Apartment New Construction
FHA 221(d)(4) Loans Nationally
Kendall Realty Advisors LLC Chicago, IL
HUD - 221(d)(4) - New Construction or Substantial Rehabilitation of
Apartment Properties



ELIGIBLE PROPERTIES:  Proposed new construction or substantial rehabilitation apartment
properties.
Market Rate Rents and Affordable Rents.

In order to qualify as a substantial rehabilitation project either (1) the cost of repairs, replacements and
improvements exceeds the greater of 15% of the estimated replacement cost after completion of all
repairs, or (2) $6,500 per unit adjusted by the local HUD high cost percentage; or two or more building
systems are being replaced.



MAXIMUM LOAN: None

New Construction:
Amount equal to the lesser of:** Affordable Housing Special Rules

1. Statutory unit mortgage limits adjusted by cost not attributable to dwelling use; or
2.
83.5% of the HUD estimated replacement cost; or
3.
1.2 debt service coverage.

Minimum Loan: The upfront costs of a new construction loan including FHA required reports and
architect drawings can be too expensive for smaller deals, the larger the loan the lower the
percentage of the fixed loan processing costs.

Substantial Rehabilitation Projects:
Amount equal to the lesser of the three criteria above; or

1.
83.5% of the sum of the HUD estimated cost of repair and rehabilitation and the “as is” value of the
property.

INTEREST RATES: Fixed rate determined by market rates at the time of rate lock.

AMORTIZATION: Construction loan which converts into a 40-year, fully amortizing loan.

PERSONAL RECOURSE: Non-recourse.

ASSUMABILITY: Assumable, subject to approval.

SUBORDINATE FINANCING: Generally not permitted, special requirements apply.

PREPAYMENT: Negotiable.

WAGE REQUIREMENTS: Adherence to Davis-Bacon prevailing wage laws is required.

ANNUAL MORTGAGE INSURANCE PREMIUM: During the construction period, the MIP is paid annually in
advance, based on a rate established by HUD. The rate is fixed at initial endorsement. After
commencement of amortization, the MIP is escrowed monthly based on the average principal balance.

ESCROWS: Monthly escrows for real estate taxes, property insurance, reserves for replacement (as
determined by HUD) and mortgage insurance premiums.

COMMERCIAL SPACE: Up to 10% of the gross floor area of the project. Commercial income cannot
exceed 15% of gross project income.

ENVIRONMENTAL ISSUES: Special rules apply for properties that are located in Flood Hazard Zones as
designated by FEMA. Phase I site assessment required.

APPLICATION FEE: A non-refundable fee of 0.3% of the requested mortgage amount is payable to HUD at
the time of application, plus estimated underwriting costs for market study, appraisal, architectural report,
cost analysis, environmental assessment and other loan processing costs.

INSPECTION FEE: For New Construction projects, 0.5% of the mortgage amount is payable to HUD at
Initial Endorsement. For Sub-Rehabilitation Projects, 0.5% of the cost of improvements is paid to HUD at
Initial Endorsement.

FINANCING AND PLACEMENT FEES: Negotiable.

LIHTC: Program can be used in conjunction with Low Income Housing Tax Credits.

BOND ENHANCEMENT: Program can be used to provide a AAA rating of tax exempt bonds.

CLOSING EXPENSES: Standard transaction costs, including legal fees, title insurance and survey.

BSPRA: Program permits the use of a Builders and Sponsors Profit and Risk Allowance for the partial
fulfillment of the equity requirement of the loan.

OTHER HUD REQUIREMENTS: Cash escrows or letters of credit are required for the following:

1. Fore casted operating deficits, to be released one year after final endorsement if break even
operations have been achieved.
2. 2% of the mortgage amount for working capital, to be released one year after project completion if
loan is not in default.
3. 100% performance and 100% payment bond or a letter of credit equal to 15% or 25% (depending
on structure type) of the construction contract.
4. If not covered by performance and payment bond, 2.5% of the construction contract amount as
latent defects guarantee.
5. 100% of off-site construction costs.

HUD PROCESSING TIME: One or two stages for HUD Multifamily Accelerated Processing (MAP)
procedures:

1. Per-application Stage: 45 days for review.
2. Firm Commitment Stage: 45 days for review.
3. One stage combining items 1 and 2 above: 60 days.

FHA 221(d)4 Apartment New Construction Concept Meeting The developer
should provide the following information

•        Number of market rate units  / restricted  rent  units
•        Requested  mortgage amount
•        Basic information on developer and principals
•        Management Company
•        General contractor
•        Previous HUD experience if applicable
•        Geographic location with map
•        Photographs of the subject and immediate surroundings
•        Site improvements (existing/proposed)
•        Commercial component – discuss potential tenants
•        Amenities
•        Community / city / state support
•        Green / sustainability Issues
•        Development status ( have any permits/approvals been obtained?)
•        Discuss general market conditions, competitive properties
•        Environmental issues
•        Potential risks and mitigating factors

All Section 220,221(d)(3), 221(d)(4), 231 and 241(a) projects (both market rate and affordable) must
participate in a concept meeting with the program center, either in person or by teleconference,
where the project has an early review before submitting a pre-application or direct to Firm application
Builder Sponsor Profit
and Risk Allowance
(BSPRA)
Cash Requirements to Close
Loan Costs
FHA 221(d) 4 Apartment Construction Loan
FHA 221(d)(4) Apartment Construction Loan
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Scott Kendall
847-903-7578
Updated MAP GUIDE LINK FHA.GOV
FHA 221(d)(4) New
Construction
Apartment Term Sheet
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