221(d)(4) – New Construction or Substantial Rehabilitation of Apartment Properties

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ELIGIBLE PROPERTIES:
Proposed new construction or substantial rehabilitation of apartment properties. In order to qualify as a substantial rehabilitation project either (1) the cost of repairs, replacements and improvements exceeds the greater of 15% of the estimated replacement cost after completion of all repairs, or (2) $6,500 per unit adjusted by the local FHA high cost percentage; or two or more building systems are being replaced.

Affordable housing projects must (1) have a recorded regulatory agreement in effect for at least 15 years after final endorsement, and (2) meet at least the minimum Low Income Housing Tax Credit restrictions of 20% of units at 50% of the Area Median Income (AMI) or 40% of units at 60% AMI. Mixed income projects may qualify if they meet the above criteria.

LOAN TYPE:
Construction and permanent loan.

MAXIMUM LOAN:
New Construction:
Amount equal to the lesser of:
Statutory unit mortgage limits adjusted by cost not attributable to
dwelling use plus the value of land; or
Depending on the rental mix, the following DSCR and LTC ratios:

Substantial Rehabilitation Projects:
Amount equal to the lesser of the criteria above; or
The percentage listed above of the sum of the FHA estimated cost of
repair and rehabilitation and the “as is” value of the property.

INTEREST RATES:
Fixed rate determined by market rates at the time of rate lock.

AMORTIZATION:
Construction loan which converts into a 40-year, fully amortizing loan.

PERSONAL RECOURSE:
Non-recourse.

ASSUMABILITY:
Assumable, subject to Walker Dunlop approval.

SUBORDINATE FINANCING:
Generally not permitted, special requirements apply.

PREPAYMENT:
Negotiable.

WAGE REQUIREMENTS:
Adherence to Davis-Bacon prevailing wage laws is required.

ANNUAL MORTGAGE INSURANCE PREMIUM:
During the construction period, the MIP is paid annually in advance, based on a rate established by FHA. The rate is fixed at initial endorsement. After commencement of amortization, the MIP is escrowed monthly based on the average principal balance.

ESCROWS:
Monthly escrows for real estate taxes, property insurance, reserves for replacement (as determined by FHA) and mortgage insurance premiums.

COMMERCIAL SPACE:
Up to 10% of the gross floor area of the project. Commercial income cannot exceed 15% of gross project income.

ENVIRONMENTAL ISSUES:
Special rules apply for properties that are located in Flood Hazard Zones as designated by FEMA. Phase I site assessment required.

APPLICATION FEE:
A non-refundable fee totaling 0.3% of the requested mortgage amount is payable to FHA, plus estimated underwriting costs for market study, appraisal, architectural/engineering report, cost analysis, environmental assessment and other loan processing costs.

INSPECTION FEE:
0.5% of the mortgage amount (or cost of improvements for Substantial Rehabilitation projects) is payable to FHA at Initial Endorsement.

FINANCING AND PLACEMENT FEES:
Negotiable.

LIHTC:
Program can be used in conjunction with Low Income Housing Tax Credits.

BOND ENHANCEMENT:
Program can be used to provide an AAA-rating of tax exempt bonds.

CLOSING EXPENSES:
Standard transaction costs, including legal fees, title insurance and survey.

BSPRA:
Program permits the use of a Builders and Sponsors Profit and Risk Allowance for the partial fulfillment of the equity requirement of the loan.

FURNITURE, FIXTURE, & EQUIPMENT:
Reasonable costs of furniture, fixture and equipment may be included in the mortgageable project costs.

OTHER FHA REQUIREMENTS:
Cash escrows or letters of credit are required for the following:
Forecasted operating deficits, to be released at the later of one year after final endorsement or after 6 months of break-even operations have been achieved, as determined by FHA.
4% of the mortgage amount for working capital, to be released one year after project completion if loan is not in default.
100% performance and 100% payment bond or a letter of credit equal to 15% or 25% (depending on structure type) of the construction contract.
If not covered by performance and payment bond, 2.5% of the construction contract amount as latent defects guarantee.
100% of off-site construction costs.

FHA PROCESSING TIME:
One or two stages for FHA Multifamily Accelerated Processing (MAP) Procedures:
Pre-Application Stage: 45 days for review.
Firm Commitment Stage: 45 days for review.
One stage combining items 1 and 2 above: 60 days.

PRELIMINARY SUBMISSION PACKAGE:
Include the following in your request for a loan quote:

  • Property description and location map.
  • Number of units with breakdown of proposed rents by unit type.
  • Pro forma operating budget, including breakdown of other income.
  • Development cost estimate.
  • Acquisition cost of land.
  • Sponsor resume.

This is a summary of general program terms, which are subject to change. This is not a commitment to lend.