Affordable Housing

221(d)(4) Construction / Rehab

Our direct HUD 221(d)(4) program provides 40 year fixed rate, non-recourse, assumable financing for the ground up construction or substantial rehabilitation of affordable multifamily projects nationwide. For existing properties that need rehabilitation, the 221(d)(4) program is typically used when planned repairs exceed ~$50,000 per unit. If repairs are below this threshold, the more streamlined HUD 223(f) program may be used if the asset is above 85% occupancy.

Program terms include:

• 40 year fixed rate
• Fully amortizing
• Non-recourse
• Construction to perm all in one
• Minimum 87-90% LTC 
• 1.11-1.15x DCR 

The HUD 221(d)(4) program is unique in that it is construction and permanent financing. The interest rate that is fixed for 40 years (+ construction period) is locked before construction commences which mitigates all interest rate volatility during construction, mortgage interest due during the construction period is capitalized in the mortgage versus paid out of pocket, and at time of construction completion, a 40 year term automatically commences (no new third party reports, etc.).

As most affordable housing properties inherently generate less revenue than equivalent market rate developments, HUD's loan terms can support initiatives that otherwise would not be economical under different financing options. HUD offers minimum 87-90% loan to cost financing for affordable transactions, which can be combined with other equity sources (including equity in the land or building already under ownership) and/or subordinate debt to meet or exceed 100% financing. A mortgageable, unrestricted developer's fee is also available in many scenarios.

Bedford Lending specializes in helping borrowers, including non-profits and Housing Authorities (who may have little to no familiarity with HUD financing) successfully recapitalize, renovate, or add to their housing portfolios using HUD's multifamily loan programs. 

All HUD loans are assumable, and the interest rate can be modified (subject to factoring in a declining prepayment penalty over the first 10 years, as applicable) making HUD an excellent option for long term investment scenarios or shorter term holds.

Typically, the 221(d)(4) program takes about 8-12 months to close; however, repeat HUD 221(d)(4) borrowers are eligible for a more expedited underwriting process. Please see the timeline on the right side of this page for more information.

For RAD/Section 18 conversions, the timing of the conversion process aligns with the HUD 221(d)(4) program, and both can be processed concurrently. 

Projects do not need to use tax credits or have a HAP contract to qualify as "affordable housing" (please see the right side of the page for HUD's definitions of affordability and how that may impact available terms).

Given the timeframes involved with underwriting, to mitigate borrower risk we will have a call with HUD and all parties to discuss the transaction before money is spent on an appraisal, market study, etc. We also only receive our finance fee (as lender) as part of a successful closing, therefore there is no upside for us to work on projects that we are not confident will be approved by HUD.