General contractors that construct HUD insured multifamily properties play a key role in providing quality housing. Insured properties cannot be constructed by contractors with limited experience, a poor capital
position, or derogatory performance history. Frequently, developers, borrowers, and individuals interested in securing HUD insurance attempt to qualify as the builder. These scenarios are often not feasible, as HUD requires proposed contractors have experience building projects of a similar size and scope as the proposed development. If necessary, developers are eligible to form an identity of interest with the proposed general contractor. In HUD underwriting, the general contractor is considered a “principal” of the transaction and as such our due diligence requirements are more extensive than what conventional financing may require.
Basic Exhibits Required for HUD General Contractor Pre-qualification:
- Last three years audited financial statements (including income statements, schedules and notes
if available) or business tax returns
- Management prepared interim financial statement within 60 days of application
- Listing of projects in progress (name of project, type of project, contract amount, percentage of
- Bonding company reference letter indicating bonding (payment and performance) in the amount
of construction contract is available
- If a working capital line of credit exists, amount of the line and outstanding amount.
In addition, general contractors should be familiar with all Davis Bacon reporting requirements, as prevailing wages are a requirement for HUD insurance.
General Contractor Working Capital Requirements
The General Contractor should have working capital equal to 5% or more of the estimated construction
contract, and all outstanding projects in construction. Bonding does not negate this requirement.
See the below guidance from HUD:
If unmet, can secure with line of credit:Construction Contract Requirements
A lump sum construction contract is permitted when no identity of interest exists between the borrower and general contractor. A cost-plus construction contract is required when an identity of interest exists between the borrower and general contractor.