FHA SECTION 221(d) 4 NEW CONSTRUCTION/ SUBSTANTIAL REHABILITATION GUIDELINES
Purpose:
Provides unsubsidized mortgage insurance for multifamily projects. Eligible projects include proposed new construction, substantial rehabilitation of existing projects and acquisition and completion of partially constructed projects..
Maximum Loan - New Construction
90% of estimated replacement cost.
Maximum Loan - Rehabilitation
Acquisition: 90% of estimated rehabilitation cost plus the lesser of 90% of purchase price or 90% of estimated value before rehabilitation.
Property Owned: 100% of estimated rehab. cost plus the lesser of existing debt on property or 90% of estimated value before rehab.
Interest Rate:
The interest rate stated in the note will be fixed for the term of the loan. The interest rate is a function of the market for loans backed by FHA insurance and will be fixed at the date the loan is committed to by an investor.
Maximum Term of Loan:
Lesser of 40 years or 75% of the remaining economic life.
Assumption:
The loan is assumable subject to the regulations for a Transfer of Physical Assets (TPA). A fee of one half of one percent (1/2 of 1%) is to accompany the TPA information package.
Personal Liability:
The loan is non-recourse.
Prepayment:
The loan is prepayable to the extent allowed based upon the prepayment language utilized when the loan is placed with an investor. Investors allow varying prepayment provisions and could require a prohibition on prepayment of up to ten years.
Standard prepayment provisions are as follows:
a) 5% the first year declining by 1% each year thereafter.
b) 2 year lock-out, 8% the third year declining 1% each year thereafter.
c) 10 year lock-out, 0% thereafter
The type of prepayment provision has a direct relationship to the interest rate required by the investor. The longer the prepayment prohibition, the lower the interest rate an investor will allow.
FHA Application:
$3.00 per $1,000 of the mortgage amount.
FHA Inspection Fee
0.5% of mortgage amount payable at closing
Mortgage Fees:
The maximum allowable fees can include a Placement Fee of 1.5% and a Financing Fee of 2.0%
MAP Processing Fee:
The MAP Processing Fee in an amount necessary to pay appraisal, environmental, market study, and engineering costs incurred to process the loan.
Mortgage Insurance Premium:
0.45% per year for the construction/rehabilitation time period (payable at closing) and 0.45% per year thereafter (payable in monthly installments).
Fees:
The FHA Application Fee, FHA Inspection Fee, Placement Fee, Financing Fee, initial Mortgage Insurance Premium and Fast Track Processing Fee are included as financeable costs of the FHA Insured Loan.
Commitment Fee:
When the loan is committed to be funded by an investor, a one half of one percent (1/2 of 1%) deposit fee is required by the investor. This fee is not a financeable fee. It is refundable only in the event the loan is funded by the investor.
Funding:
Permanent financing is accomplished in the form of either 100% participation interest in the insured loan, a GNMA security, or Tax Exempt Bonds which are placed with institutional investors.
Prevailing Wage Required:
Yes
Cost Certification Required:
Yes
Applicable MPS:
FHA Minimum Property Standards for multifamily construction.
FHA Cash Requirements For Closing:
The borrower will need cash or letters of credit at loan closing for the following items:
1) BSPRA - Builder's and Sponsors Profit and Risk Allowance may be used to offset cash requirements for closing if an identity of interest exists between the sponsor and the general contractor. BSPRA is calculated as roughly 10% of the development cost less land.
2) Letters of Credit
a) Initial Operating Deficit - To be determined by FHA, if any.
b) Anticipated Discounts - Only new construction initial endorsements.