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What are some of the requirements of HUD Insured programs such as the 221(d)4?
Here are some requirements, and you can refer to Chapter 3 of HUD’s MAP Guide for the rest.

All mortgagors must execute a HUD regulatory agreement governing the operation of the project. The mortgaged property must be the only asset of the mortgagor.

The HUD mortgage note may contain a non-recourse provision.

The interest rate on a HUD insured loan must be fixed for the term of the mortgage, and all HUD-insured mortgages must be amortized through a level annuity payment plan. (The 221(d)4 has an amortization period of 40 years plus the construction period—up to 24 months.)

Mortgagors must pay a HUD Firm Commitment application fee of $3 per thousand of requested mortgage amount (usually financed).

Mortgagors must pay a HUD inspection fee of $5 per thousand of mortgage amount for new construction/substantial rehabilitation (usually financed).

Mortgage Insurance Premium (MIP) is required. The amount is based on a percentage of the mortgage and may vary.

All principals in the proposed transaction must submit detailed information on Form 2530 regarding previous participation in governmental housing transactions.

What is BSPRA and how is it calculated?

BSPRA stands for Builder Sponsor Profit Risk Allowance. It is a component of HUD’s 221(d)4 program that effectively reduces the sponsor’s cash requirement. To be eligible for BSPRA, an identity of interest must exist between the builder and the sponsor (i.e., they are relatives or previously affiliated through a business relationship). BSPRA is calculated by taking the total replacement cost minus the cost of the land times 10 percent.

What does MAP stand for?

MAP is an acronym for Multi-family Accelerated Processing, which is HUD’s protocol for processing FHA loan products. Development team members, such as the lender, market analysts and appraiser, must be MAP-approved.

What are the terms of HUD’s 221(D)4 program?

Stated terms are as follows: 40-year term (plus the construction period); 83.3% loan to value (LTV); 1.20 debt coverage ratio (DCR). However, HUD is continually evaluating potential changes to the housing program.

What Letter of Credits (LOC) are required and what are they for? How are the LOCs calculated?

There are potentially three letters of credit required for the 221(d)4 program. They are as follows:

  • Working Capital (WC) – The WC LOC can be used for these purposes: 1) defray cost of initial marketing and rent-up period, 2) set up accruals for items during the first operating year, and 3) cover shortfalls in interest, ……. and assessments.
  • Initial Operating Deficit (IOD) – The IOD LOC can be disbursed monthly to meet any cash deficit in the operation of the project.
  • Assurance of Completion – This LOC totals 15% of the contract amount. In lieu of an LOC, builder may elect to bond 100% of the project cost.

When are the LOCs released?

The MAP lender‘s request for the release of LOCs must be accompanied by:

  1. A review and analysis of the monthly accounting reports detailing progress on lease-up as compared to the lease-up projections used in underwriting; and
  2. An updated calculation of the sufficiency of the escrow. The analysis and calculation are particularly important if the project is experiencing substantial variations from its lease-up projections. Unused amounts will be released upon the lender‘s request at the latter of 12 months after final endorsement, or when the project has demonstrated to the HUD field office‘s satisfaction that the project has achieved six consecutive months of break-even occupancy. (Break-even occupancy is defined as 1.0 debt service coverage, based on all sources of project income including ancillary income.)

What Architectural Standards exist for HUD-insured projects?

Here are a few, and you can refer to Chapter 5 of HUD’s MAP Guide for additional information.

  • Minimum Property Standards for Housing (MPS) as outlined in HUD Handbook 4910.1
  • Locally and/or nationally recognized building codes
  • Accessibility for people with disabilities
  • Energy efficiency

What are HUD’s primary duties and responsibilities in processing my application?

HUD’s primary duties are as follows:

  • Review lender’s mortgage credit report(s) regarding the acceptability of the sponsor, mortgagor, key principals, and the contractor
  • Perform HUD 2530 clearance
  • Determine the maximum mortgage amount and other key terms of the loan
  • Determine actual financial settlement requirements
  • Determine actual financial settlement requirements
  • Review initial and final closing documents for compliance and acceptability

Call us today at 514-949-9586 with any other questions you may have!