HUD Build-to-Rent Financing

HUD’s Office of Multifamily Housing has historically insured properties whose residential buildings contain four or more units — garden, mid-rise, and high-rise apartments. The MAP Guide (Section 3.1.30) allows detached and semi-detached homes as part of an insured property but strongly discourages projects made up only of single-family homes. In May 2021, HUD’s Office of Multifamily Production issued an administrative memo restricting “subdivisions for rent.” Site plans needed a “preponderance” of buildings with four or more units, duplexes and triplexes could make up no more than half of the buildings, and single-family structures were excluded entirely. That left room for some townhome and duplex product mixed into a garden community, but no path for a true BTR project. HUD gave two reasons: it was uncertain how to value and underwrite the product, and the Fair Housing Act’s exemption for buildings with fewer than four units was never meant to cover multifamily housing. HUD rescinded the memo in April 2025 after encouragement from the lending community, and said replacement guidance was coming. Then two events in Washington, D.C. shaped the timing and content of that guidance:

On January 20, 2026, the President issued Executive Order 14376, Stopping Wall Street From Competing With Main Street Homebuyers. The order is aimed at large institutional investors buying existing single-family homes, and it directs agencies to build in narrowly tailored exceptions for build-to-rent properties that are planned, permitted, financed, and constructed as rental communities. HUD had to make sure that this Executive Order language was incorporated into their new guidance, and in fact, Mortgagee Letter 2026-12 cites Section 3 of that order as its basis, and the letter’s site and collateral requirements in Section 02 below track that language closely.

Then on March 12, the Senate passed the 21st Century ROAD to Housing Act with a Section 901 provision that would have required large institutional investors — defined as owning more than 350 single-family homes — to sell BTR homes to individual buyers within seven years. A forced sale inside seven years cannot sit under a 35- or 40-year fully amortizing insured mortgage, and HUD paused its BTR work while the bill moved. The House passed an amended version of the act in May that carved BTR out of the forced-sale provision. Congress approved the act in late June, the President declined to sign it, but regardless, the act became law without signature on July 11 once the ten-day window ran. We covered each step in the 2026 Q2 and Q3 issues of The HUD Quarterly.

With the seven-year forced sale question settled, HUD restarted its work on the mortgagee letter and it was released on October 14, 2026.

The letter says BTR properties will be treated under the same general parameters as traditional multifamily rental developments. The DSCR coverage, loan-to-value, and loan-to-cost criteria from Mortgagee Letter 2025-03, the statutory limits, and the MAP processing steps all carry over. The letter adds a narrower set of eligible programs, a definition of what counts as one BTR property, and a set of NOI underwriting and accessibility rules specific to the product.

HUD states that it will only allow BTR projects under the following criteria:

One site, one property, five or more units

The letter also has particular guidelines for the BTR project, which include:

• Project must have five or more total dwelling units, developed for long-term rental, on a site that is uniform in character and recognizable as one rental property.
• A single tax parcel is preferred, however, multiple contiguous parcels on one site that together define the insured collateral are acceptable.
• No privately owned lots or homes interspersed within the site.
• No sale of parcels or buildings, and no partial release of collateral, for the life of the insured loan.
• A site can mix BTR homes with traditional apartment buildings, but the lender has to address the underwriting and accessibility complications of the mix in the application.
• Manufactured and modular construction are generally acceptable.
• The property must be professionally managed like comparable, traditional multifamily. On-site management and maintenance staff should match what comparable properties carry; where they are off-site, the operation needs a local presence staffed to run this property and the rest of the portfolio.

The no-partial-release rule matters most for sponsors whose BTR business plan includes selling homes off individually at some point. Under a HUD loan that option is gone for 35 to 40 years unless the loan is paid off. The prepayment structure on the HUD loan, not the individual home market, becomes the exit. Our paper on HUD prepayment versus yield maintenance covers how that exit is priced.

Underwriting a BTR project

The letter describes how HUD wants a BTR to be underwritten, and almost all aspects are the same as a traditional project. The exceptions are that they say they might require a higher underwritten vacancy for smaller projects, since each home is a larger share of income, and that operating expenses and replacement reserves will most likely need to be higher since there is potentially more operating expense and capex due to the additional structures and exteriors.

As indicated above, Mortgagee Letter 2026-12 states that a BTR property is eligible for 223(f) only if its certificate of occupancy is dated less than three years before application. This means that a BTR community that received its certificate of occupancy in 2022 and is now looking for permanent debt has no HUD refinance path under this letter.

