HUD financing: lessons learned
What is a 223(f)? Is it the code name for the next big Apple product? Is it the latest investment option offered by Wall Street? The 223(f) is none of these, but it is undoubtedly one of the hottest lending products in the market today that has actually been around for several decades. The 223(f) is the FHA/HUD financing program for multifamily refinancing and acquisition financing.
In the past year, this program has become either the go-to program for apartment investors who have identified buying opportunities, or the last resort for apartment owners with rolling debt. The popularity of the program is attributable to its potential higher leverage (up to 85 percent loan-to-value), attractive prepayment options (no yield maintenance, no defeasance) and 35-year loan terms. Another reason for its popularity is that, for many borrowers, it is the last financing option available. In an informal poll of new borrowers, associates, mortgage bankers and lawyers, I asked what issues caused borrowers the biggest angst when going HUD for the first time.
Here are the leading issues new HUD borrowers report.
Higher cost to finance
While rates today are very comparable to Fannie and Freddie rates, the cost structure for a HUD loan is higher due to higher lender fees, HUD fees and higher third-party report costs. Lenders generally charge higher fees for HUD financing because of the time and additional effort involved in originating a HUD loan. HUD has specific fees that add over one percent to the loan costs. Third-party vendors also charge a higher rate due to the additional scope and forms required to complete a HUD compliance
