Why FHA?
FHA offers 80-90% Loan to Value Ratio FIXED RATE 35-40-year fully amortizing nonrecourse mortgages with low debt service coverage requirements. Because the mortgages are packaged and traded as full faith and credit U.S. debt securities (GNMAs), rates are very competitive. FHA loans are fully assumable if the new mortgagor meets HUD previous participation requirements. Loans are nonrecourse so long as the terms of the regulatory agreement are complied with.
Does FHA Allow Equity Take-Out?
Yes. Up to 80% of value for multifamily properties, including qualifying low income Section 8 housing assistance payments (HAP) projects – even limited dividend projects.
What Types of Properties are Eligible?
Multifamily apartments, including projects with a limited amount (up to 20%) of commercial space, nursing homes, assisted living facilities and hospitals are eligible under FHA programs. Primarily non-residential properties are not eligible for FHA financing.
Does FHA Finance New Construction?
FHA provides 40-year fixed rate 83-90% of project cost loans. Debt service coverage requirements are the lowest available in the market today. FHA includes land value (opposed to cost basis) as a component of mortgageable project cost. There is a liberal developer fee allowance for new construction projects.
Is My Project Too Small for FHA?
If a project has more than four apartment units or 20 beds (healthcare) and meets other FHA criteria, then it cannot be excluded based on size. FHA lenders who decline mortgage applications based solely on the size of the loan are in violation of Section 535 of the National Housing Act. Because the work involved with processing small transactions is comparable to large transactions, the pricing for small deals will be proportionately higher.
Don’t FHA Loans Take Forever to Process?
FHA processing can take longer than private lender processing but will vary depending on the particular HUD office, the size of the transaction (larger transactions must be reviewed by HUD headquarters) and the complexity of the transaction. Rockhall has obtained FHA commitments inside of three months from the day the engagement letter was signed. In other cases, Rockhall has worked on transactions for years before obtaining a commitment. Rockhall also has obtained commitments on transactions that other HUD lenders have walked away from.
My Low Income Project Has Cashflow Problems. Is There Any Way to Change That?
There may be. A rate and term refinancing may lower the debt service cost of the project. Some projects may be eligible for an early renewal of the housing assistance payments (HAP) contract. If market rents have risen above the level of the Section 8 rents, it may be beneficial to apply for an early renewal under the Mark-Up-To-Market program.
Any Unusual Requirements After I Close?
HUD requires all FHA-insured properties to have annual audited financial statements prepared. HUD does not allow distributions to owners more than twice a year. The independent auditor must confirm that the mortgage is current and the owners have funded all reserves before distributions can be made.
Why should I use FHA rather than FNMA or FHLMC?
FNMA relies on yield maintenance and FHLMC relies on defeasances for prepayment protection. Both approaches are onerous for borrowers wishing to prepay early. Borrowers concerned about getting stuck in a bad interest rate market when their short-term balloon comes due should use FHA. Maximum FHA amortization terms are 35-years for refinance and 40-years for new construction.
Isn't FHA Just for Low Income Properties?
NO. FHA is an excellent program for market rate apartment and healthcare construction, acquisition and refinance. We have refinanced and financed the new construction of Class A luxury apartment projects using FHA mortgage insurance.
What Documents are Required for an Initial Loan Analysis?
For a FREE loan analysis please submit the following information.
1. Current Rent Roll
2. Current Income and Expense Statement
3. Property Description (i.e. location, unit mix, year built)
4. Existing Mortgage Information