HUD 221(d)(4) Loans

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

When it comes to financing the construction of new multifamily properties, HUD's 221(d)(4) loans offer some of the industry’s most competitive terms. Specifically, the HUD 221(d)(4) program offers 40-year fixed rate terms for both the construction of new properties and the rehabilitation of existing ones, as well as an additional 3-year construction financing period for new construction projects.

Like HUD 223f loans, HUD 221(d)(4) loans are non-recourse, offer high leverage, and have competitive interest rates. 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. 

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

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

  • Loan Size: Minimum loan amount of $2 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

  • Interest Rates: Fixed, terms range from 3.10% to 4.10% (not including MIP), as of Jan. 2019

  • DSCR:

    • Market rate properties: 1.20x minimum DSCR

    • Affordable properties: 1.15x minimum DSCR

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

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

  • 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

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




  • The entire application, approval and closing process may take up to 8-10 months

  • 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

Additional HUD 221d4 Fees, Requirements, and Information

While investors and developers using HUD 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. Additionally, it can reduce the amount of cash needed at closing. 

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 HUD 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. 

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.