Seven Facts About FHA Multifamily Loans

The Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD), is one of the largest mortgage insurers in the world. The agency insures mortgages on affordable housing, multifamily properties, single-family homes, and healthcare facilities. Since 1934, FHA has financed over 50,000 multifamily mortgages nationwide. Whether you’re interested in acquiring, refinancing, or rehabilitating an affordable housing property, FHA multifamily loans are a financing route you need to know about.

1. What is an FHA Multifamily Loan?

In partnership with licensed lenders like Arbor Realty Trust, HUD and FHA insurance programs extend capital to investors for the acquisition, rehabilitation, development, and refinancing of all apartment properties to make affordable and low-income housing more accessible to all Americans. FHA loans are government-backed mortgages that can be used for healthcare, existing multifamily rental housing, seniors housing, and other types of for-profit and nonprofit multifamily properties.

2. What are the Advantages of Arbor’s FHA Multifamily Financing?

FHA loans have among the most advantageous terms in the industry, such as:

Low down payments
Long amortizations with low monthly payments
Flexible debt service coverage ratios (DSCR)
Low interest rates

In addition, Arbor borrowers may be able to recoup equity as part of refinancing and make monthly distributions of surplus cash on qualified FHA multifamily loans.

3. What Types of Properties Qualify?

Typically, market-rate and affordable apartments and cooperatives, assisted living facilities, skilled nursing facilities, and seniors housing are all eligible. The FHA defines multifamily properties as those with more than five units. It can include mixed-use space provided that at least 51% of the total square footage is residential. Affordable housing typically refers to properties in which the occupant pays no more than 30% of gross income for housing costs, including utilities.

4. What Types of Transactions Qualify for FHA Multifamily Loans?

An array of multifamily and affordable housing properties and renovations qualify for FHA financing, including:

Acquisitions
Refinancings
Low-Income Housing Tax Credit (LIHTC) executions
Energy-efficient upgrades
Moderate to substantial rehabs
New construction

5. How the FHA Loan Process Works

FHA insures loans rather than making them directly. Its loans cover the full spectrum of market-rate multifamily properties and affordable housing projects, including low-income housing and rental assistance.

Multifamily Accelerated Processing (MAP), a streamlined method and set of national standards for approved lenders to prepare, process, and submit loan applications for HUD multifamily financing, is a significant benefit of FHA loans when partnering with a MAP-approved lender. Borrowers who access expedited financing through a MAP lender agree to maintain compliance standards, including financial reporting and other regulatory requirements.

6. What Types of FHA Loans Can Be Used for Affordable Housing?

FHA affordable housing loan products are often used for the creation and preservation of affordable housing. They often have flexible loan terms and fixed- or variable-rate options.

FHA 223(f) is for refinancing or renovating existing multifamily properties, including Section 202 low-income elderly housing. Arbor uses the single-stage MAP program to expedite 223(f) loan underwriting and approval.
FHA 221(d)(4) loans can be used for the construction or significant rehabilitation of multifamily properties, including market-rate, low-income, rental assistance, and other types of multifamily projects. FHA 221(d)(4) loans are interest-only during the construction loan period followed by fully amortized 40-year terms.
FHA 233(a)(7) loans can be used to refinance existing HUD-insured loans. Refinance costs, such as prepayment, are included, and healthcare facilities currently insured under Sections 232 and 232/223(f) are eligible.

7. What Loan Requirements Should Investors Know About?

While FHA multifamily loans are not dramatically different from Fannie Mae or Freddie Mac loans, there are some nuanced requirements that borrowers should know:

FHA loans require annual financial audits.
These loans typically have more upfront and closing costs.
Mortgage insurance premiums (MIPs) are required; however, FHA recently cut MIPs for all programs to 25 basis points.
Certain FHA loans must adhere to the Davis-Bacon labor standards, which mandate that contractors and subcontractors must pay their laborers and mechanics employed under the contract no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area.

Arbor’s Seasoned FHA Team Will Guide You Through the Life of the Loan

At Arbor, relationships are the foundation of our business, and we’re committed to providing first-class service. As a perennial Top 20 FHA Lender, Arbor has strong relationships with HUD offices nationwide, unique knowledge of local markets, and utilizes best-in-class third-party vendors. We have the expertise and commitment to guide our clients through the entire loan process, and our team will work with you to customize the right FHA multifamily loan solution for your needs.

Interested in the multifamily real estate investment market? Contact Arbor today to learn about our array of multifamily, single-family rental, and affordable housing financing options or view our multifamily articles and research reports.