Demystifying Multifamily Loans


We need more financing professionals like Holly Bray!


I have previously saluted Holly Bray of Love Funding as a real commercial lending pro.  Below is an article that she wrote describing one of the most liberal multifamily loans on the market today…and with rates in the mid to upper five percent range.  These are non recourse loans. 

Submitted by Holly Bray: 

With many lenders on hold, the topic of the day has been FHA. 

The FHA multifamily loan programs have been in place for over thirty years.  They continue to be used regularly and have closed as much as $8 billion a year in new business.  With commercial lenders on hold there has been renewed interest in these valuable HUD multifamily programs.  The following summarizes the 223(f) program. 

The 223(f) program provides high-leverage long-term permanent debt to refinance, purchase, or moderately renovate existing apartment communities on a fixed-rate, non-recourse, assumable basis.  The loan size is relatively unlimited and the properties can be located in any state, Puerto Rico, Guam, and the US Virgin Islands. 

The property must contain five or more  units and be at least three years old based on the final certificate of occupancy.  (HUD recently granted waiver authority to the field offices through September 2009  to refinance younger properties that have stabilized.)  Commercial space cannot exceed 20% of the total net rentable floor area or 20% of effective gross income, including a 10% vacancy allowance.  Repair cost are limited to 1) $15,000 per unit in Portland, as adjusted to FHA’s high-cost factor for the area; 2) a maximum 15% of “as-improved” market value; and 3) cannot involve replacing more than one major building component. 

Borrower Advantages:  35-year amortization period; eligibility for both market rate, subsidized, and LIHTC properties; NO rent control restrictions, rental subsidies, or limitations on owner return; non-recourse; AAA credit enhancement with Ginnie Mae securitization. 


Term:  Up to 35 years fully amortizing with level payments. 

Loan Size:  Unlimited, nationwide. 

Loan Amount:  Maximum 85% LTV for refinance and 85% loan-to-cost for purchase transactions.   Maximum of 80% LTV for refinancings involving equity take-out. 

DSCR:  1.17:1 

Occupancy:  Underwritten up to a maximum of 95%. 

Interest Rate:  Rate is locked with borrower’s approval after issuance and acceptance of FHA Firm Commitment.  Current interest rates are in the 5.50% range! 

Prepayment:  Negotiable.  Typically a two year lock followed by 8% declining 1% per year thereafter.  No prepayment penalty after the 10th year.  No defeasance.  No yield maintenance. 

Escrows:  Tax, hazard insurance and mortgage insurance premium escrows are required, as is a replacement reserve.  If repairs are required, a completion escrow in the form of cash or a letter of credit may be required. 

Other Features:  The traditional sources of income such as laundry, parking and storage now include ancillary income such as forfeited deposits, pet fees, and the like.   FHA requires an annual project audit.  Surplus cash, as determined by audit, may be distributed up to twice a year.  Davis Bacon wage rates do not apply.  Critical repairs (life and safety) must be completed prior to closing.  Non-critical repairs must be completed within 12 months of closing.  Draws to cover reimbursement of cost of repairs are subject to a 10% retainage. 

After execution of engagment letter, professionals will work closely with the client to expedite the application process and achieve MAP timeframes.  An appraisal, Phase I Environmental, and Engineer’s report are needed.  

This is an excellent program and although it takes longer to process than either a conduit loan or a Fannie/Freddie loan the generous loan parameters make this the best long term financing in the industry. 

To find more about this product call: Holly Bray – Love Funding – 202-887-1849.  To learn about local area properties that this would be a good finance solution for…contact Rick Bean: 503.577.1034, or

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