Applying and Getting an HUD 221 Loan

Real estate agent handing over house keysThe US federal government is not a mortgage or home loan provider.  It has put mechanisms in place to help mid to low-income Americans buy homes. The agency in charge is the Housing and Urban Development (HUD) offers a wide range of loans, one of which is the 221(d)4 loan.

The HUD 221(d)4 loan program is a for-profit program under which new homes can be built or existing homes can be remodeled. It covers multi-family units in which there are 5 or more. This loan can be used to refurbish rental properties. Lenders are insured against loan defaults by the federal government.

Key Features of the HUD 221(d)4 Loan Program

This is usually offered to real estate investors and developers. What makes it worthwhile is that it offers the best leverage at a very low cost.

  • A fixed rate loan, the 221(d)4 is amortized over a period of 40 years. Developers get an extra three years on the loan during which they pay just the interest.
  • The minimum amount that one can borrow is $2,000,000. Most loans are $15 million and above. A smaller loan application is also considered, but on an individual basis.
  • These loans have conditions/limits attached and they vary based on the type and location of a project and unit sizes.
  • Such a loan is asset-based, and project details are scrutinized closely before the loan amount is disbursed.
  • It is more expensive than a traditional loan and takes longer to close. There are experienced lenders who can help with the process.
  • The HUD has a comprehensive checklist of requirements which must be met.
  • Developers must meet current industry wage standards under the Davis-Bacon Act to get this loan.
  • Annual audits are mandatory.
  • Developers must hire bonded-general contractors to do the job.

Before applying for a 221(d)4 loan, developers should consider all aspect of the project and adhere to the checklist. The benefits offered by this program are much help provide housing to those in need.