HUD 221(d)(4) Loans

HUD 221(d)(4) Construction/Rehabilitation Loans

If you want to build or substantially renovate an apartment building or multifamily property with five or more units, a HUD 221(d)(4) loan might be the perfect solution. HUD 221(d)(4) loans are insured by the U.S. Department of Housing and Urban Development (HUD) and offer some of the industry's best terms. In fact, it's pretty hard to beat their 40-year, fixed-rate, fully amortizing loans, which also offer a 3-year interest-only construction period, bringing the maximum term of this loan to an incredible 43 years. In addition, these loans are fully assumable (with FHA/HUD approval), and are non-recourse. 

Sample Terms for HUD 221(d)(4) Loans in July 2026

Size: Minimum $5 million (however, typical loans are $15 million+)

Term: 40-year, fixed-rate term, plus 3-year interest-only construction period (bringing total loan term to 43 years)                             

Amortization: Up to 40 years, fully amortizing 

Maximum LTV: 87% for market-rate properties, 90% for affordable properties or those with more than 90% low-income units                               

Minimum DSCR: 1.15x for market-rate properties, 1.11x for affordable properties

Rate Locks: After initial underwriting, 30 to 180-day rate locks are available for a fee of 1% of the loan amount, which is refunded at closing. 

Commercial Development Limits:  HUD 221(d)(4) properties can have some commercial space, however, this is limited to 25% of the net rentable area and 15% of the underwritten effective gross income of the property (up to 30% of underwritten EGI permitted in urban renewal areas under Section 220).

Third-Party Reports

HUD 221(d)(4) loans require third-party reports, including: 

• Market Study

• Project Capital Needs Assessment (PCNA)

• Phase I Environmental Assessment

• Seismic Reports (only needed in specific areas)

• Architectural and Engineering Assessment

• HUD/FHA Approved Full Property Appraisal

Substantial Rehabilitation Requirements

In order to qualify for a HUD 221(d)(4) loan for substantial rehabilitation, the cost of the rehabilitation needs to:

• Be more than 15% of the property's replacement cost, post-rehabilitation

• Replace two or more major building systems (i.e., roofing, electrical)

• Cost $6,500 or more per unit (this will vary based on the area and is adjusted by the local HUD office

LIHTC Credits 

If a property financed with a HUD 221(d)(4) loan has a specific number of affordable units, the developer may be able to qualify for low-income housing tax credits (LIHTCs). In particular, HUD 221(d)(4) financed properties need to have a minimum of 40% of a building's units set aside for tenants earning less than or equal to 60% of the area median income (AMI) as defined by HUD. Or, instead, they can choose to allot 20% of the project's units to tenants earning less than or equal to 50% of the area median income.

Builder Sponsor Profit & Risk Allowance (BSPRA)

BSPRA is a transaction that provides the builder of a HUD 221(d)(4) new construction project with a small amount of equity, often known as "paper equity" in the property. This helps align the interests of the builder and the developer, encouraging the builder to finish the project within the promised time and under financial constraints. However, the main benefit of using a BSPRA is to reduce the amount of cash needed at closing, increasing a developer's leverage and freeing up funds to be used elsewhere. 

Green Mortgage Insurance Premium (MIP) Reduction

For applications submitted or amended on or after October 1, 2025, the mortgage insurance premium is a flat 0.25% of the loan amount due at closing and 0.25% annually thereafter, for all property types; the prior tiered MIP rate categories (including the Green MIP reduction) were eliminated (90 FR 45789).45% for Section 8 or LIHTC projects. However, if a developer decides to make their project energy efficient, has Energy Star Statement of Energy Design Intent (SEDI) performed, and scores at least 75 on it, they can qualify for a green MIP reduction, reducing their MIP to an incredibly affordable 0.25%. In order to maintain the green MIP reduction, the building must be re-certified every 12 months.  

Advantages

• Long-term, up to 43 years (with a 3-year, interest-only construction period)

• Low interest rates

• Loans are assumable (with FHA/HUD approval)

• HUD 221(d)(4) loans are non-recourse

Disadvantages

• Can take a long time to close, up to and even more than 12 months with traditional application processing (TAP), or around 8-9 months with multifamily accelerated processing (MAP).

• Requires a significant amount of documentation, including third-party reports such as environmental assessments, architectural and engineering reports, and market studies.

• One-time and monthly MIP fees are required

• Strict limits on cash distributions to owners