based on current market conditions.
• All other HUD requirements from existing regulatory agreement remain in effect.

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Every FHA-insured loan for a multifamily property includes a mortgage insurance premium (MIP). MIPs, which fund HUD’s mortgage insurance programs, are paid by the borrower at closing and then monthly, in addition to principal and interest. Lower Green MIP rates are offered for properties that meet HUD green standards and reporting requirements. If eligible on 223(f) transactions, upfront MIPs are reduced from 1.00% to 0.25% at closing and monthly MIPs are reduced from 0.60% to 0.25% for the life of the loan.

For all properties, regardless of age or occupancy, owners must obtain a HUD-approved green building certification.

• Enterprise, Earthcraft, Greenpoint, LEED or National Green Building Standard are accepted.

For properties less than three years old with LESS than 80% occupancy over the past 12 consecutive months, owners must obtain a Statement of Energy Design Intent (“SEDI”) score above 90.

• A third-party consultant submits energy/water system specifications into the EPA’s Portfolio Manager scoring program to analyze projected consumption.

For properties less than three years old with MORE than 80% occupancy over the past 12 consecutive months, owners must obtain a Statement of Energy Performance (“SEP”) score of 90 or above.

• A third-party consultant submits 100% of the property’s energy/ water consumption data over the past 12 months to the EPA’s Portfolio Manager scoring program.

For properties more than three years old, owners must obtain a Statement of Energy Performance (“SEP”) score of 75 or better.

• A third-party consultant submits 100% of the property’s energy/ water consumption data over the past 12 months to the EPA’s Portfolio Manager scoring program.
• If a property is not expected to score above 75, an ASHRAE Energy Audit from a third-party environmental consultant will be required in order to determine what energy upgrades/improvements will produce a SEP score above 75.

FREQUENTLY ASKED QUESTIONS

Are there additional requirements for borrowers to be eligible for a Green MIP?

All owners, regardless of property age, are required to submit a Data Collection Plan that will collect all energy/water consumption for 100% of the property. Each year, a SEP score of 75 or better must be reported to HUD.

What are the costs associated with becoming eligible for a Green MIP?

The costs to qualify for a Green MIP, including the cost of improvements that may be needed to increase the SEP score or to meet the minimum certification requirements, will vary.

• Feasibility study/preliminary evaluation for green certification: $5,000
• Statement of Energy Performance (“SEP”), if aggregate data is provided: $2,000
• Green certification from a qualified vendor: $25,000-$35,000
• Environmental consultation, including collection and scoring of utility usage and the analysis of projected upgrades: $15,000-$17,000 (only for properties that need performance upgrades)
• ASHRAE Level II Energy Audit: $8,000-$10,000 (only for properties that need performance upgrades)

Does qualifying for a Green MIP add significant time to the HUD loan application process?

A HUD refinance/acquisition loan application typically takes
two to three months to complete. Green certification feasibility analysis, testing and design should begin at least one month prior to beginning a HUD application, so that green certification can be submitted alongside other HUD application materials.

How do I collect water and energy consumption data for my entire property?

The most effective way to collect water and energy consumption data for an entire property is by using master meters, or a utility that provides aggregated data for the entire property.

Build the foundation for a better tomorrow by partnering with Berkadia FHA/HUD. As a leader in the HUD sector, we have the vision and versatility to create customized debt financing and equity solutions to fit all project sizes, locations and borrower profiles.

For more information:
Please reach out to your Berkadia mortgage banking professional.