HUD 223(f) Loan Terms and Requirements

A HUD 223(f) loan is a fixed-rate, non-recourse, fully amortizing permanent loan on an existing apartment project. The mortgage is provided by a lender and insured by FHA under Section 207 pursuant to Section 223(f) of the National Housing Act (hence the name “223(f)”). A 223(f) mortgage finances the refinance (or acquisition) of a stabilized property with five or more units. The loan has a fixed interest rate and fully amortizes over 35 years (or 75% of the appraised remaining economic life, if shorter). It is non-recourse, and a buyer can assume a seller’s existing 223(f) mortgage with HUD’s approval. The maximum leverage is 87% of value on a market-rate property and 90% on an affordable or rent-assisted property, as long as the minimum debt service coverage of 1.15x (market rate) and 1.11x (affordable and rent-assisted) is met. If the mortgage creates “cash-out” equity at closing, then the LTV drops to 80% of value. In addition to the interest rate, the debt service also contains mortgage insurance premium (MIP) which is 0.25% a year.

With a 35-year term, no balloon payment, and a loan a prospective buyer can assume, the 223(f) is a strong fit for borrowers who plan to hold a project for a longer term (rather than flip it in 3 to 5 years). It does take longer to close than agency debt, so it is rarely used for acquisitions; most of the 223(f) loans we close refinance an existing FNMA/Freddie mortgage, bank, acquisition/rehab bridge, or construction loan on a property that is already stabilized.

Below are HUD’s terms and underwriting requirements for every 223(f), regardless of which MAP lender submits the application. The March 2021 MAP Guide is HUD’s current lender/underwriting guide, but Mortgagee Letters and Federal Register notices are always being released and updating the guidance.

Loan terms

Underwriting ratios

Criterion 10 applies when the loan would exceed the cost to refinance. HUD doesn’t limit the cash-out amount itself; the 80% LTV, along with the DSCR test, sets how much comes out. If the cost to refinance is higher than 80% of value, the loan can go up to that cost, with no cash out.

“Affordable” in this context means LIHTC with achievable rents at least 10% below market. “Rent-assisted” means 90% or more of the units carry project based rental assistance. HUD runs every one of these tests on form HUD-92264-A, and the lowest loan amount results in the final underwritten loan amount. How HUD sizes a 223(f) walks through each mortgage sizing test, and the vacancy floors and MIP also have separate white papers.

Repairs, reserves, and the rehab ceiling

Commercial space

If a project has commercial space or income above those thresholds, reach out and we can discuss different structures. Our property eligibility article also covers some ways they can get structured.

Large loans

If a loan amount is at or above HUD’s large-loan threshold, which is $130 million for 2026 applications, more conservative underwriting ratios replace the ones listed above:

With large loans, the Borrower’s principals also need combined net worth of at least 20% of the loan amount and liquidity of at least 7.5%. HUD can waive both for sponsors of subsidized affordable housing. A large-loan property with a certificate of occupancy less than three years old also funds a debt service reserve equal to the greater of 12 months of principal, interest, and MIP, or 50% of any cash-out. The reserve is released after six consecutive months at the underwritten DSCR. Sources: ML 2023-14, which replaced MAP Guide §3.10 entirely; ML 2026-05 (threshold).

Figures current as of October 2026. HUD reindexes the large-loan threshold and the substantial rehabilitation base each year by Mortgagee Letter.

As mentioned in the introduction, all HUD loans are done with a HUD approved lender (MAP Lenders) from the private sector. HUD is not the actual lender, but rather, insures the mortgage for the lender – allowing for lower interest rates. This means that MAP Lenders have to follow HUD’s underwriting guidance (much like a FNMA DUS Lender follows FNMA’s underwriting guidance). So a MAP Lender can’t decide that it really likes a deal and be more aggressive than what is set in the tables above. HUD runs the same loan criteria on form HUD-92264-A for every application, and its internal reviewers check our numbers the same way they would check any other lender’s. The interest rate is set mostly by where Ginnie Mae (GNMA) securities trade on the day the rate is locked, and the prepayment structure is also determined by the GNMA MBS market, so pricing quotes from MAP lenders on the same day are fairly similar.

That said, MAP lenders differ in their expertise in packaging HUD submissions and communicating markets and deals to HUD. Understanding the different HUD offices and knowing what their initial reactions to markets are can make the difference between HUD being encouraged about a particular value and NOI or having them question every aspect of a deal. Also, an experienced lender can make the timeline tighter as they know what items and reports are the ones that delay packages. 5 reasons HUD multifamily loans get delayed covers where applications most often lose time.

A 223(f) property must be an existing multifamily project with five or more units, held in fee simple or under a HUD-approved leasehold of at least 99 years (renewable) or 50 years from the date the mortgage is executed. The included repairs have to stay under HUD’s repair ceiling outlined above in Section 2, and the project’s commercial space and income under the limits also listed there. Properties offering meal services, or leases of less than 30 days, are not eligible. Age-restricted properties are eligible under certain circumstances as long as they don’t carry the features of a Section 232 healthcare project. Projects only for college students are not eligible. Our property eligibility article covers each of these in detail.

