HUD Construction Financing Helps Multifamily Investors Succeed

Feb 7, 2023

Loans offered by the Department of Housing and Urban Development (HUD) possess a reputation for having some of the best terms available, and their construction financing option is no exception. The best part is that these loans are not strictly for affordable housing developments. In addition, although most investors use HUD construction financing for ground-up developments, they can also use it to fund extensive property rehabilitations. Let’s explore the details of HUD construction financing and determine if this loan aligns with your property investment goals.

HUD construction financing approval might take longer than you would like, but the extended process is worth the wait. Here are a few key advantages of this program:

  • High LTVs are permitted

HUD financing is known for allowing some of the highest LTV ratios in multifamily mortgages. The LTV can be as high as 85% for market-rate properties and 90% for subsidized housing developments.

  • Extended loan terms are available

HUD construction financing typically allows for a three-year construction period with interest-only payments. After that, a 40-year repayment term is typical.

  • Fixed, competitive interest rates with lock-in options are also available

HUD interest rates are known to be among the most competitive in the mortgage industry, and fixed rates mean that payments remain predictable throughout the life of the loan. Borrowers can lock in their interest rate early in the application process with a deposit equal to 1% of the total loan amount. This deposit is refunded during closing.

  • Low DSCR requirements apply

The DSCR tells lenders if a borrower has enough income to take on additional debt and is a key risk indicator. While HUD’s DSCR of 1.18 is already low for market-rate properties, it becomes even more forgiving at 1.11 for subsidized properties.

  • Loans are fully assumable upon purchase

If the borrower decides to sell a HUD-financed property in the future, the buyer can assume all the benefits of HUD financing pending an approval process and a minimal fee.

If you are a property investor planning a multifamily construction or rehabilitation endeavor, HUD financing might be a cost-effective way to help you complete your project. Contact us today to learn more about your HUD construction financing options!

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