BiggerPockets

Update- You can never refi out from transactional or bridge funding. The only way to refi is from conventional lending.

You can refi out of a bridge loan into a HUD 223(f) loan providing you qualify.
HUD loans are ideal for those who are going to hold onto the property on a long term basis as they are expensive to obtain and have a hefty pre-payment penalty (PPP).
Here are some facts for you to consider:
-Most HUD lenders don't entertain loans under 2M, but I've gotten a term sheet on a 1.5M project.
-The property must be stabilized at 90% occupancy for 3 consecutive months to be considered.
-HUD likes you to have prior experience owning multi-family properties.
-No cash-out allowed on properties newer than 3 years and the borrower must have held the current note for 2 years (this is a new rule).
- Typically, the most expensive component is the replacement reserve, but there are also HUD inspection fees, a phase 1, an application fee of 1/3 of 1% of the loan amount, MIP if over 80%, and audit fee, etc.
- HUD 223(f) loans go up to 85% LTV on a 35 year term
-Typical PPP is 10 years. This is normally broken down into a 2 year lockout followd by a step-down PPP.
-Loans are assumable and non-recourse.

That covers most of the basics, but if you have a specific question please ask.

Darryl,

Great breakdown. Got my vote.

HUD also has a temporary waiver of the "Three Year Rule" (Ownership), on the 223(f) program, must have owned property for at least 12 months. Go to www.HUD.gov and type in the search category "Notice H 10-05" for more info.
This is for properties that have been substantially rehabilitated.

Wayne

Not entirely sure if this is relevant to your question... but here it goes.

We (I am part of a partnership) own apartment buildings in Houston. One of them was bought just like that.

Right now we are in the process of getting a new loan, HUD.

The process has been long, painful... takes forever... multiple revisions, changes in the rules (cause they take forever to process it and then, when it is time to move it new rules have come into effect).

All in all we are lookign at around 5.75% rates.

Darryl's post is great.

Daniel,

(I sent you a PM on this as well.)

I've got a local contact with 35 yrs FHA multi-family exper. He just closed a $175 mil FHA hospital for Austin TX in the last 2 wks (very complex deal-130+ doctor invstrs).

Great contact.

Give me a call.

Kyle

Great information!

Your post provides some valuable insight into some of the downsides of a HUD loan. You are correct in that on a purchase, the fees associated with the loan are "tacked' onto the rate so you will end up with a rate higher than what you are quoted. The HUD analysis that is provided prior to engaging the lender ought to cover that point, but there can be some sticker shock when you think you're getting X, but in reality, it is X + Y, and Y can be as much as an extra 1.75% to the initial rate.

However, that is not an an issue on a refinance as almost all of the costs associated with a HUD loan are mortgageable. That means the rate that is quoted is the rate you'll get, and last time I checked, that rate is in the 4s.

The upside to a HUD loan is a having a long term loan (up to 35 years) with a high LTV (up to 85%), and on a non-recourse loan. Not to mention, HUD is one of the only places you can go if you need to do a cash-out refinance (up to 80%), rehab, and construction. If you are in need of any of those, HUD is often your only choice.

In my experience, HUD is best suited for large properties in the 5M and up category. When you get into properties that are in the 2-5M range, I think there are other financing options that are better suited for those properties.

Is HUD perfect? Not by a long shot. Like most things in real estate, you have to weigh the pros versus the cons and measure that against what you feel is important to you as a borrower.

If you are seeking a long term loan, then Fannie's small loan program is great for projects in the 1-3M range. The terms are very similar to HUD, and while this program isn't cheap either, it is less costly than a HUD loan.

What about the $500k to $1M category of multi-units? Where are the better commercial financing coming from if you are at 70%LTV?

Mike P.