In November, we told you about two proposed changes to FHA underwriting meant to increase multifamily production. Now it’s official.
Late yesterday, HUD announced changes to debt service coverage and loan ratios for both multifamily new construction and acquisition and refinance, and, in a separate announcement, new incentives to build middle-income housing.
DSC and Loan Ratios
For market-rate projects financed under Section 221(d)4 for new construction and Section 223(f) for acquisition or refinance, debt service coverage moves down from 1.176 to 1.15.
For new construction, loan-to-cost moves up from 85% to 87%. For acquisition or refinance, loan-to-value moves up from 85% to 87%.
For affordable projects – LIHTC projects with a rent advantage to the market – debt coverage moves down to 1.11 for both new construction and acquisition/refinance. Loan-to-cost and loan-to-value move up from 87% to 90%.
All of these changes are effective immediately.
Middle-Income
In another announcement late yesterday, HUD created a new set of underwriting thresholds for new construction of middle-income housing, defined as housing that is affordable to individuals and families earning from 60% to 120% of Area Median Income (AMI). Under the new rule, middle-income projects financed under Section 221(d)4 can be underwritten to 1.11 DSC and 90% LTC.
These changes are also effective immediately.
The trade-off is that at least 50% of the units have to be affordable to middle-income households for at least ten years. Those units must be secured by a use restriction and monitored annually for compliance by a state or local government entity. The new rule also opens the possibility of a waiver to reduce the compliance period to as little as five years if the project provides “enhanced benefits” to middle-income renters, the example given as setting aside more than the minimum number of units.
All of this is good news for the multifamily industry. FHA financing for multifamily is always there, with favorable underwriting and plenty of liquidity. The underwriting – and the options – just got better.
If you have a project that needs financing, we welcome the opportunity to speak with you about it. Please schedule a call.
About AGM Financial
Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $10 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit agmfinancial.com.
