FHA 223(a)(7) LOANS

FHA 223(a)(7) loans are for properties backed by the Department of Housing and Urban Development (HUD). These loans are exclusively for existing debt on multifamily and healthcare properties with the goal of reducing interest rates charged, increasing amortization, as well as improving property cash flow. HUD believes these loans can reduce the risk of default on the existing loan.

Prepayment Penalties

One key advantage of these loans is that they can be used on properties with prepayment penalties. The penalty can be absorbed into the new loan. That is critical for many property owners since prepayment penalties often apply to these types of properties for 10 or more years.

Faster and Easier to Obtain

Another key feature of these loans is the ease of the process of obtaining them, with fewer steps and requirements to complete than most other refinancing loans. There is no need to complete a market study, obtain an appraisal, or have an environmental report completed, which is common in other refinance loans. Property owners must complete a project capital needs assessment, PCNA, in order to obtain these loans.

Costs

The HUD application fee, which could be as high as 0.3% of the borrowed amount, is due at the time of application. Half of this amount is then refunded after the closing, making the fee 0.15% overall.

Closing Timelines

In most situations, the FHA 223(a)(7) multifamily loans will close in about 60 days. This makes it one of the fastest loan terms for closing for these types of properties, a key advantage to many borrowers.

The FHA insurance cost is set by HUD based on several factors. For market-rate properties, this is 0.50% upfront as well as 0.50% each year. For broadly affordable or energy-efficient properties, the rate is set at 0.25% upfront and 0.25% annually. For Affordable properties, this cost is 0.35% upfront and 0.35% each year.

In some situations, yes, that is possible. The repairs must be approved by HUD to receive this type of funding. The costs can be funded by the mortgage proceeds with a 10% completion assurance escrow. The amount per unit is limited to just $1,500.

One of the benefits of these loans is a streamlined process that includes fewer reports than most other refinanced loans. A new PCNA is required if the previous report is more than 2 years old.