HUD 223(f) Loan Rates: Everything You Need To Know for 2023

Finding the best financing for your multifamily property acquisition or refinance can be tricky. With so many options out there, how do you know which loan program is right for you? One financing option that consistently rises to the top is the HUD 223(f) loan. Offering low fixed interest rates and flexible terms, HUD 223(f) loans have become an extremely popular choice among multifamily investors.

In this comprehensive guide, we’ll walk through everything you need to know about current HUD 223(f) rates and loan terms for 2023 Whether you’re considering HUD financing for the first time or are simply looking to refresh yourself on the latest rates and qualifying criteria, you’ll find all the key details here

What Are HUD 223(f) Loans?

HUD 223(f) loans are a type of financing insured by the Federal Housing Administration (FHA) and issued by approved lenders They are designed for the acquisition and refinancing of existing multifamily rental properties with at least 5 units.

Unlike conventional loans, HUD 223(f) loans offer fixed low interest rates, long loan terms up to 35 years, and high leverage up to 90% loan-to-value (LTV) for affordable and subsidized properties This makes them an extremely attractive financing option for multifamily investors.

In exchange for these favorable terms, borrowers pay an upfront and annual mortgage insurance premium (MIP) to HUD. This provides security to the lender while allowing borrowers to access low rates and high leverage.

Current HUD 223(f) Interest Rates

HUD 223(f) loans offer fixed interest rates for the life of the loan, helping provide long-term certainty for borrowers. The actual interest rate you’ll qualify for depends on current market conditions at the time of your rate lock.

Over the past 5 years, average HUD 223(f) rates have ranged from 2.4% to 5.4%:

• 2019: 3.5%
• 2020: 2.62%
• 2021: 2.42%
• 2022: 3.58%
• 2023: 5.4% (through August)

As you can see, rates have been on an upward trajectory in 2022 and 2023 as the Federal Reserve has raised its federal funds rate. Still, current HUD 223(f) rates remain extremely competitive compared to conventional financing.

For real-time rate quotes tailored to your specific transaction, it’s best to request quotes from approved HUD lenders. Rates can vary based on your property type, location, loan terms, and more.

HUD 223(f) Loan Qualifying Criteria

While HUD 223(f) loans offer attractive rates and terms, they do come with some qualifying criteria. Here are some of the key requirements to be aware of:

Eligible Properties

HUD 223(f) loans can be used to finance:

• Existing multifamily rental properties with 5+ units
• Properties that have achieved stabilized occupancy (usually 90%)
• Properties that require no more than $15,000 per unit in repairs

At least 50% of the units must be residential rentals with 4+ units in each building. Single family homes and commercial properties are ineligible.

Borrower Requirements

The borrower must be a single asset entity, whose sole asset is the property being financed. Both for-profit and non-profit entities may qualify.

Loan Terms

• Loan amount: Minimum $1 million
• Term: 10 to 35 years
• Amortization: Up to 35 years

Loan-to-Value (LTV)

The maximum LTV ratios are:

• Market-Rate: 83.3%
• Affordable: 85%
• Subsidized/RENT ASSISTED: 87%
• Cash-Out Refinance: 80%

Debt Service Coverage Ratio (DSCR)

The minimum DSCR requirements are:

• Market-Rate: 1.176x
• Affordable: 1.15x
• Subsidized/RENT ASSISTED: 1.11x

Interest Rate Lock

Lenders will lock your interest rate once HUD issues a firm commitment to insure your loan, usually 4-8 weeks before closing. You must be able to close within 30 days of the commitment.

Assumability

HUD 223(f) loans are assumable, meaning the loan can be transferred to a new borrower if the original borrower sells the property. The new borrower must meet HUD’s eligibility criteria and pay applicable transfer fees.

Prepayment Penalties

Most HUD lenders will require yield maintenance or a declining prepayment penalty for the first 10 years of the loan. This compensates the lender for potential loss of interest income if the loan is refinanced early. Shorter lockout periods may result in a higher interest rate.

HUD 223(f) Loan Fees

In addition to locking in a low fixed interest rate, HUD 223(f) borrowers also pay various fees to the lender and HUD:

• Origination Fee: Up to 1.5% of the loan amount to compensate lender for underwriting costs

• HUD Application Fee: 0.3% of the loan amount, paid upfront with your application

• HUD Inspection Fee: $1,500 + $30/unit or 1% of repairs

• HUD Mortgage Insurance Premium (MIP):

  • Green/Affordable Projects: 0.25%
  • Market-Rate Projects: 1% upfront, 0.6% annually

• Third-Party Reports: Appraisal, Phase I ESA, market study, engineering report

• Closing Costs: Typical transaction costs like title, legal fees, etc.

While the upfront costs might seem high compared to conventional loans, you need to weigh them against the favorable long-term interest rate and terms you receive with HUD 223(f) financing. For most borrowers, the trade-off is well worth it.

HUD 223(f) Loan Process Timeline

From start to finish, expect the HUD 223(f) loan process to take around 4-7 months. Here are the general stages:

• 1-2 Weeks: Compile due diligence docs (rent roll, financials, etc.)

• 2-4 Weeks: Lender underwrites and prepares application

• Up to 45 Days: HUD reviews and issues commitment letter

• 30-60 Days: Complete third-party reports, loan docs, pre-closing review

• Closing!

Of course, timeframes can vary significantly depending on factors like your lender’s workload, responsiveness of third-party vendors, and HUD’s application volume. Quick approvals can sometimes occur in as fast as 2-3 months.

Pro Tip: If undertaking significant repairs or requesting cash-out refinance, have a “concept call” with HUD first to get feedback before submitting your full application. This can avoid potential hiccups down the road.

Should You Choose HUD 223(f) Financing?

Given the above loan parameters and qualifying criteria, how do you know if a HUD 223(f) loan makes sense for your specific multifamily acquisition or refinance?

Here are a few key advantages to consider:

• Low Fixed Rates – Locking in a low fixed rate for 35 years provides incredible long-term certainty.

• High Leverage – With up to 90% LTV, HUD 223(f) requires less equity than conventional loans.

• Flexible Terms – HUD offers longer amortization and cash-out refinancing than banks.

• Assumable – The assumability feature increases the property’s future marketability.

• Streamlined Underwriting – HUD’s standardized requirements simplify and expedite the process.

As with any loan program, HUD financing isn’t right for every investor or property. But for those who meet HUD’s criteria, it can provide unmatched advantages.

Be sure to shop multiple lenders to find the best available HUD 223(f) rates and terms for your specific needs. With the right financing partner, your next multifamily acquisition can become a smooth and seamless process.