AIT - Small Projects Mortgage Insurance Programs (SPP)

SPP was developed in consultation with the multifamily housing industry to support developers and mortgage lenders in more effectively producing affordable small project rental housing. SPP modifies the basic mortgage insurance processing procedures under Sections 223(f) and 221(d)(4). This is carried out through delegating streamlined processing and other responsibilities to lenders and a "fast track" approach to HUD issuance of firm commitments and endorsement of the mortgage.

The SPP program blends aspects of single family and small business underwriting with criteria appropriate for multifamily rental projects. In general, the lender reviews the borrower's credit history, track record and personal assets, and the project's actual or estimated cash flows. This approach expedites the processing procedure to ensure a more favorable response period from HUD.

Property Types:

• Residential rental properties of 5 to 20 units
• All units must provide complete living facilities including provisions for eating, cooking, and sanitation within the unit
• The project may include commercial and community facilities to serve the occupants
• Commercial areas shall not exceed 20% of the total net rental area of the project
• The income from commercial property will not be considered in the calculation of total gross income for underwriting purposes
• Existing projects must have been in use as rental housing for at least 3 years

Ineligible Properties:

• Mobile home parks and courts
• Condominiums
• Transient housing or hotels
• Single room occupancy
• Projects in military impact areas
• Retirement service centers
• Nursing home or intermediate care facilities
• Board and care and assisted living facilities
• Projects with Section 8 rental assistance contracts
• Properties in Coastal Barriers Resource System

Loan Amount:

• Minimum of $250,000 to $1 Million maximum

Uses:

• Purchase, Refinance, Substantial Rehabilitation, and New Construction (with insured construction advances)

Loan Type:

• Fixed-rate, fully-amortizing, Non-recourse and Assumable

Term:

• For refinance loans, 223(f) is 30 years and must contain a prepayment restriction for at least 5 years that the property will remain a rental property
  

• For new construction or substantial rehabilitation 221(d)(4) is 35 years

Loan-to-Value:

• 80% for purchase or refinance 85% for new construction or substantial rehabilitation

Debt Service Coverage

• Minimum of 1.2 (at 90% occupancy)

Replacement Reserves:

• Funded and dispersed at the discretion of the Lender. Evaluated by the age and condition of the project, borrower experience, and borrower net worth. Generally the standard deposit per unit is based on the projects effective age as follows: 3-5 years is $300; 6-10 years is $900; and 11 years or more is $1,000

  Eligible Borrowers:

  • Individuals and organizations. The Borrower must be a single-asset mortgagor for the project being insured under SPP

  Eligible Lenders:

  • Lenders which are authorized to participate in SSP by designated SPP Lender Approval Offices
    American Investment Team, Inc. is an approved SPP Lender

  Mortgage Insurance Premiums:

  • New Construction/Sub. Rehab. 221(d)(4) Initial .5%, Annual .5%
  • Purchase/Refinance 223(f) Initial 1%, Annual .5%

  Other Cost associated with the Program:

  • The borrower is responsible for the up-front cost of the following third party reports: Appraisal report; Certification from licensed architects for acceptability of plans and specifications where applicable; Phase I environmental site assessment; Architectural and engineering certification; Survey; and Title search report

  Firm Commitment:

  • Upon receipt of an acceptable application and environmental review, HUD will normally issue a firm commitment in approximately 30 days if there are no extraordinary circumstances

  Maximum Loan Amount:

  • For existing properties:
  • The maximum insurable mortgage amount is $1,000,000.

  Amount of Mortgage in a Purchase Transaction

  • The mortgage will be the lesser of:
    • An amount not to exceed 80% of HUD's estimate of value of the project.

    • The maximum per unit limitations for new construction under Section 207 of the Act, as adjusted by the per unit area high cost factor, plus cost not attributable to dwelling space.

    • An amount which entails a debt service not in excess of 80% of the net annual income
    • 80% of the amount required to acquire the property. For purposes of this section, the cost of acquisition is defined as the sum of the following:
      • Purchase price as indicated in the purchase agreement and determined allowable by HUD
      • The estimate of repair costs, if any, provided such costs will be borne by the purchaser and are not included in the purchase price
      • The sum of the amounts attributable to financing, legal, organizational, title and recording expenses which is required to pay and which are reasonable
      • Discounts, that are eligible, provided they are paid by the purchaser
      • The amount for the initial deposit to the reserve fund for replacements, provided such deposit will be funded by the purchaser
      • Architect's fee, mechanical engineering fees, and municipal inspection fees, that are eligible

  Amount of Mortgage in a Refinancing Transaction

  • The mortgage will be the lesser of:
    • An amount not to exceed 80% of the value of the project

    • The maximum per unit limitations of new construction under Section 207 of the National Housing Act, as adjusted by the per unit area high cost factor, plus cost not attributable to dwelling space

    • An amount which entails a debt service not in excess of 80% of the net annual income
    • An amount equals the greater of the following:
      • The amount required to pay off the existing indebtedness
      • The amount for the initial deposit to the reserve for replacements

      • The sum of the amounts attributable to financing charges, legal and organizational, and title and recording expenses which the mortgagor is required to pay, which are reasonable

      • The estimate of the repair cost, if any.
      • Eligible discounts
    • Eligible architect's fee. mechanical engineering fees, and municipal inspection fees

  NOTE: Any fee, discounts or other amounts paid by the seller for, or on behalf of, the purchaser must be reflected as a reduction to the acquisition cost

  • For NewConstruction and Substantial Rehabilitation Properties:
    • The maximum insurable mortgage amount is $1,000,000

    Section 221(d)(4) insured mortgages processed under SPP will also be limited as follows:

    • Amount of Mortgage in New Construction or Substantial Rehabilitation properties:
      • The mortgage will be the lesser of:
        • 85% of the replacement cost as determined by the appraisal

        • An amount that can be amortized by the project's estimated net income, where the required minimum debt service coverage ratio is 1.20. The debt service coverage ratio is the reciprocal of what HUD processing has traditionally called the "applicable percentage." Stated in HUD terms, a debt coverage ratio of 1.20 equals 83.33%, rounded down to 83%. The applicable percentage for SPP is 83%.

        • The maximum permit limitations under Section 221(d)(4) of the National Housing Act, as adjusted by the permit area high cost factor, plus cost not attributable to dwelling use.