MAP lenders questioned this age limit during drafting, but HUD kept it. It is thought that HUD’s concern was about not having a good understanding of BTR’s replacement reserve requirements. HUD does not yet have a track record for what a BTR community’s long-term capital needs look like, and limiting 223(f) to recently built properties keeps it out of older BTR stock where roofs, siding, windows, and mechanical systems across dozens or hundreds of separate buildings are coming due. The letter also mentions this fear: it tells lenders to expect higher initial and annual reserve deposits on BTR because of the number of buildings and building components. HUD also has a separate letter in drafting on replacement reserves and the PCNA structure, which we noted in the Q3 issue.

What it means for a BTR business plan

• New development. A 221(d)(4) takes the three-year question off the table, because the HUD loan is in place from the start of construction. Our paper on how HUD sizes a 221(d)(4) covers the sizing tests.
• Bank construction with a planned HUD takeout. The 3-year takeout timeline has to be built into the construction schedule and lease-up plan from the start, with the CO dates that will control identified early.
• Recently delivered communities. Pull the certificate of occupancy dates now. A property delivered in late 2023 or 2024 may have a short window to apply.
• Older stabilized communities. A BTR property past three years is outside the letter, and a different execution should be looked for.

The Fair Housing Act’s design and construction requirements apply to “covered multifamily dwellings” — every unit in a building of four or more units with an elevator, and the ground-floor units in a non-elevator building of four or more units. A detached home, a duplex, or a triplex is not a covered multifamily dwelling regardless of whether it sits on a property HUD treats as “multifamily.” The mortgagee letter applies that rule to BTR but keeps two traditional Fair Housing “multifamily” requirements.

Even though 5 of the 7 Fair Housing requirements are exempt, HUD says that they strongly encourage the exempt features. And where a site mixes BTR homes with buildings of four or more units, those larger buildings and their units carry the full set of requirements. It should also be noted that other accessibility laws can still apply depending on the deal: Section 504 and the Uniform Federal Accessibility Standards where federal funding is involved, and the Americans with Disabilities Act at places of public accommodation such as a leasing office. Where federal, state, or local requirements differ, the more stringent rule also must be followed.

Requirement 2: common use areas – still applies

Requirement 2 covers the parts of the property that residents and visitors share: the leasing office, clubhouse, fitness room, pool, playground, mail area, and other site amenities, along with accessible routes to them and accessible parking where parking serves them. The letter states that accessible routes, entries, and other features are required for common use areas and site amenities just like a typical multifamily property. Because Requirement 1 is exempt, the routes from the street or parking to each individual home do not have to be accessible, but the routes to everything residents can share do. We do not anticipate this being a hang up for most projects.

Requirement 3: usable doors inside the homes – still applies

A usable door under the Fair Housing Accessibility Guidelines provides a nominal 32-inch clear opening, measured from the face of the door to the stop on the latch side with the door open 90 degrees. Note that this 32” requirement is the clear opening, not the door size.

The requirement covers every door intended for passage within the home:

• Doors between rooms, including bedrooms
• Bathroom and powder room doors
• Walk-in closets
• Laundry, utility, and storage rooms
• The door from the home into an attached garage
• Secondary exterior doors to patios, decks, and porches

Reach-in closets such as linen and coat closets, where the contents are reached from outside the closet, are not covered under this rule, and neither are small mechanical closets dedicated to a furnace or water heater.

Many production single family floor plans contain bedroom doors that are 2’-8” and some homes have 2’-4” doors into bathrooms, laundry rooms, and/or walk-in closets. These smaller doors wouldn’t meet Requirement 3. The front door is usually not the problem: residential building codes already require the primary egress door to provide a 32-inch clear opening, which is why 3’-0” entry doors are standard.

So for a 223(f) BTR, we would want to ensure beforehand that the interior doors were built in a way that complied with Requirement 3, or else there could be a large accessibility repair to widen door frames.

HUD also states that it will generally rely on the local building department’s interpretation and enforcement of codes for the building types and the property’s use. This could have been an issue given what “multifamily” means for HUD versus different areas’ building and fire safety codes. A BTR community is a multifamily property, but a detached home on it is not a multifamily building, which by the definition of many building codes and fire safety codes contains four or more units. For example, where NFPA 101 requires sprinklers in new multifamily buildings, a detached rental home on a BTR property may be exempt depending on the structure type and factors such as separation between buildings. For these types of items, HUD will rely on the local department’s enforcement.