FAQ

Have questions about financing? Our expert team has the answers. At LMD Capital, we understand the complexities of the FHA financing process and guide our clients with precision at every stage. From initial consultation to post-closing support, our seasoned professionals manage every detail, ensuring clarity, efficiency, and confidence throughout your transaction.

Q: How does a HUD-insured multifamily loan compare to Fannie Mae, Freddie Mac, or CMBS financing?

A: HUD-insured loans often provide longer terms and lower interest rates, backed by government insurance, making them ideal for stabilized multifamily or seniors housing assets. In contrast, Fannie Mae, Freddie Mac, and CMBS programs can offer greater flexibility in sizing, structure, and asset eligibility—but typically with shorter terms and market-rate pricing.

______

Q: Does a property need to qualify as "affordable" to access HUD-insured financing?

A: Not necessarily. HUD offers programs for both market-rate properties and affordable housing. It’s only when you're pursuing certain low-income or subsidized housing incentives that affordability thresholds come into play.

______

Q: How does HUD define an “affordable property”?

A: HUD considers a property “affordable” if it meets at least one of the following:

A recorded regulatory agreement in place for at least 15 years, or

Compliance with Low-Income Housing Tax Credit (LIHTC) guidelines—for example, having 20% of units at ≤ 50% AMI (or 40% at the same income level)—with rents at or below LIHTC limits.

______

Q: What level of experience does a borrower need to qualify for HUD-insured financing?

A: Requirements vary by HUD program and loan size. Generally, developers with a track record in multifamily or seniors housing are preferred. For larger or more complex financings, HUD increasingly expects demonstrable experience across prior HUD transactions or comparable projects.

______

Q: When is a recently completed construction project eligible for HUD-insured refinancing?

A: Typically, a property must have completed lease-up and exhibit financial stability—often within 12 to 18 months post-construction—to qualify. This ensures that the asset can support loan terms through stabilized performance.

______

Q: Which construction costs are mortgageable under HUD financing?

A: HUD allows costs directly tied to construction or rehabilitation—like hard construction costs and certain soft costs—while excluding items like land acquisition fees or developer profit unless specifically mortgageable under the program.

______

Q: Can a developer’s fee be included as a mortgageable cost in HUD loans?

A: Yes—under HUD guidelines, a portion of the developer’s fee may be considered mortgageable. Underwriting will assess eligibility based on scope, project type, and HUD’s specific cost caps.

______

Q: What is BSPRA, and how does it affect loan sizing?

A: BSPRA stands for Builder’s and Sponsor’s Profit and Risk Allowance. It represents up to 10% of mortgage-eligible construction costs (excluding land) and can be added to the mortgage amount—but is strictly a non-cash underwriting factor.

______

Q: What are Davis-Bacon wages, and when do they apply?

A: HUD requires prevailing wage compliance—known as Davis-Bacon wages—on most construction or substantial rehabilitation projects financed through HUD, to ensure fair labor standards.

______

Q: HUD-insured loans are “assumable.” What does that mean?

A: Assumability allows future buyers to take over the existing HUD loan under its original terms—subject to HUD approval—offering improved marketability during a sale.

______

Q: What happens if I sell a property with a HUD-insured loan?

A: You may have the option to transfer the loan to the buyer (via assumption), or repay the loan at or prior to closing, depending on HUD approval and the buyer’s creditworthiness.

______

Q: What are the general regulatory requirements governing HUD loans?

A: HUD loans are subject to oversight on borrower experience, property condition, affordability covenants (where applicable), compliance with wage regulations, and program-specific guidelines relating to eligible costs and underwriting standards.

______

Q: Is equity cash-out allowed with HUD loans? If so, what are the limits?

A: Some refinance programs allow limited cash-out, subject to program specifics and loan-to-value or cost thresholds. HUD generally caps cash-out amounts to ensure conservative loan sizing and asset-level financial stability.

______

Q: Can independent living facilities—like senior living housing—be financed with HUD loans?

A: Yes. HUD’s Section 232 program accommodates independent living, assisted living, memory care, and skilled nursing properties.

______

Q: Can scattered-site developments be financed with HUD loans?

A: Typically, HUD financing favors consolidated, single-site projects. Scattered-site financing may require customized structuring or alternative programs.

______

Q: What is HUD’s Section 202 program, and how can it be refinanced?

A: Section 202 provides capital for supportive senior housing. Refinancing options include HUD’s 223(f) program or specialized Section 202 refinance packages, depending on property age, operational performance, and affordability restrictions.

______

Q: Can subordinate financing or commercial consultants be included in HUD transactions?

A: Yes—rigorously structured subordinate financing can be layered beneath HUD debt. Consultant fees may also be included if they meet HUD’s eligibility criteria and are fully disclosed within the submission.

______

Q: What is HUD’s Mark-to-Market program?

A: This program adjusts contract rents to align with market conditions, ensuring long-term financial sustainability and supporting affordability.

______

Q: Are condominiums or cooperatives eligible for HUD-insured loans?

A: They may be, depending on HUD guidelines, eligibility of the project type, and conformity with regulatory and structural requirements.