logo
Menu

HUD Apartment Loan Kansas City

Submit your loan application for a Free Quote

Apply Now

HUD apartment loan in Kansas City is an attractive option for the investor, with a long-term hold mindset.  Let’s look at some of the benefits and disadvantages of the HUD 207/233(f) loan product.  The main attractions are higher leverage, non-recourse, assumable, can reset interest rates, lower debt service coverage ratio, and a 35-year amortization.

What is the health of the Multifamily market as of June 2024?

National Economic 2024 Update for Apartments and Capital Markets.

  1. Multi-family housing has been a standout in recent years, with only 13% of markets in recession.
  2. 63% of markets are in hypersupply due to hot capital rushing into the property type.
  3. Analysts at Yardi Matrix forecast 1.5 million units will be delivered by 2025.
  4. Supply volumes outrun sustainable demand trends, putting upward pressure on vacancy and downward pressure on rents.
  5. Double-digit increases in operating expenses are affecting multifamily operators in the South and West, especially in Florida, Texas, and California.
  6. Some property/casualty insurers have decided to exit certain states due to soaring insurance costs from climate change and related risks.
  7. Transaction volumes in 2023 contracted steeply from the COVID-era recovery peaks.
  8. Reported cap rates rose between 41 and 83 basis points, depending upon region and property classification.
  9. The risk premium in multifamily cap rates is now very thin compared to 10-year Treasuries.
  10. There are massive differences among major U.S. markets in housing tenure choice, impacting homeowner demand.
  11. The preponderant stress factor in the housing market going into 2024 is “affordability.”
  12. The long-running story in housing economics is under-production, leading to higher prices.
  13. REITs dropped 5.6% in value as a stock sector in 2023.
  14. CMBS data shows 136 loans disposed of with a loss, with an aggregate loan amount of $2.5 billion.
  15. The FTSE Nareit Index covers 141 traded property trusts with a total market capitalization of $1.2 trillion.
  16. In 2023, none of the REIT property sectors posted positive returns, although there were small improvements in several sectors.
  17. Industrial REITs rose 1.7%, Lodging was up 0.8%, Healthcare increased by 3.1%, Timberland grew 1.5%, and Data Centers were up 16.4%.
  18. The 2020 averaged just 994,000 new housing units annually, and the production of the 2020 is about on par with the fifty-year average for 1960-2009.
  19. Housing output relative to population is down 42% over the decades.
  20. Relative to population, housing output is down 42% over the decades

What is the HUD 223(f) loan product?

Section 207/223(f) insures mortgage loans to help with buying or refinancing existing multifamily rental housing in Kansas City. These projects may have been originally financed with either conventional or FHA-insured mortgages. Properties that need major rehabilitation are not eligible for mortgage insurance under this program. HUD requires critical repairs to be completed before the mortgage is approved and allows non-critical repairs to be completed after the mortgage is approved for insurance.

Benefits of a HUD apartment loan in Kansas City:

  • The Amount Based on Value.  The applicable percentage of the estimated value of the property after completion of repairs and improvements.
    1. 90% – for Section 202 & 202/8 Direct Loans
      87% – for projects with 90% or greater rental assistance
      85% – for projects that meet the definition of Affordable Housing
      83% – for market-rate projects
  • Loans are fully assumable.
  • These loans are considered non-recourse loans subject to limited recourse covering areas such as borrower fraud, misappropriation of proceeds, environmental, etc.
  • Fixed interest rates can be fixed on existing multifamily properties for 35 years. Under another program, HUD can finance construction loans for a construction term plus 40 years.
    1. Interest rates for 35 years typically are lower than Fannie Mae and Freddie Mac. Neither Fannie Mae of Freddie Mac offer 35-year amortizations.
    2. Unlike Fannie Mae and Freddie Mac should interest rates decrease over the life of the HUD loan the borrower can request a loan modification and obtain a lower rate on the loan.
  • The Debt Service coverage. For market-rate apartments the debt service coverage ratio (DSCR) 1.15x.  Compare this to Fannie Mae and Freddie Mac with required ratios from 1.25 to 1.30.  If the subject property qualifies for Affordable or for the Rental Assistance Program the DSCR falls to 1.11.  These lower DSCR can increase the amount of loan dollars.
  • Cash out refinancing the same loan to value and DSCR apply without adjustment. Look how Fannie Mae and Freddie Mac both reduce the maximum loan to value by 5% for substantial cash out.
  • You might have heard properties coming out of new construction have to wait three years after the issuance of a Certificate of Occupancy has been issued before refinancing into a HUD 223(f) loan. This restriction has been lifted and properties can immediately seek HUD financing without the three year wait.
  • HUD also modified the number of times the investors can take distributions. Did you know in recent past, investors using this loan product could only take distributions from the property twice per year.  Now the investors can take distributions without restrictions.

Downside to HUD Apartment Loan in Kansas City:

  • The number one complaint is the loan length of time to close. For an acquisition or refinance it typically takes about 7 months.  It is possible to shorten to six months and sometimes closing can go beyond 7 months.
    1. When buyers wish to utilize HUD 223(f) we work with bridge lenders. This bridge loan allows the buyer to complete the acquisition and allow for the extra time it takes to close and fund the HUD apartment loan in Kansas City or in any city.
  • Closing costs can run higher than Fannie Mae or Freddie Mac.
    1. Lender loan fee 1.0% (most often includes our fee)
    2. HUD Application 0.30%
    3. Processing Fee: $7,500
    4. Appraisal $5-$8,000
    5. Phase Environmental Report $5,000
    6. Mortgage Insurance Premium 25-60 basis points for the life of the loan.
  • Annual HUD Audits. This includes a financial audit and compliance with HUD rules.
  • Replacement reserves. HUD collects the first-year replacement reserves at the loan closing.  Fannie Mae and Freddie Mac normally start collecting these with the first payment and are not front-loaded as required by HUD.
  • Loan size. While HUD can go down to $3 million most HUD lenders require $5 million or more.  Additionally, the added expenses to close and annual audits can eliminate the financial advantages of a HUD loan compared to Fannie Mae or Freddie Mac.
  • When will the final interest rate be determined? Not until a day or so before funding (Loan Closing).  As mentioned above it takes months before the loan closes and the rate Current interest rates for HUD loans for Apartments in Kansas City can be found on Caffreyloans website..

For a free loan quote for your HUD loan in Kansas City contact Mike Caffrey:  [email protected]  Phone: (913) 402-7077 (landline)

On our web site you can read about specific loan products: www.caffreyloans.com/loan-products, offered by Freddie Mac, Fannie Mae, HUD/FHA, Commercial Mortgage Back Securities (CMBS) and other loan products. Want more details on sample interest rates for apartment check out Interest Rates for Apartment Loans also on our web site: www.caffreyloans.com/apartment-loans.

Have a question please contact
Mike Caffrey
Telephone: (913) 402-7077
[email protected]
LinkedIn