Non-recourse, 40-year fixed-rate financing for new multifamily construction and substantial rehabilitation — insured by HUD/FHA with high leverage and the industry's lowest long-term cost of capital.
Authorized by the National Housing Act (12 U.S.C. §1715l(d)(4)), this FHA mortgage insurance program is widely regarded as the "highest-leverage, lowest-cost, fixed-rate, non-recourse loan available" in multifamily real estate.
Up to 36 months interest-only during construction, followed by 40 years of fully amortizing fixed-rate permanent financing. Total maximum term of 43 years — the longest fixed-rate term available in US commercial real estate.
Borrowers are not personally liable if they default. The lender's only recourse is the property itself, subject to standard "bad boy" carve-outs for fraud and environmental issues. Protects developer personal assets.
87% LTV for market-rate, up to 90% for affordable properties (Section 8 / LIHTC) and properties with 90%+ rental assistance. This high leverage reduces equity required and maximizes developer returns.
Interest rate is fixed at loan commitment and remains the same throughout construction AND the full 40-year permanent period. Eliminates refinancing risk and provides unmatched long-term payment certainty.
With HUD/FHA approval, another qualified buyer can take over the loan at its original rate and terms. A huge advantage when rates are elevated — buyers inherit below-market financing with ~90 day approval process.
No official maximum loan size, though projects above $130M face more complex underwriting parameters. Suitable for mid-size to very large multifamily developments with 5+ units in any market.
Full program details as of 2025–2026. All parameters are subject to HUD policy updates — consult a MAP-approved lender for current guidance.
| Loan Purpose | New construction or substantial rehabilitation of multifamily rental or cooperative housing |
| Loan Term | Up to 43 years (36-month construction + 40-year permanent) |
| Interest Rate | Fixed for life — set at commitment. Rate determined by 10-year Treasury + spread. Green-certified buildings receive ~0.35% rate reduction. |
| Amortization | Fully amortizing over 40 years (permanent period) |
| Construction Period | Interest-only for up to 36 months |
| Min Units | 5 residential units minimum |
| Min Loan Size | $4 million (exceptions possible) |
| Max Loan Size | No hard maximum — $125M threshold triggers enhanced operating deficit requirements; $130M triggers different sizing parameters |
| Recourse | Non-recourse with standard bad-boy carve-outs |
| Assumability | Fully assumable with HUD approval (~90 days) |
| Commercial Space | Max 25% of net rentable area; max 15% of underwritten EGI (up to 30% in Section 220 urban renewal areas) |
| Davis-Bacon | Required — prevailing wages must be paid to all construction workers |
| Rate Lock | 30–180 day rate lock available after initial underwriting at 1% fee (refunded at closing); early rate lock available post-preliminary underwriting |
| Cash Distributions | Significant restrictions — surplus cash may be distributed only after annual review and only if operating account is fully funded |
| Upfront MIP | 1.00% of loan amount at closing (construction stage) |
| Prepayment | Generally locked out during construction; prepayment penalties apply in early permanent years |
| Working Capital | Required escrow — greater of: operating deficit per appraisal, 3% of loan, or 4–6 months debt service (12 months for loans ≥$125M) |
| Construction Contingency | 2% of loan amount (new construction); required escrow for cost overruns |
Annual MIP is paid monthly and is a critical component of all-in cost. Note: HUD updated MIP rates to 0.25% for all new multifamily programs as of recent policy changes — verify current rates with your lender.
The 221(d)(4) program is broad but specific — understanding what qualifies (and what doesn't) saves time before investing in third-party reports.
The 221(d)(4) process is complex — but predictable. MAP processing is significantly faster than traditional TAP processing. Experienced sponsors use MAP lenders to cut timelines nearly in half.
Developer engages MAP-approved lender. Preliminary underwriting, market assessment, site review, and conceptual design. Lender determines program eligibility and initial loan sizing.
Commission all required reports: Appraisal, Market Study, Phase I ESA, Architectural/Engineering Review, Cost Review. Davis-Bacon wage determinations requested. Radon testing ordered.
MAP lender submits pre-application to HUD Field Office. Includes full third-party reports, preliminary drawings, cost estimates, market study. HUD reviews and issues pre-application letter (or Two-Stage: direct to firm).
Full firm application submitted with final plans & specs, contractor selection, GMP contract, updated financial projections, borrower/principal certifications, and complete underwriting package.
HUD reviews firm application, may request additional information. Upon approval, HUD issues Firm Commitment letter specifying loan amount, rate, and conditions. Rate lock available here.
Legal docs prepared, title insurance obtained, all conditions cleared. Construction loan closes. Working capital and construction contingency escrowed. Davis-Bacon compliance confirmed. Construction begins.
HUD construction inspector monitors progress via monthly draw requests. Davis-Bacon payroll certifications submitted monthly. All change orders reviewed and approved. Operating deficit escrow funded as needed.
Construction completed. Certificate of Occupancy issued. Lease-up begins. Once stabilized, loan converts to permanent phase. Final HUD endorsement. 40-year amortization clock starts.
