Sections 220 & 221(d)4 FHA Insured



The 221(d) 4 program provides funds for new construction or substantial rehabilitation of multifamily rental or cooperative housing nationwideSection 220 provides mortgage insurance for housing projects located in an urban renewal area meeting certain criteria.

Eligible Projects:

Property must be 5 or more dwelling units.  Projects specifically designed for the elderly or limited to elderly occupancy are not permitted under Section 220.  Under Section 220 commercial space may not exceed 20% of gross project area, with commercial income not to exceed 30% of gross project income.  Under the 221(d) (4) program commercial space may not exceed 10% of the gross project area, with commercial income not to exceed 15% of the gross project income.


Loan Features:

  • No rent restrictions or tenant income requirements
  • Low fixed interest rates, negotiable pre-payments
  • Up to 40 year term fully amortizing
  • Up to 83.3% loan to value ratio
  • Non-recourse during both construction and permanent loan stages, with loan carve-outs
  • Assumable with approval of FHA
  • No limitations on owner’s return
  • Combined construction/permanent loan; interest rate is locked in at initial construction loan closing


 Mortgage Amount:

The mortgage amount is limited to the lesser of:

  1. 83.3% of replacement cost value
  2. 83.3% of net income capitalized by loan constant
  3. 83.3% of certifiable transaction costs
  4. Per unit statutory limits as established by HUD

Transaction Costs:

  • Purchase price of land/buildings or existing debt
  • Certified construction costs, bond premium and other fees
  • Architectural fees for design and supervision
  • Appraisal, Engineering, and Environmental Inspection Reports
  • Financing and Placement Fees not to exceed 3.5% (5.5% for Bond financed transactions)
  • Mortgage Insurance Premium during construction
  • Interest, insurance and real estate taxes during construction
  • Legal, Organizational, Audit, Title & Recording, and Survey Fees
  • HUD Application Fee of 0.30%:  (.15%) due at Pre-Application; (.15%) due at Firm Application
  • HUD Inspection Fee of 0.50%


Secondary Financing:

Secondary financing (subordinate liens), grants and tax credits from a Federal, State or local government agency or instrumentality may be used to cover up to 100% of the equity requirement and also to finance non-mortgageable costs. The aggregate amount of the HUD insured first mortgage and any approved subordinated liens may exceed 100% of HUD’s Project Replacement Cost.  Non-mortgageable or non-HUD replacement cost items covered by the secondary financing must be certified by the source provider as reasonable and required to complete the project.


Builder’s and Sponsor’s Profit and Risk Allowance (“BSPRA”):

Under Sections 220 and 221(d)(4) a BSPRA is included in the mortgage and may be used as a credit against the borrower’s required equity contribution where there exists an identity of interest between the borrower and general contractor.  This is equal to 10% of the hard and soft costs of the transaction and can increase your leverage.


Preliminary Review Information:

Project description including unit mix with square footages, amenities, and land acreage

  1. Location map
  2. Proposed operating budget
  3. Estimate of site value.  If Rehabilitation – summary of existing debt or copy of purchase agreement
  4. Construction Estimate including other fees, off-site costs, architectural design and supervisory fees
  5. Description of ownership structure
  6. Any available Market Studies, Appraisals, Environmental and/or Engineering Reports