American Investment Team
|
The Federal Housing Administration (FHA), which is part of the Department of Housing
and Urban Development (HUD),
provides mortgage insurance to facilitate the refinancing or purchase
of rental housing that does not require substantial rehabilitation.
The Section 207/223(f) program is FHA's program for insuring such properties
which may or may not require minor repairs and improvements.
Benefits:
- Long term (up to 35 years), fixed-rate financing
- Federal guarantee results in AAA rating on financing
- Eligible for securitization by the Government National Mortgage Association (Ginnie Mae)
- Non-recourse loans
Program Eligibility:
- Properties must contain 5 or more rental or cooperative units
- Properties must not require substantial rehabilitation although minor repairs and improvements are permitted
- Properties must be at least 3 years old prior to filing of an application
- Projects must attain sustaining occupancy before insurance endorsement or an operating deficit escrow is required
- Eligible mortgagors include individuals, partnerships, corporations or other legal entities approved by FHA
- No construction financing is available
- Mortgage Limitations: The maximum insurable mortgage amount is the LOWEST of:
- 85% of FHA's estimate of the project's value as follows:
- For a refinance, the cost to refinance the project not to exceed 85% of value including repairs, but not less than 70% of value
- For a purchase, 85% of the cost to acquire the project not to exceed 85% of the projects value after repairs
- The amount that can be amortized by 85% of net income for debt service
- Statutory per dwelling unit limits. These limits vary by HUD State/Area Office jurisdiction
NOTE: The typical mortgage limiting factor is net income; FHA's underwriting
analysis must establish that there is sufficient project income to
repay the loan, taking into account all required expenses, replacement
reserve requirements, and a vacancy and collection loss factor.
Mortgage Term and Interest Rate:
- Term is limited to the lower of 35 years or 3/4 of the project's remaining economic life
- Interest rates are negotiated between the lender and the borrower
Other Requirements:
Applications may be staged (e.g., conditional and firm commitment), although most
Section 207/223(f) projects are submitted only at the firm stage.
Application fee and a limited inspection fee apply. The application
fee aggregates to $3.00 or $1000 of requested mortgage amount at the
firm commitment stage.
- Owners must sign Regulatory Agreement with HUD governing project operations
- Projects are subject to cost certification
- Prevailing wage requirements under the Davis-Bacon Act do not apply
|
