3 Reasons Why HUD Multifamily Loans Are So Popular Today
Thanks to a series of rapid interest rate increases from the Fed, borrowers have started seeking out more and more FHA multifamily loans, which carry some of the lowest rates available.
Multifamily investments have a major leg up on most other types of real estate, thanks to the wide array of financing available for purchases, construction, and refinancing.
Today, HUD multifamily loans are becoming more and more popular. Here are three reasons why.
3 Reasons HUD Loans Are Popular Now
1. HUD Multifamily Loans Carry Low Interest Rates
Given how much interest rates have climbed since early 2022, it makes sense that borrowers would naturally be drawn to HUD multifamily loans. These financing options offer some of the lowest interest rates available industrywide.
Prior to the Fed’s series of rate hikes, HUD loans still had very, very good interest rates — but so did nearly every other type of permanent financing. Now, though, there’s a huge difference in rates, and this can make a significant and lasting impact on any multifamily property’s profitability.
See today's interest rates for HUD 223(f) and 221(d)(4) loans below:
2. HUD Multifamily Loans Are Fully Amortizing
HUD loans stand apart from many other types of multifamily financing because they’re fully amortizing. That means your loan is fully paid off at the end of its term, unlike partially amortizing loans which generally carry terms of up to 10 years but amortization periods of 30 years.
No balloon payments here: HUD 223(f) loans can have up to a 35-year term, and HUD 221(d)(4) construction loans can carry loan terms beyond 40 years. When that’s fully amortized, you need not worry about any massive, end-of-term payment, and your monthly debt service obligations will be low as well.
3. HUD Multifamily Loans Are Incredibly Versatile
Last but certainly not least, HUD multifamily loans have a lot of applicable uses. For one thing, they’re not just for affordable housing. You can absolutely finance a 100% market-rate acquisition or development with a HUD loan.
You can also use HUD loans in a variety of ways, whether you’re looking to acquire a community, refinance a property, or even build one from the ground up. There’s a HUD multifamily financing tool for each of these uses, and they’re all fully amortizing with long terms and low rates. And many of these loans can even provide monthly surplus cash distributions.
The Drawbacks of HUD Financing
I hear you ask: Where’s the catch? There are two main challenges associated with getting a HUD multifamily loan.
The first is the length of time it takes to close on the financing. While HUD’s 223(a)(7) loan is fairly quick, some — especially HUD’s 221(d)(4) financing — can take a massive amount of time to get approved and closed.
However, it’s not all bad news. HUD announced in late 2022 that it had cleared its backlog of loans, meaning that it’s operating in top form. While 221(d)(4) loans previously could take up to a year to close, they’re now moving several months quicker. To get around this, many borrowers and lenders are utilizing bridge-to-HUD financing options, which basically uses a bridge loan to finance an acquisition or development until the HUD loan is approved.
The second challenge is the paperwork and application process itself. It probably won’t surprise you to hear that a government-backed loan has its fair share of forms to fill out in triplicate. Thankfully, there’s a way to get around this, too.
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