What is a HUD 221 (d)(4) Loan?

The HUD Section 221(d)(4) program provides federally insured financing for the new construction of multifamily housing. Through the Federal Housing Administration (FHA), the program enables qualified developers to obtain a 40 year fixed loan term that is amortized over 40 years from HUD-approved lenders.

By combining construction and permanent financing into a single loan, the program supports multifamily development while offering long-term financing stability at lower rates than traditional financing.

What Are the Benefits of HUD Financing?

HUD 221(d)(4) financing provides several advantages for multifamily development, including:

• Long-term fixed rate financing with a 40 year loan term and amortized over 40 years.

• Fixed interest rates that are lower than traditional financing.

• Built-in risk mitigation from government oversight of developer, architect, general contractor, and management company.

• Faster construction schedule and better build quality due to higher quality subcontractors who must be paid applicable federal wages.

• Additional risk mitigation is inherent in every HUD project because market demand must be greater than market supply, every member of the development team must have previous HUD experience, and HUD mandated inspector oversight over cost controls, general contractor, and cash reserves.

What Are the Benefits of Selling a HUD Financed Project?

• HUD loans are assumable which creates greater demand since assumable HUD loans are often much lower in interest rates and have longer term in amortization than traditional financing.

• If interest rates go down, HUD loans are eligible to refinance at the lower rates. If interest rates go up, the assumable HUD loan makes the purchase more attractive and compresses CAP rates, leading to greater returns.