FHA – HUD Section 223(a)(7)
Property Type: Market-rate and affordable multifamily housing (LIHTC), elderly housing, nursing homes and assisted living facilities.
Purpose: Limited to refinancing of an existing FHA/HUD Mortgage.
Maximum Proceeds: Limited to the existing balance, plus closing costs and/or up to 15% for renovation/rehab. The aggregate amount may not exceed the original FHA/HUD loan amount. This program does not permit cash taken out.
Maximum LTV: No new appraisal required.
Minimum DSCR: Minimum DSCR (Debt Service Coverage Ratio) 1.05x for non-profit borrowers and 1.11x for “For-Profit” Borrowers.
Interest Rate: Fixed subject to market conditions
Maximum Term/Amortization: The term of the new mortgage may not exceed the remaining term of the existing mortgage. However, HUD Director may approve a term of up to 12 years beyond the remaining term of the existing mortgage if it is determined that the longer term is necessary to ensure the economic viability of the project. Notwithstanding the forgoing the Term may not exceed 75% of the remaining economic life.
Recourse: Non-recourse construction/permanent loan. Certain non-monetary nonrecourse carve outs apply (“Bad-Boy” provisions).
Assumable: Yes, subject to FHA approval and paid Assumption Fees
Prepayment: Typically, a 0- or 1-year lockout with a 10% – 1% declining prepayment penalty. Other prepayment options are available.
Escrows: Monthly escrows are required for property insurance, real estate taxes, reserves for replacement and mortgage insurance premiums.
Mortgage Insurance: First years premium is paid at Closing. Fees range from 0.45% – 0.55% of the loan amount.
Fees and Expenses: In addition to the Application Fee, the borrower is also responsible for all fees applicable to this loan, including but not limited to lender legal expenses, the HUD Fee and Lender Fees; these may be included in the final loan amount. HUD fee: 0.3% FHA exam fee (payable from mortgage proceeds at loan closing). Inspection fee: greater of 1% of repairs or $30 per unit (payable out of mortgage proceeds)
Timing to close: Normally 60-90-days to close.
Cash Flow Distribution & Post-Closing Reporting: Cash flow distribution allowed up to two times per year upon HUD approval of audit. Submission of annual audited financial statements is required.