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FHA 223(f) Information Sheet

Eligible Projects

In order to participate in this program to refinance your rental complex or purchase another, the complex must meet the following tests:

• Three years must have elapsed since it was constructed or substantial rehabilitation was completed.
• It must contain five units or more and consist of complete living facilities including provisions for eating, cooking and sanitation.
• Tenants must have at least 30 day leases.
• Professional management, acceptable to the lender is required.
• Commercial area is permissible, but cannot exceed 20% of the net rental area, or 25% of the gross revenues.
• The loan may include repair costs not to exceed 15% of its value after repairs or no more than $6,500 per unit (except in high cost areas) - whichever is greatest. Repairs may not include replacing more than one major building system such as plumbing or electric.

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Loan Highlights

• The loan is nonrecourse with respect to personal liability.
• The term is 35 years or 75% of the property’s remaining economic life.
• The interest rate is fixed, approximately 120 basis points over the 30-Year Treasury.
• The loan is assumable by qualified buyer approved by the lender. Assumption fee 1% of the loan balance.
• Property must remain rental for five years from the date of loan closing even though you retain flexibility to prepay loan.
• Prepayment is subject to terms of underwriting, typically, not prepayable for five years.
• Secondary debt is permitted in form of cash notes up to 7.5% of value.
• Escrows required for property insurance, real estate taxes, reserve for replacement, and mortgage insurance premium.

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Maximum Loans

• Refinancing At least 70% but not more than 85% of the MAI appraised value of the complex. The loan may exceed 70% if the existing mortgages and other outlays, including repairs, exceed 70%. If the outlays total less than 70%, the balance may be withdrawn as equity cash.
• Purchase the lesser of 85% (90% for non profits) of sales price and all costs, or 85% of value of property after repairs. In no event may the annual debt service of the loan exceed 85% of net operating income.

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Application Procedure

Typically, before initiating the formal application procedure, First Housing, on behalf of it’s clients, will request a preapplication meeting with HUD by submitting a package to HUD which will include among other items the following:

• Description of property condition; list of repairs made in last two years; list of proposed repairs/replacements and cost estimate; and an estimate of amount of initial deposit to replacement reserve.
• Sketch plan of site, typical unit plans and typical elevations.
• Current rent roll dated within the month of the preapplication meeting, NOTE: the property must have sustained occupancy at 90% or better for the preceding 12-months.
• Financial statements for the property and owner entity dated within 3 months of pre-application meeting.
• If purchase, a copy of purchase agreement or option.
• HUD’s Environmental Factors Checklist. 

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Fees and Assurances

• Application Fee 0.3% (three/tenths of a percent) of the mortgage to be submitted with the application and pays certain processing costs. May be financed in the mortgage.
• Financing Fee: Up to 3.5% paid at closing. May be financed in the mortgage.
• Mortgage Insurance Premium: A first year MIP of 1% is payable at closing. This payment may be financed in the mortgage. An annual MIP of 50 basis points is payable thereafter.
• Repair Escrow: If closing is requested prior to completion of required repairs, an escrow of 150% of remaining repair costs must be established. The amount allocated in the loan for remaining repairs directly reduces the escrowed amount. Repairs must be completed within twelve months of mortgage closing.

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