Detailed property inspection and Physical Needs Assessment (PNA) to scope all required and recommended work. Establishes baseline and confirms substantial rehab threshold is met.
Architectural drawings prepared. Detailed construction cost estimates developed. Environmental assessments including asbestos (pre-1989) and lead paint (pre-1978) testing required. Radon testing ordered.
Pre-application and firm application follow same MAP steps. Key difference: existing building appraisal + as-improved appraisal required. Relocation plan needed if occupied during construction.
Occupied rehab requires HUD-approved tenant relocation plan. Temporary relocation costs can be included in the loan. Vacant properties generally allow faster processing and fewer complications.
HUD distinguishes between critical repairs (health/safety, must be completed before or during construction) and non-critical repairs (deferred maintenance). All must be addressed per approved scope.
Same final endorsement process as new construction. Loan converts to permanent once construction complete and property stabilizes. Replacement reserve account funded per HUD requirements.
Application submitted directly to HUD Field Office. No MAP lender required, but having experienced counsel and consultants is critical. HUD staff underwrites the application internally.
TAP processing typically takes 11–15+ months from initial application to initial closing — vs. 6–10 months for MAP. HUD Field Office capacity directly impacts timeline.
All third-party reports, certifications, and financial documentation required under MAP are also required for TAP. No shortcuts on documentation quality.
For virtually all borrowers, engaging a MAP-approved lender dramatically reduces processing time and risk. MAP lenders have pre-approval to underwrite before HUD review, compressing the timeline by 30–50%.
Third-party reports are a significant upfront cost (typically $50,000–$150,000+) and must be commissioned early in the process. Budget and timeline accordingly.
FHA-compliant appraisal by HUD-approved appraiser assessing land value, as-is value (rehab), as-proposed/as-improved value. Must include income approach, cost approach, and comparable sales. Typically 4–6 weeks.
Always RequiredIndependent market study analyzing supply, demand, absorption, comparable rents, vacancy rates, and demographic trends in the primary market area. Must support proposed rents and projected lease-up timeline.
Always RequiredASTM E1527-21 standard Phase I ESA to identify recognized environmental conditions (RECs). If RECs are identified, Phase II site investigation is required. Must be completed by environmental professional.
Always RequiredHUD-approved architectural and cost reviewer examines plans and specs, cost estimates, building systems design. For new construction: full set of construction documents. For rehab: existing conditions + proposed scope.
Always RequiredRequired on all projects following construction completion regardless of EPA radon zone. For rehabilitation projects involving sub-slab work, pre-construction testing is also required per EPA protocol.
Always RequiredRequired for all rehabilitation projects on buildings constructed before 1989. Asbestos-containing materials (ACMs) must be identified, assessed, and abatement plan included in construction scope and budget.
Rehab (Pre-1989)Required for rehabilitation projects on buildings constructed before 1978. Lead paint assessment and risk evaluation required. Abatement or encapsulation must be included in construction scope.
Rehab (Pre-1978)Required only if borrower is seeking Green MIP reduction (0.25% MIP). Energy Star Statement of Energy Design Intent (SEDI) must score ≥75. Annual re-certification required to maintain reduced MIP rate.
Optional (for Green MIP)FEMA flood zone determination required. If in Special Flood Hazard Area (SFHA), flood insurance required. Properties in Zone A or V face significant additional requirements or may be ineligible.
Site DependentHow does the 221(d)(4) stack up against other multifamily financing options for new construction and substantial rehabilitation?
| Feature | HUD 221(d)(4) | HUD 223(f) | Conventional Bank | Freddie Mac / Fannie | Life Insurance Co. |
|---|---|---|---|---|---|
| Purpose | New Construction / Substantial Rehab | Acquisition / Light Rehab | Construction / Bridge | Stabilized Perm Only | Stabilized Perm Only |
| Max LTV | 87–90% | 87–90% | 65–75% | 75–80% | 55–65% |
| Loan Term | 43 years (40 perm) | 35 years | 2–5 years | 5–30 years | 10–25 years |
| Fixed Rate | Yes (life of loan) | Yes | Rarely | Yes (perm period) | Yes |
| Non-Recourse | Yes | Yes | Rarely | Yes | Yes |
| Assumable | Yes | Yes | No | Sometimes | Rarely |
| Davis-Bacon | Required | Not required | Not required | Not required | Not required |
| Timeline to Close | 6–15 months | 4–8 months | 2–4 months | 2–4 months (perm) | 3–6 months |
| Min Property Size | 5+ units | 5+ units | Varies | 5+ units | Usually 50+ units |
| Best For | New construction, substantial rehab — max leverage, long-term hold | Existing stabilized properties, moderate rehab | Speed, flexibility, complex structures | Stabilized acquisitions, conventional financing | Large, high-quality stabilized assets |
Collected from developers, investors, and housing professionals navigating the 221(d)(4) program.
Key terms, acronyms, and concepts you'll encounter throughout the 221(d)(4) process.
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Whether you're exploring feasibility or ready to engage a MAP lender, the team at Carmen Capital specializes in HUD 221(d)(4) financing for developers, nonprofits, and public housing authorities.
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