Questions & Answers with Danny Crain

What programs does Crain Mortgage Group, LLC offer?

Crain Mortgage specializes in two apartment loan programs:

  1.  The FHA 223(f) program for existing construction that needs a refinance (both debt replacement and cash out mortgages) or a loan to execute a sale of the property. This type loan provides for moderate repairs and establishes a replacement reserve for the property.  This loan can fully amortize over as long as a 35 year term, or for 75% of the remaining economic life of the property (whichever is shorter).  It is a fixed rate loan, non-recourse and assumable with very low rates at this time. (link here for details)
  2. The FHA 221 (d) 4 program is for new construction and existing properties that need substantial rehabilitation. Both of these contexts require plans and specifications and typically a bondable contractor. It is a 40 year fully amortizing loan, fixed rate, non-recourse and assumable, also with low interest rates at this time. (link here for details)
  3. Crain has over 30 years of experience in both of these programs and has extensive demonstrated success throughout the south central United States.

What kinds of properties benefit most from this financing?

The program is for all apartment properties that are at least three years old or older, 5 units or more.  That said, the economies of scale work better for somewhat larger properties, as some items will be imputed into the expenses that are probably not being allocated for in the smallest of properties (replacement reserves for one).  That should not keep you from inquiring though:  The smallest transaction Crain has ever done under the 223 (f) was a $310,000 loan.

The reasons why apartment owners should consider these programs include the following:

  1. A.    You have a bank loan or short fuse on your existing financing. While you might have an excellent payment record, the balloon note is coming due.  This financing can cure this maturity and provide you with long term financing at attractive rates.
  2. B.   You want off recourse.  This financing is non-recourse (except for certain carve-outs) that will protect you against deficiency actions over time if the market changes.
  3. C.    You want to make repairs or upgrades and money is not available through your bank or lender.  These loans encourage improvements, providing for repairs and capital items, while often reducing your monthly payment.
  4. D.   You want to pull cash out.  Under the proper circumstances (a loan under 80% of value with all the escrows, costs and repairs taken care of), a borrower can pull cash out.
  5. E.    You want to position the property for sale.  These loans allow for great leverage that can actually increase your price if structured properly.  You can get the property in top shape, performance and value by utilizing the high balance potential of these loans.  If you get the property in its best operations, looking its best and with a low interest rate, high balanced assumable loan, you are half way to a premium price on your sale.
  6. F.    You want to put the financing to bed for all time and not have to worry about refinancing again.  This is the loan for you.  At these rates, you won’t ever have to worry about being pressured by loan terms to refinance again.
  7. G.    You want to build or restore something

How does the New Construction/Substantial Rehabilitation program work?

The 221 (d) 4 program is a fixed rate, assumable, non-recourse 40 year fully amortizing loan.  For market rate units, the loan can equal almost 84% of costs.  Allowing for BSPRA and excess land value, the equity requirements can be significantly reduced from there.

The process starts with you and Crain Mortgage developing a property and a loan that will support that property and your construction needs.  Then we meet with FHA regarding a Concept Meeting, sharing with them your ideas and how this loan will produce a needed apartment property in a particular location.  If FHA agrees, we proceed to a Pre-Application.

The Pre-Application generally defines in a more formal manner the need for new units in a particular submarket and the proposed unit mix, rents and expenses to be underwritten to determine a loan size.  This involves a market study, income and expense analysis and rather extensive underwriting.  The loan is not completely set at Pre-Application but the terms are getting close.  If FHA approves of the property, it will issue an Invitation to Proceed to Firm Application.

This step produces the final loan, the final plans and specifications and the final parameters (including escrows for operating deficits during lease up and the working capital escrow) of the entire undertaking.  FHA typically approves these loans if the terms do not significantly vary from what was approved at the Invitation.

The loan is committed, closed and you begin to build.

Why should I use Crain Mortgage Group, LLC?

Crain Mortgage, an FHA MAP approved Apartment Lender, emphasizes regional financing throughout the South Central United States. Think in terms of the states bordering Oklahoma-these are the states where Crain can help you the most.  We understand the real state here, have a full and extensive understanding of the underwriting needs of the area and have a great relationship with the FHA Offices in these areas which allows for candid communication which can keep the costs of the transaction down, a great benefit for you.

While we have done a significant amount of apartment financing over the decades (approaching $2.5 Billion in loans over the last 30 years), we are FHA specialists working largely in our own back yard (having closed nearly $500 million in FHA Apartment loans in this area over the last 10 years).

We can do the most complex, high-dollar multi-use apartment community or the 50 unit new construction on the corner.  We love financing smaller properties as much as we enjoy doing the larger apartment loans.

We have done loans as small as 20 units and as large as $48,000,000.  We are equally adept with refinances or new construction and have the portfolio of closings to show you.

How do I get started?

Please take the time to send us an email on the attached form or call us to discuss at 972-407-1500.  We want to help and are interested in hearing your plans for your property. Give us a call and let’s get started on the process of putting the right loan in place for you.