HUD 221(d)(4) Loans

Fixed-Rate, Non-Recourse Loans for the Construction and Rehabilitation of Multifamily Properties

The HUD 221(d)(4) program offers non-recourse, high leverage, 40-year fixed rate loans for both the construction of new properties and the rehabilitation of existing ones, as well as an additional, interest-only 3-year construction financing period for new construction projects. HUD 221(d)(4) loans offer some of the most competitive interest rates in the industry, and, unlike most bank and life company loans, focus more on the value of a property than on the financials of an individual borrower. In addition, these loans offer significant incentives for affordable properties, including those that utilize HUD’s Section 8 rental assistance program, or the Low-Income Housing Tax Credit (LIHTC) program.

At Commercial Real Estate Loans, Inc., we recognize the many benefits that HUD multifamily construction loans can provide for our clients. That’s why our expert mortgage bankers are ready to assist you through every stage of the HUD 221(d)(4) application, approval, and closing process. 

To download our easy-to-read HUD 221(d)(4) term sheet, click here.

HUD 221(d)(4) Loan Terms and Substantial Rehabilitation Requirements

HUD 221(d)(4) loans have terms including: 

  • Loan Size: Minimum loan amount of $4 million (average loan size is $15 million or more)

  • Loan Term: 40 year, fixed-rate loan term, with an additional 3 years of fixed-rate, interest-only financing for new construction

  • Leverage:

    • Properties with 90%+ low-income units: 90% LTV/LTC

    • Affordable properties: 87% LTV/LTC

    • Market rate properties: 85% LTV, 83.3% LTC

  • DSCR:

    • Market rate properties: 1.20x minimum DSCR

    • Affordable properties: 1.15x minimum DSCR

    • Properties with 90%+ low-income units: 1.11x DSCR

  • MIP: 1% upfront mortgage insurance premium then, annual MIP of:

    • 0.65% for market rate properties

    • 0.45% for affordable properties (typically must be Section 8 or new money LIHTC projects to qualify)

    • 0.25% for Energy Star SEDI (Statement of Design Intent) certified properties

In addition, developers considering the substantial rehabilitation of a property with a HUD 221(d)(4) loan should recognize that the cost of the rehabilitation must: 

  • Exceed 15% of the replacement cost of the property (after the rehabilitation is complete)

  • Involve replacing two or more major building systems, such as plumbing or roofing

  • Cost more than $6,500/unit (the exact amount will be adjusted by the local HUD office in the project's area)


  • Large loan amounts allowed ($100 million+)

  • High leverage: loans allow for up to 90% LTV for low-income properties

  • Extremely competitive, low interest rates

  • Maximum loan term of 43 years (including construction)

  • Loans are fully assumable with FHA approval

  • FHA 221d4 loans are non-recourse, which limits the potential liability for investors and developers

  • Multifamily Accelerated Processing (MAP) loan applications may close in as little as 5 months




  • The entire application, approval and closing process may take up to 8-10 months (particularly for Traditional Application Processing/TAP loans)

  • Rate commitments are only given after preliminary underwriting is complete, which may take several months

  • Mortgage insurance premiums (MIPs) are required

  • There are significant limits on cash distributions to owners/investors

  • Developers will be required to pay for a variety of third-party reports (often included in one application fee, which averages $25,000)

  • Developers must adhere to Davis-Bacon prevailing wage standards

Additional HUD 221d4 Fees, Requirements, and Information

While investors and developers using FHA 221(d)(4) loans to build or substantially renovate a multifamily property can save money in a variety of ways (i.e. lower interest rates, fixed terms), these loans do have some additional expenses. In particular, HUD 221(d)(4) loans require developers to pay for a variety of third party reports, which include: 

However, despite those additional expenses, developers can still save money in other ways. For example, they can attempt to take advantage of the green MIP reduction program, which allows projects with a certain Energy Star rating to pay a discounted 0.25% MIP (typical MIP is 0.65% for market rate properties, 0.45% for Section 8 or LIHTC properties, and 0.70% for Section 220 urban renewal projects.)  

In addition, HUD 221(d)(4) new construction borrowers may also be able to take advantage of BSPRA (builder-sponsor profit risk allowance), which gives the builder a small amount of equity in the project. This motivates builders to finish projects on-time and on-budget. Most importantly, however, it can reduce the amount of cash needed at closing, thus increasing a borrower’s leverage.

HUD 221d4 and Low-Income Housing Tax Credits (LIHTCs) 

HUD 221(d)(4) properties with a large number of affordable units can sometimes qualify for the LIHTCs, or Low-Income Housing Tax Credits. These are typically issued by state and local government agencies. For FHA multifamily properties, developers need to set aside at least 40% of the project’s units for residents earning 60% or less of the AMI (area median income). Alternatively, developers can choose to set aside 20% of the building's units for residents earning 50% or less of the AMI.

LIHTCs are available in two major varieties, the 4% tax credit and the 9% tax credit. The 4% credit factors in 30% of the eligible project costs, while 9% tax credit factors in 70% of the eligible project costs. In practice, this functions as a credit that a developer or investor can write off of their taxes over a 10-year period. The type of tax credit a project can use usually depends on the specific government agency that is funding the credits. 

HUD 221(d)(4) Loans vs. HUD 223(f) Financing

If you’re interested in purchasing a or refinancing a multifamily property, but do not plan to undertake a substantial rehabilitation, the 221d4 program will not fit your needs. However, the HUD 223(f) program may be an excellent option. Like HUD 221(d)(4) loans, HUD 223f loans are non-recourse, offer high leverage, and have competitive interest rates. They offer fixed-rate, 35-year, fully amortizing financing, and, like 221(d)(4) loans, the 223(f) contains a variety of incentives for affordable properties.

Commercial Space Limitations for HUD 221(d)(4) Financing

While the 221d4 program generally offers multifamily loans, it does permit financing for limited mixed-use developments, provided certain rules are followed. Specifically, no more than 25% of a project’s entire net rentable area may be occupied by commercial tenants, and no more than 15% of a project’s underwritten effective gross income (EGI), may be derived rom those tenants. Resident parking fees are not included toward this 15% limit, though non-resident parking is. However, up to 30% of underwritten commercial EGI is permitted in urban renewal areas under Section 220.

Borrowers who are planning a property with more than 20% commercial space might be able to have these limitations waived, however, HUD will usually need specific incentives for doing so. For instance, if a project is transit-oriented or supports sustainable communities, HUD may be willing to issue a waiver. Waivers are more likely to be issued for substantial rehabilitations that will not affect the commercial part of property, and are significantly more likely to be issued if the commercial space already has long-term, credit-worthy tenants.

Investor/developers who wish to apply for a waiver will need to have their property appraisal and market study issued by individuals with expertise in commercial real estate, not just multifamily development. Furthermore, the individuals preparing these reports should have experience in the specific type of commercial property in question (i.e. retail property experts for retail spaces, office property experts for office spaces, etc.). Plus, these modified reports should include a commercial leasing risk and tenant rollover analysis, detailing vacancy estimates and comparing potential vacancy rates to other commercial properties in the area. Plus, if any commercial tenant will contribute more than 5% of a property’s EGI, they will need to be submitted for a separate credit analysis.

For more details, click here for the official mortgagee letter from HUD detailing commercial space limitations for HUD multifamily loans.

Commercial Real Estate Loans, Inc. is the partner you need to help acquire or refinance your next multifamily or commercial real estate project. Whether you're a small startup or an established company, we have the knowledge and experience to give you more financing options.