Newly built and recently stabilized properties

HUD used to require three years of operating history before a property could refinance with a 223(f). Thankfully, that rule changed in 2020 (Notice H 2020-03), and HUD will accept an application of a property less than three years old after it has achieved the programmatic DSCR for one full month. To close the loan, the property must continue to show that DSCR threshold. If a loan for one of these recently built projects includes cash-out, 50% of the available cash is held by the lender as a debt service reserve until the property has met the DSCR for six consecutive months.

Source: MAP Guide 3.7.2.B; DSCR per ML 2025-03. This is the 223(f) used as a takeout for a construction or lease-up bridge loan, and it is where we start a lot of our conversations with developers.

The Borrower must be a single-asset entity. It will be the entity that signs HUD’s Regulatory Agreement (form HUD-92466M), which governs how the property is operated and when cash can be distributed to investors. In addition to reviewing the Borrower entity, the MAP lender and HUD will review each active principal’s credit, financial capacity, and history with HUD-insured properties. A principal with a prior default or claim on a HUD-insured loan isn’t automatically excluded, but HUD will probably require a concept meeting before the application to address that history.

Generally, two signatures are required for the “Section 50” bad-boy carve out of the non-recourse language. Usually, HUD requires one entity signature (often the GP entity) and an Individual signature (often the manager of that GP entity). Other than for the $130+ million “large loans”, there are no formal net worth and liquidity thresholds for the sponsors. That said, if the 223(f) requires cash to close, the MAP lender and HUD will require that the sponsors show enough financial strength to close the transaction.

Source: MAP Guide 3.7.4, 3.7.8, Ch. 8; ML 2023-14.

HUD sizes a 223(f) by running every criterion on form HUD-92264-A – the loan amount requested, loan-to-value, the congressional statutory per-unit limits, debt service coverage, and either the cost to refinance or, on a purchase, the cost of acquisition – and then HUD takes the lowest result. How HUD sizes a 223(f) walks through each test with an interactive calculator. When the DSCR coverage is the binding test, our DSCR-constrained mortgage article explains how the mortgage is determined, and the DSCR NOI vs. appraised-value NOI article explains why HUD underwrites two NOIs on the same deal. Our Montana deal shows one input, a state property tax change, adding $4 million in proceeds.

A 223(f) has a single HUD submission, the Firm Application, so the timeline runs as engagement through third-party reports, HUD Firm Application, HUD review, Firm Commitment issuance, and then closing – which typically takes five to six months. A concept meeting with HUD before the application is optional on most deals and worth having on complex ones. The 223(f) timeline breaks down each step, the 223(f) checklist lists what HUD requires at application against Fannie Mae and Freddie Mac, and HUD survey requirements covers the one third-party item that most often surprises borrowers.

Nearly every cost of a 223(f) is mortgageable and is hopefully paid out of loan proceeds at closing, but some have to be paid in cash before they are reimbursed at closing. The table below lists the costs and when they each come due.

HUD requires that the third-party money must be paid by the Borrower. The MAP Guide lists a lender paying a Borrower’s third-party report costs or HUD application fee, or offering to refund the HUD application fee, among its prohibited inducements (MAP Guide 2.6.4.7), so no MAP lender can front those costs and collect them at closing.

The only costs that scale with the loan are the 0.30% application fee, the 0.25% initial MIP, and sometimes the lender financing fee. The rest – the inspection fee, processing fee, legal (Borrower and lender), the survey, and the third-party reports – runs over $90,000 whether the loan is $4.5 million or $33 million. That is about 2.1% of the smaller loan and 0.3% of the larger one, which is a large reason why HUD rarely sees market-rate 223(f) loans below $3 to $4 million.

At 0.50%, HUD’s good faith deposit is a fraction of the 2% or more that Fannie Mae and Freddie Mac generally require at rate lock. This is because a HUD rate locks after the HUD Firm Commitment has fixed the underwriting, so the mortgage-backed security investor is only exposed to the loan not being delivered, rather than the underwriting changing as well.

A Firm Commitment is issued for 60 days. The Regional Center can extend it up to 120 more days, and HUD Headquarters another 60 for good cause. Reopening an expired commitment costs $0.50 per $1,000 of loan amount, requires updated third-party reports and credit documentation, and is the one HUD fee that can’t be financed into the loan.

As part of the loan agreement with HUD and the MAP lender, the Borrower is required to submit an annual financial audit for the single-asset Borrower entity. Also required is the funding of the annual replacement reserve escrow that was determined by the lender and HUD using the Project Capital Needs Assessment (PCNA) report provided at underwriting. The Borrower has access to their replacement reserves for capital expenditures via requesting funds using the Form HUD-9250. The project’s surplus cash is distributed under the rules in HUD cash flow distributions. Mortgagee Letter 2022-16 opened up monthly distributions for unsubsidized FHA-insured loans endorsed after it took effect; on a 223(f), the property generally qualifies after one full fiscal year from endorsement.

Closing a 223(f) also makes the property eligible for two programs that require an existing HUD-insured mortgage. A 223(a)(7) is a program that refinances an existing HUD loan to a lower rate through a streamlined process, with no cash-out, and a 241(a) supplemental loan is a program that finances additional units on the same property – without Davis-Bacon wages when the underlying loan is a 223(f).