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Five Advantages of FHA Multifamily Construction Loans

In the last three years, multifamily construction has reached levels not seen since the 1980s, supported, in part, by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) loans. If you are exploring the acquisition, refinancing, rehabilitation, or new construction of conventional multifamily, affordable housing, seniors housing, or a healthcare facility, consider FHA multifamily construction loans, a stable financing option with excellent terms and many other attractive advantages.

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Where are Single-Family Rental (SFR) Rents Rising the Fastest?

While the single-family rental (SFR) sector’s rent growth averages have retreated from record highs, structural tailwinds are keeping price growth positive — both nationally and in major SFR markets. In this research brief, Chandan Economics and Arbor Realty Trust analyze DBRS Morningstar data, which covers the top 20 MSAs by SFR activity, to discover the metropolitan areas where SFR rent growth is the hottest right now.

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Fannie Mae Small Loans Cap Raised to $9 Million

Fannie Mae recently announced that its Small Loan cap has increased from $6 million to $9 million for all loans committed as of August 22, 2023. Multifamily borrowers and lenders have praised the change to the Fannie Mae Small Loans program, which will encourage greater investment in a rapidly growing sector where demand remains high despite market volatility.

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The Top Five Emerging Metros for Retiree Relocation

As Baby Boomers reach retirement age, their evolving geographic preferences are strengthening housing markets and local economies in new locations, which feature attractive climates, relative affordability, and ample outdoor activities. With swelling populations of senior citizens, our top five emerging metropolitan areas for retiree relocation are fertile ground for multifamily real estate investment.

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GENERAL: 800.ARBOR.10

FHA® 223(f):

Refinance, Acquisition or Moderate

Arbor provides FHA-insured, long-term, fixed-rate financing for refinance, acquisition or moderate renovation of multifamily projects nationwide. Arbor uses the single-stage Multifamily Accelerated Processing (MAP) program to expedite underwriting and approval.

Loan Term & Amortization Up to 35 years, not to exceed 75% of the remaining economic life (fully amortizing)
Minimum DSCR 1.176x for market rate, or LIHTC restricted, properties whose rents are < 10% below market; 1.15x for LIHTC restricted properties with rents at least 10% below market; 1.11x for properties having at least 90% rental assistance contracts
MAXIMUM LTV 85% for market rate, or LIHTC restricted, properties whose rents are <10% below market; 87% for LIHTC restricted properties with rents at least 10% below market; 90% for projects with 90% or greater rental assistance
Fixed Rate Yes
Eligible Properties Existing multifamily projects at least three years old; detached structures and row houses; market rate, low-to-moderate income and subsidized multifamily properties
Eligible Borrower Single asset entity (for profit or nonprofit)
Occupancy Requirement Average 85% occupancy for the six months prior to HUD application submission; maximum economic underwriting occupancy of:

  • 93% for market rate properties (i.e., at least 20% market rate units, or LIHTC whose rents are < 10% below market)
  • 95% for LIHTC restrictions on at least 80% of units at rents at least 10% below market
  • 97% for properties having at least 90% rental assistance, or 90% LIHTC set aside with rents at least 10% below market
Cash Out Cash-out allowed when 80% of value exceeds existing debt plus transaction costs, but only 50% of the net cash will be released at closing; remaining 50% will be held in escrow until all required repairs are completed; potential waiver is available to reduce holdback to 25%
Tax & Insurance Escrows Monthly deposits required
Recourse Non-recourse, subject to HUD Regulatory Agreement
Commercial Space Maximum 25% of net rentable area and maximum 20% of effective gross income; minimum 10% underwritten vacancy
Required Reports Borrower is responsible for all required report costs, included but not limited to Appraisal, Market Study, Environmental Phase I, Phase II (if applicable), and PCNA. Pre-1978 properties may require lead-based paint and asbestos-containing material testing; projects 30 years of age or older may require additional testing; costs can be reimbursed from loan proceeds at closing
Prepayment Typically 10% year one, declining 1% per year; other prepayment options available subject to market conditions
Assumable Subject to Arbor and HUD approval and payment of assumption fee
Good Faith Deposit Negotiable based on project type and loan size
Expense Escrow Yes – sufficient to cover Arbor’s expenses and third-party report costs
Origination Fee Negotiable
HUD Application Fee Nonrefundable fee of $3 per $1,000 (0.3%) of the mortgage amount due to HUD upon application submission
HUD Inspection Fee $30 per unit when repairs are less than $3,000 per unit; if above $3,000 per unit, 1% of the total cost of the repairs
Legal/Closing Fee Borrower pays Arbor’s counsel fee and miscellaneous closing costs
Rehabilitation Qualifications Repairs cannot exceed $15,000 per unit (adjusted for local high-cost factor); repairs/replacements are also limited to one major building component
Davis Bacon Not applicable to this program
HUD Mortgage Insurance Premium HUD sets the cost of the FHA insurance; initial MIP is 1% of the loan amount due to HUD at closing; annual MIP rates:

  • Market Rate Properties: 0.60%
  • Affordable Properties: 0.35%
  • Broadly affordable or energy-efficient properties: 0.25%
  • “Green” (energy efficiency achievement): 0.25%

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