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HUD 241(a) Loans
HUD 241(a) loans provide non-recourse supplemental financing for existing HUD Multifamily borrowers. They can be used to make energy-efficient upgrades, purchase safety equipment, or expand current buildings.
Supplemental Financing for HUD-Insured Multifamily Properties
If you currently own a property financed with a HUD multifamily loan, like a HUD 223(f) loan or a HUD 221(d)(4) loan, a HUD 241(a) loan can provide you extra funds to make your property more energy-efficient, purchase new safety equipment, or expand the footprint of one of the existing buildings on the property. Just like other HUD multifamily loans, HUD 241(a) loans are assumable (with FHA approval), are non-recourse, and have generous DSCR and leverage requirements.
At Commercial Real Estate Loans, we know that HUD multifamily loans are an effective way to build, renovate, and purchase multifamily properties. Sometimes, however, developers need additional funds for necessary property improvements. Fortunately, our highly-qualified mortgage bankers can assist you with every stage of the HUD 241(a) application, approval, and closing process.
Keep reading below to learn more, or simply click here to download our easy-to-read HUD 241(a) loan term sheet.
HUD 241(a) Loan Terms in 2023
HUD 241(a) loans have terms including:
Loan Size: The maximum loan size is the lesser of:
90% of the value of a new construction project (for profits), or 95% (for non-profit entities)
The project's maximum insurable amount, as calculated by the FHA/HUD
90% of the project's NOI (net operating income), including monthly payments for the original HUD multifamily loan
Loan Term: Must be the same as the original loan. If there are less than 25 years left on the original loan, the term can go up to 40 years (or up to 75% of the useful life of any new improvements that are financed with the loan)
DSCR: 1.11x minimum DSCR
Generous DSCR requirements; loans allow for a minimum of 1.11x DSCR
Loans offer fixed interest rates
Loans are fully assumable with FHA approval
HUD 241(a) loans are non-recourse, which limits liability for investors and developers
Mortgage insurance premiums (MIPs) are still required
An FHA application fee of 0.30% of the entire loan amount is required
An FHA inspection fee of 0.50% of the loan amount is also required
Developers are required to pay for a variety of third-party reports, including environmental assessments
Market studies
Environmental assessments
Seismic reports (in certain areas)
Full HUD/FHA appraisals
Architectural and engineering reports
Pros:
Cons:
Other HUD 241(a) Fees and Costs
As briefly mentioned in the previous section, one of the biggest costs of HUD 241(a) loans can often be the third party reports that are required, which usually include:
In addition, HUD 241(a) loans typically require borrowers to pay financing/permanent placement fees at closing, which often come out to 3.5% of the loan amount.
Commercial Real Estate Loans 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.
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