Can You Refinance an Existing HUD 223(f) Loan?
If you already own a property being financed with a HUD 223(f) loan, and you want to refinance in order to get a better interest rate or to reduce your monthly payments, HUD has a solution for you: a HUD 223(a)(7) refinance . HUD 223(a)(7) refinancing is specifically designed to refinance curre
Refinancing An Existing HUD 223(f) Loan
If you've been reading this site, you might already know that HUD 223(f) loans can be used to refinance multifamily properties. But what if you already own a property being financed with a HUD 223(f) loan? And, what if you want to refinance to get a better interest rate or reduce your monthly payments?
Well, HUD has a solution for you in the form of a HUD 223(a)(7) refinance. HUD 223(a)(7) refinancing is specifically designed to refinance current HUD multifamily loans, including HUD 223(f) loans. HUD 223(a)(7) refinancing can reduce interest rates, increase amortizations, and increase property cash flows. In the end, it reduces the risk for HUD that a borrower will end up defaulting on their mortgage.
What Are The Terms of HUD 223(a)(7) Refinancing?
Basic terms for HUD 223(a)(7) refinancing include:
Terms and Amortization: Loan terms can be extended by 12 years, but new loan term cannot exceed original loan term (35 years for HUD 223(f) loans)
Recourse: Just like HUD 223(f) loans, HUD 223(a)(7) loans are non-recourse with standard bad boy carve outs
Assumability: Fully assumable with FHA approval and 0.05% fee
Fees/Costs: Usually capped at 2%
Timing: HUD 223(a)(7) loans typically close in 60 days
What are the benefits of refinancing an existing HUD 223(f) loan?
The benefits of refinancing an existing HUD 223(f) loan include:
- Increased cash flow
- Reduced interest rates (potentially)
- Increase amortization
- Reduced chance of default
- Reduced cost of debt service
- Only a single third-party report is required, a project capital needs assessment (PCNA)
What are the requirements for refinancing an existing HUD 223(f) loan?
The requirements for refinancing an existing HUD 223(f) loan are outlined in the full checklist of requirements provided by HUD. This checklist includes requirements such as:
- A project capital needs assessment (PCNA) is required every 10 years.
- Eligible properties include multifamily and healthcare properties with existing HUD-insured debt.
What are the advantages of refinancing an existing HUD 223(f) loan?
The advantages of refinancing an existing HUD 223(f) loan include:
- Allows term increase of up to 12 years
- Streamlined processing; loans can close in as few as 60 days
- Less paperwork and fewer reports required
- Loans are fully assumable (with FHA/HUD approval)
- HUD 232/223(a)(7) loans are non-recourse
What are the risks associated with refinancing an existing HUD 223(f) loan?
The risks associated with refinancing an existing HUD 223(f) loan include the requirement of a third-party report, a project capital needs assessment (PCNA), an FHA application fee of 0.30% of the loan amount, and the requirement to pay both an initial, one-time MIP (mortgage insurance premium) fee and pay additional MIP each month.
Source: apartment.loans/hud-232-223-a-7-refinancing-loans and www.multifamily.loans/hud-223a7-loans
What are the costs associated with refinancing an existing HUD 223(f) loan?
The costs associated with a HUD 232/223(f) loan are dependent on specific loan circumstances. In general, borrowers are responsible for:
- Nonrefundable HUD application fee of 0.3% of the loan principal
- FHA inspection fee of 0.5% paid from loan proceeds
- Lender application fees applied to due diligence activities and third-party reports, including credit reports, appraisals, plan reviews, and market studies
- Good faith deposit (rate lock and commitment): between 0.5% and 1% of loan amount paid at commitment and refunded at closing
- Initial replacement reserves
- Standard borrower closing costs
In addition to being non-recourse and fully assumable, HUD 223(a)(7) loans do not require time consuming third-party reports like Market Studies or Environmental Assessments. In fact, they only require one report, a Project Capital Needs Assessment (PCNA.) Plus, HUD 223(a)(7) loans can also absorb the cost of any prepayment penalties. This makes them an incredibly useful and versatile tool for existing HUD multifamily borrowers.