Why FHA is Worth Considering for Your New Construction Multifamily Project

12.29.2014
by Scott Brown

Multifamily developers who haven’t thoroughly explored FHA financing should call Rockhall for a no obligation analysis of their project. The most striking benefit of the FHA construction program is that the loan is a construction/perm. After the construction period, the loan converts to a fully-amortizing fixed rate permanent loan. Construction and permanent interest rates on these loans are in the low 4% range today. The loans will finance between 83.3% and 90% of the replacement cost depending on the type of project. The replacement cost includes a builder sponsor profit and risk allowance (BSPRA) equal to 10% of the development cost. This developer fee can significantly reduce the cash required to meet equity requirements and fund working capital and operating deficit reserves. Developers who have equity in their land also can apply that equity to closing requirements and possibly get cash back once construction is completed. Developers shouldn’t be put off by HUD prevailing wage requirements. These requirements only apply to labor, not materials. Furthermore, modular components constructed offsite are exempt from Davis-Bacon requirements.

If you are beginning to develop pro formas for a new multifamily housing project, call Rockhall and we will hook you up with one of our new construction specialists. They will prepare a no obligation detailed FHA financing analysis for you. You might be surprised just how well an FHA new construction loan suits you.