Assumable HUD loan?

Question

What are the qualifications for an assumable HUD loan? I have ran across a multifamily complex and the owner states thay have already went through the HUD process and the HUD loan is assumable. He didn't know specifics and I have not been through this process. Anyone have advice or can point me in the right direction?

Darryl Dahlen · Answer

Casey- Here are my thoughts as someone who deals with these loans.

HUD, Fannie, and Freddie can offer terms that no bank can touch so there are definitely upsides to them.

HUD's 223(f) loan is a loan I feel is best suited to deals that are 3MM or larger. Of the 3 government insured loans HUD offers the highest ltv and longest terms, but it also comes with the most strings and costs. While larger entities can handle the financial audits and restricted access to profits, many smaller entities take issue with them. Also, since HUD loans are non-recourse, they're harder to obtain since HUD isn't lending in some markets and requires a market study.

Fannie Mae has a program for loans that range from 1MM-3MM that I feel is the best out there. Fannie offers recourse and non-recourse options and has a wide array of loan terms at high LTVs. It's also a far cheaper loan to obtain and doesn't have the restrictions that HUD does. Fannie can also handle larger loans no problem which is nice.

Freddie is best suited to larger deals so I'll leave them out of the discussion.

One thing they all have in common is they require significant multifamily experience and net worth. Not saying you don't have that, but these programs are not for the unexperienced or those who need high LTV financing in order to make a deal work.

Jason Mak · Answer

Hi Casey,

I'm in a similar position as you.  I'm looking to refinance a property using a 223 Hud loan.  i found the article below to be pretty informative.

http://www.biggerpockets.com/articles/1332-hud-223-f-pros-and-cons

i have also talked to a family friend who paid the prepayment penalty and refinanced out of the HUD loan due to: frustrating annual maintenance audits and the onerous annual financial audits (that he had to pay a CPA to do for him).

Just wondering if anyone on the forum had any firsthand insight on this stuff.

Casey Spivey · Answer

Thanks that helps. My research was leading me down the path that I would need a new 223(f) loan and that HUD was just saying that they would insure a loan on the property. An assumption fee of 1% sure sounds a lot better than new loan costs.

Hypothetically if the current lender is not able to do the deal what would be some of the best companies to call for a new loan? It would be for $5M+ and I would be looking for a high LTV rate and 35-40 year term.

Dion DePaoli · Answer

Typically the assumption fee is around 1.0% of balance.  The lender will reserve the right to underwrite you as the new borrower (the property is already approved).  You will have to provide the similar recourse as the borrower provided but could be stipulated by the underwriter to provide additional depending on the the nature of the loan.

The current owner can put you in touch with the bank and they will supply you with the paperwork and list of documents you will need to supply.  The lender may ask for additional equity injection, security or alike from both you and the old borrower depending on how strong the property is in today's market.

Jon Holdman · Answer

Find out the lender and give them a call.  Probably similar to the process for getting a loan.  If you can get a copy of the seller's promissory note, it may also have some info.