HUD is the term used to describe the United States Department of Housing and Urban Development, a federal department tasked with creating decent housing for citizens. The government agency was founded in 1965 to support community development and home ownership. To accomplish this goal, HUD enforces the fair housing act and improves affordable housing opportunities for all through various means including calculating Area Median Incomes to determine areas that qualify for federal housing programs.

Under HUD is the Federal Housing Administration (FHA), which sets standards for construction and underwriting. The FHA also insures loans made by banks and other private lenders for home building.

HUD 232 loans are a type of loan insured by the FHA and offered by HUD. These loans are used to finance the construction, acquisition, and refinancing of multifamily properties. To learn more about HUD 232 loans, you can fill out the form to speak to a HUD/FHA loan expert.

HUD loans offer some of the most advantageous financing options for commercial real estate. Benefits include:

• Fixed interest rates that trend lower than nearly any other kind of financing. For all HUD loans endorsed between January and September 2022, the fixed interest rates averaged 3.35%, according to data provided by the department (source).
• The ability to lock the interest rate early on in the application process. This requires a deposit equal to 1% of the loan’s amount, which is refunded at closing (source).
• Few restrictions on borrower experience, unless you’re getting a construction loan (source).
• Flexible liquidity and net worth borrower requirements compared to even agency loans (source).
• Leverage can be up to 83.3% for market-rate apartment buildings or an incredible 87% for rental assistance properties (source).

In order to be eligible for HUD 232/223(f) financing, a project must:

• House 20 or more residents
• Provide ongoing medical care for long-term patients
• Be licensed by the appropriate municipal or state organization/agency
• Have been constructed least three years ago, though newer property additions are allowed, as long as they are smaller than the original structure
• Have no more than 20% of the project's gross area or gross income devoted to/derived from non-resident day care
• Have no more than 25% of all units designated as independent living units
• Have no more than 20% of the gross floor space filled and no more than 20% of the property's income derived from commercial tenants

For more information, please visit Commercial Real Estate Loans and Multifamily Loans.

HUD financing for commercial real estate requires a variety of specific application requirements, depending on the type of loan you are applying for. For example, HUD 223(a)(7) loans require mortgage insurance premiums (MIPs) and an FHA application fee of 0.30% of the entire loan amount, as well as a project capital needs assessment (PCNA). HUD 232 LEAN loans require a physical property exam, credit/financial check/experience, formal incident reports, and special portfolio reviews. For more information, please visit HUD 223(a)(7) Loans and HUD 232 Lean Loans.

HUD multifamily loans are some of the most competitive types of financing out there. They carry very long loan terms — some even beyond 40 years — and are fully amortizing with a fixed interest rate for the life of the loan. These loans are insured by the government to make it easier for borrowers to access financing. Leverage for these loans can go up to 87% — even higher in some situations. The main drawback of a HUD loan is in its timing, as it can take more than six months to close.

When compared to other types of commercial real estate financing, HUD multifamily loans offer a few advantages. For example, they have longer loan terms and higher leverage than other types of financing, such as Agency, Bank, and CMBS Apartment Loans. Additionally, HUD multifamily loans are insured by the government, making them easier to access than other types of financing. However, the main drawback of HUD multifamily loans is the long wait time for closing.

The risks associated with HUD financing for commercial real estate include the potential for high fees and costs associated with third-party reports, such as market studies, environmental assessments, seismic reports, full HUD/FHA appraisals, and architectural and engineering reports. Additionally, HUD 241(a) loans typically require borrowers to pay financing/permanent placement fees at closing, which often come out to 3.5% of the loan amount. Additionally, Freddie Mac-Insured Loans for Section 8 Properties may require application fees, commitment fees, and other fees. More information about HUD 241(a) loans and more information about Freddie Mac HUD Section 8 Financing can be found on the Commercial Real Estate Loans and Multifamily Loans websites, respectively.