HUD 223(f) loans have terms including:

• Loan Amount: Minimum loan amount of $1 million (exceptions can be made on a case by case basis)
• Loan Term: Minimum loan term of 10 years, and a maximum term of 35 years (or 75% of the property's remaining economic life)
• Leverage:
  • Market rate properties: 83.3% LTV
  • Affordable properties: 85% LTV
  • Rental assistance properties: 87% LTV, 90% LTV for properties with 90% or more rental assistance
• Interest Rates: Fixed, terms range from 4.10% to 4.75% (including MIP), as of Jan. 2019
• DSCR:
  • Market rate properties: 1.17x minimum DSCR
  • Affordable properties: 1.15x minimum DSCR
  • Rental assistance properties: 1.11x minimum DSCR
• MIP: 1% upfront mortgage insurance premium for all property types, then, annual MIP of:
  • 0.65% for market rate properties
  • 0.45% for affordable properties (typically must be Section 8 or new money LIHTC projects to qualify)
  • 0.25% for Energy Star SEDI (Statement of Design Intent) certified properties
• FHA Application Fee: 0.30% of the total loan amount
• Cash Out: For 223f refinances, cash out is allowed under specific conditions. LTV must be at least 80% (including transaction costs in the loan amount). At that point, 50% of funds above 80% adjusted LTV are released, with the remaining 50% to be released after property rehab is complete.
• Repair Limitations: While the 223(f) program is not intended for substantial rehabilitation, loan funds may be used for repairs of up to $6,500/unit (more in high-cost areas), or 15% of the property value, or 20% of the mortgage. If the second or third calculation is used, repairs are limited to $15,000/unit (more in high-cost areas). No more than half of any essential structural component (e.g. roofing, HVAC) may be replaced.

In addition, properties being acquired or refinanced with a HUD 223(f) loan must:

• Be at least three years old (for new properties), or have had the last substantial renovation three years ago or more

Eligible Properties for HUD 223(f) Loans: HUD 223(f) Loans Permit Nearly All Property Types

In general, to be eligible for HUD 223(f) financing, a property:

• Must have 5+ residential units
• Must have complete kitchens and bathrooms for each unit
• Can be row, walkup, detached, semi-detached, or elevator-type rental or cooperative housing
• Can be student housing, but multiple rents cannot be derived from one unit and rents need to be similar to comparable multifamily properties
• Can be market-rate, affordable, or rental assisted/subsidized (i.e. Section 8, Section 202)
• Cannot be an assisted living, skilled nursing, or memory care property (though independent living facilities for seniors are allowed)
• Must have all construction and major rehabilitation finished three or more years before beginning the HUD loan application process

HUD 223(f) loans offer some of the best terms in the industry for the acquisition and refinancing of multifamily and apartment properties. These loans are non-recourse, offer high leverage, low interest rates, and lenient DSCR requirements.

The advantages of a HUD 223(f) loan for commercial development include:

• High LTV purchase allowance of <85% of the acquisition price/appraised value (for non-profits) and <90% (for-profits)
• High LTV refinance allowance of <100% refinance cost or 85% of the appraised value (for non-profits) and 90% of the appraised value (for-profits)
• 35- year maximum term
• Non-recourse
• Fixed-rate

HUD 223(f) loans allow for commercial development, albeit with somewhat strict limits: commercial tenants are restricted to using 25% of net rentable area and must not generate more than 20% of the project's effective gross income. Source

For HUD 232/223(f) acquisitions or refinances, commercial space is limited to a "maximum of 20% of the gross floor area of the project and 20% of the gross project income." For both HUD 232 new construction/substantial rehabilitation loans and HUD 232/223(f) acquisition or refinance loans, borrowers need to use at least 20% project occupancy when calculating the income limits. Source

HUD 223(f) loans allow for commercial development, albeit with somewhat strict limits: commercial tenants are restricted to using 25% of net rentable area and must not generate more than 20% of the project's effective gross income. Eligible borrowers for HUD 223(f) loans must be a single asset, special purpose entity (SPE), which can either be a for profit or a non-profit entity.

Sometimes, but not often, there are ways to circumvent HUD's commercial space limitations. For example, if an investor was interested in acquiring a mixed-use development with more than 25% of the net rentable area devoted to commercial space, they could attempt to broker a deal with the buyer that involves splitting the property into two parts: a residential area, which would be funded with the HUD 223(f) loan, and a commercial area, In this situation, the investor would have to get separate funding (and use a separate borrowing entity) for the commercial portion of the building. However, the borrower would need to get HUD approval for the loan, which may or may not work in practice.