HUD Issues Large Loan Underwriting Parameters
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on Today at 02:32 PM
on Today at 02:32 PM
Due to the current state of capital markets for multifamily finance, HUD has issued new standards for underwriting large multifamily transactions. The intent of the notice is to address the increased risk to the insurance fund presented by loans above $25M or over 150 units. The Housing Notice spells out underwriting standards that will be applicable to such loans in regards to Debt Service Coverage Ratio (DSCR), Loan to Cost Ratio (LTCR), Loan to Value Ratio (LTVR), funding for Initial Operating Deficit (IOD) and Debt Service Reserve (DSR), in addition to other underwriting and credit requirements for such loans.
Highlights:
- Increased DSC test and lower LTVs for new construction or sub rehab loans over $40M and over $50M for refis or purchases (223fs)
- Increases IODs for new construction or sub rehab loans over $25M
- Principal's net worth must be at lease 20% of the loan amount with liquid assets equal to at least 7.5% of the loan amount
- Release of any cash out proceeds for the excess value of the property contributed for a new construction or substantial rehabilitation development must not occur until the completed project has operated at breakeven occupancy for 12 consecutive months.
The new standards contained in this Housing Notice will not apply to:
a) loans below the size/unit thresholds,
b) refinancing loans processed under Section 223(a)(7),
c) refinancing or substantial rehabilitation loans for properties with rental assistance contracts covering 90% or more of the property’s units,
d) the insurance programs administered by the Office of Healthcare Programs (LEAN)
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