A HUD program that provides federal mortgage insurance on a private lender's loan to build or substantially rehabilitate rental apartments.
Section 221(d)(4) of the National Housing Act covers mortgages for the new construction or substantial rehabilitation of rental housing. As with other HUD multifamily programs, a private MAP lender makes the loan and HUD’s mortgage insurance stands behind it. One loan covers the construction period and then the permanent period, so there is no separate takeout to arrange.
The loan is sized on cost, not on value. The statute caps the mortgage at 90% of HUD’s estimate of replacement cost, which can include land, improvements, architect’s fees, taxes and interest during construction. HUD’s guide sets working percentages under that cap by project type. By regulation the term for proposed construction can run 40 years. The note is non-recourse to the borrowing entity.
The cost of those terms is process. HUD reviews the project along with the lender. The general contractor and subcontractors must pay Davis-Bacon prevailing wages and file certified payrolls, and the borrower submits a cost certification from an independent CPA when construction ends, which can reduce the final mortgage amount.
How it shows up in the data here
No field here marks a loan as FHA 221(d)(4). The lender of record is a private mortgage lender, not HUD. Bank call reports show construction balances banks held, and HMDA shows multifamily loans made, but neither says which loans carried HUD mortgage insurance. See construction lenders and non-bank lenders with multifamily loans.
Go further
- Construction lenders: Banks and credit unions with construction loans on the public record.
- Multifamily lenders: Lenders with multifamily loans on the public record.
- LTV and LTC calculator: Loan to value and loan to cost, the equity a lender will ask for, and the federal supervisory limit for the property type.
- Amortization and balloon calculator: Payment, balance at maturity and interest paid, for a loan that amortizes over longer than it runs.
- Construction loan package checklist: A construction lender is lending against a building that does not exist yet. The package has to show what it will cost, who will build it, where every dollar comes from, and how the loan gets repaid when it is done.
- Multifamily loan checklist for 5+ unit properties: A larger apartment loan can go to five kinds of lender. They want much the same package. They differ on recourse, term, prepayment, speed and what they ask of the sponsor.
Related terms
- FHA 223(f) loan: A HUD program that provides federal mortgage insurance on a private lender's loan to buy or refinance an existing apartment property of five or more units.
- Construction loan: A short-term loan that pays for building or renovating a property, advanced in stages as work is finished and repaid from a sale or a permanent loan.
- Permanent loan: A longer-term loan on a finished, leased property that replaces the construction or bridge loan and is repaid from the property's income.
- Multifamily (5+ units): Residential rental property with five or more units. Banks, credit unions and HMDA all draw the line between four units and five.
- Non-recourse loan: A loan the lender can collect only from the property pledged for it, not from the guarantor personally, except for listed bad acts.
- Loan-to-cost ratio (LTC): The loan amount divided by the total cost of a project: the property plus all construction costs. It shows how much of the budget the lender funds.
- Agency lender: A lender authorized to make apartment loans that Fannie Mae or Freddie Mac then buys or backs, under those companies' rules instead of the lender's own.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.