FHA Section 223f Is The Best Way To Buy Or Refinance An Apartment Property!

FHA Section 223f is the best way for you to buy or refinance an apartment property. These types of terms don’t exist in other loan programs. Multifamily building owners usually can’t believe all of the benefits this program offers them.

What Is This Program?

FHA Section 223f is a Federal mortgage insured program. It doesn’t mean that the government is funding the loan…they are insuring it against default. Section 223f is a section under the Federal National Housing Act. It allows the FHA (Federal Housing Administration) to provide mortgage insurance to HUD approved lenders. This is to assist in the purchase or refinance of apartment or other types of multifamily rental properties. The loan program allows for long-term mortgages (up to 35 years) that can be financed with Government National Mortgage Association (GNMA) Mortgage Backed Securities.

Who Can Use FHA Section 223f to buy an apartment or multifamily property?

This program is available for both non-profit and for-profit borrowers. Under Section 223f, borrowers can receive an insured mortgage up to 85% of the appraised value or sales price (whichever is less). Or on a refinance, borrowers can receive 80% with cash out (the 85% LTV applies to a standard refinance).

Eligible Property Types?

The property must have been completed or rehabbed at least 3 years prior to applying for this loan. Other than normal occupancy requirements, there are no income limits. The properties can be market rate or LIHTC (low income housing tax credits) properties. The properties can also be specifically used for handicapped or elderly tenants.

The property can either be walk-up, row, elevator, detached, semi-detached style. The property must have at least 5 or more units to be considered.

What Are The Benefits?

This is an awesome program. Some of the features are:

• Term/Amortization Schedule - It is a 35 Year Amortization/35 Year Term (with no balloon).
• Interest Rate - A low, fixed interest rate, based on market spreads over the Ten-Year Treasury Yield.
• Loan To Value (LTV) - It is 85% for purchase or refinance. On a refinance with cash out, it is 80%.
• Personal Liability - It is non-recourse for either the purchase or refinance.
• Debt Coverage Service Ratio - A minimum 1.18 DSCR.
• Loan Amounts - There are no maximum loan amounts and minimum loan amounts vary by lender.
• Secondary Financing Allowed - 7.5% of the loan amount in the form of a promissory note is allowed..

What Are The Downsides To The FHA Section 223f Program?

• Loan Processing Time - With HUD approved MAP (Multifamily Accelerated Processing) lenders, the process can take 2 to 4 months. Non-MAP lenders can take 4 to 8 months.
• Property - Property must be at least 3 years old at the time of application.
• Prepayment Penalties - The prepayment terms are negotiable but they are usually a 5 year lock-out period then a declining prepay schedule after (5%, 4%, 3%, etc…).

If you are looking to buy an apartment building or refinance an existing apartment building, this is a program you should give high consideration to. You will be hard pressed to find such attractive terms anywhere else in the marketplace.

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