Loans to purchase or refinance affordable and market rate multifamily rental housing
DEFINITIONS
Affordable housing is defined as:
- Rent and income restrictions must be imposed, monitored and enforced by a governmental agency for at least 15 years after Final Endorsement, and
- Either
- a recorded Regulatory Agreement requiring the project to meet at least the minimum LIHTC restrictions of 20% of units at 50% of area median income (AMI), or 40% of units at 60% of AMI, with economic rents (i.e. the portion paid by the residents) on those units no greater than LIHTC rents, or
- a Project-Based Section 8 contract for 90% or more of the units.
Projects need not use LIHTCs to qualify for affordable underwriting so long as they meet the above requirements.
PROGRAM FEATURES
- Loan is pre-payable, assumable and non-recourse; maximum term of 35 years with full amortization.
- The cost of repairs and initial deposit to a reserve fund for building/equipment replacement can be included in the financing.
- Commercial space is permitted up to 25% of the net rentable area of the project or 20% of effective gross income; commercial space is underwritten at the lesser of 90%, the actual rate, or market indications.
- The cost of rehabilitation must not exceed the greater: of a) $15,000 per unit adjusted by a high cost percentage based on geographic location; or, b) involve the replacement of at least 2 major building components. Projects whose costs exceed these limits may qualify under Section 221(d)(4).
- Projects must be at least three years old prior to filing an application and must not have been substantially rehabilitated within that period.
- Loan-to-value (LTV) and debt service coverage (DSC) requirements are based on project type and loan size.
| Loans < $75 Million | ||
|---|---|---|
| Project Type | Loan to Value (LTC) | Debt Service Coverage (DSC) |
| Affordable | 87%* | 1.15 X* |
| Market Rate | 85% | 1.176 X |
*90% LTV and 1.11 X DSC for Section 202, 90% or more Section 8.
| Loans > $75 Million | ||
|---|---|---|
| Project Type | Loan to Value (LTC) | Debt Service Coverage (DSC) |
| Affordable | 87% or 80% (cash out) | 1.25 X |
| Market Rate | 75% or 70% (cash out) | 1.30 X |
- HUD permits cash-out refinances at 80% LTV. Fifty per cent (50%) of any cash out proceeds after funding transaction costs, including the assurance of completion requirements, must be held in escrow by the Lender until the required non-critical repairs are completed and HUD approves the release.
- For market rate properties, the underwritten physical occupancy rate is the lesser of 93% or that indicated by the market. For affordable properties, the underwritten physical occupancy is up to 95% for loans with more than 80% LIHTC units; and, up to 97% for projects with more than 90% Section 8 or LIHTC units.
- HUD permits secured secondary financing up to total debt of 92.5% LTV, or higher, for affordable projects.
FEES
| 0.30% | Application Fee to FHA |
| 1.00% | Upfront Mortgage Insurance Premium (.25% or .35% for tax credit/ affordable deals and .25% for “green” market rate deals |
Inspection Fee:
|
|
| 2.00% | Maximum Financing (Origination) Fee |
| 1.50% | Maximum Placement Fee |
| 2.00% | Costs of Issuance for Tax-Exempt Bond Transactions |
An annual 0.60% Mortgage Insurance Premium (.25% or .35% for tax credit/affordable deals and .25% for “green” market rate deals) is paid to FHA.
ESCROWS
- Escrows required for property insurance, real estate taxes, and FHA mortgage insurance premium.
- Replacement reserve escrow for on-going replacement of depreciable items is required for the term of the loan. Projects must obtain a new PCNA every 10 years, with the reserve for replacement deposit adjusted based on the results of the PCNA.
- Escrow equal to 120% of the cost of repairs is required at closing. Approximately 100% is funded from loan proceeds; the Borrower is required to fund the remaining 20%, which is released upon completion of repairs. Escrows are 110% for affordable loans, with the Borrower funding 10%.