HUD 221(d)(4) Multifamily construction & substantial rehab

Eligible land acquisition or an existing building can be included. Start with proposed rents, an operating budget, construction costs and basic site information. We review the development team, land equity and sources and uses before the full application.

The cash requirement includes more than the down payment. Working capital and initial operating deficit escrows support construction and lease-up, and substantial rehabilitation requires a contingency reserve. Eligible land equity and BSPRA can affect the required cash contribution, but neither automatically replaces cash dollar for dollar.

Flag any subordinate financing, tax abatement or TIF early. The application checklists and contractor handouts cover exhibits, prevailing wages and payroll requirements.

Build-to-rent communities can qualify for new construction under Mortgagee Letter 2026-12. This includes detached rental homes, duplexes and triplexes with at least five units on one cohesive, contiguous site, developed and operated as a long-term rental property. Multiple contiguous parcels can be included, but private homes cannot be interspersed within the project. This BTR eligibility does not extend to substantial rehabilitation.

Eligible uses & property features

• New construction and substantial rehabilitation
• Eligible build-to-rent communities — new construction only
• Construction-to-permanent financing
• Market-rate and affordable apartments
• Long-term, fixed-rate structure

What to consider

Review contractor financials, prevailing wages, completion assurance and construction escrows early. Completion assurance may be provided through payment and performance bonds or an eligible cash or letter-of-credit alternative. Tell us about any ownership relationships among the developer, contractor and architect so we can address the applicable contract, fee and cost-certification requirements. Allow time after construction for cost certification and final endorsement; the final mortgage reflects eligible actual costs. Pricing remains subject to market conditions until the rate lock is executed. For BTR, allow for conservative lease-up, vacancy, expenses and replacement reserves. HUD will consider up to 24 months of absorption for new construction; this is a lease-up assumption, not a loan-processing estimate. The initial operating deficit escrow is at least the greater of 3% of the loan or four months of debt service, and the analysis may require more.