CWCapital

FHA 221(d)(3) - New Construction or
Substantial Rehabilitation of Rental Housing
for Non-Profit Sponsors

ELIGIBLE PROPERTIES:
Proposed new construction or substantial rehabilitation of apartment properties.

In order to qualify as a substantial rehabilitation project either (1) the cost of repairs, replacements and improvements exceeds the greater of 15% of the estimated replacement cost after completion of all repairs, or $6,500 per unit adjusted by the local FHA high cost percentage; or (2) two or more building systems are being replaced.

Affordable housing projects must (1) have a recorded regulatory agreement in effect for at least 15 years after final endorsement, and (2) meet at least the minimum Low Income Housing Tax Credit restrictions of 20% of units at 50% of the Area Median Income (AMI) or 40% of units at 60% AMI. Mixed income projects may qualify if they meet the above criteria.

BORROWER:
The borrower must be chartered under Chapter 501(c)(3) of the Internal Revenue Code.

LOAN TYPE:
Construction and permanent loans.

MAXIMUM LOAN:
New Construction:

Amount equal to the lesser of:

1. Statutory unit mortgage limits adjusted by cost not attributable to dwelling use; or
2. Depending on the rental mix, the following DSCR and LTC ratios:
                                              DSCR         Loan Ratio
   

   ≥90% Rental Assistance   1.05           100%
   Affordable                          1.11           95%

Substantial Rehabilitation Projects:

Amount equal to the lesser of the three criteria above; or

1. 100% of the sum of FHA estimated cost of repair and rehabilitation and the “as is” value of the property.

INTEREST RATES:
Fixed rate determined by market rates at the time of rate lock.

AMORTIZATION:
Construction loan which converts into a 40-year, fully amortizing loan.

PERSONAL RECOURSE:
None, except for standard exceptions to non-recourse which are the responsibility of the Key Principal(s).

ASSUMABILITY:
Assumable, subject to CWCapital approval.

SUBORDINATE FINANCING:
Generally not permitted, special requirements apply.

PREPAYMENT:
Negotiable, but cannot be prepaid in full without prior FHA approval.

WAGE REQUIREMENTS:
Adherence to Davis-Bacon prevailing wage laws is required.

ANNUAL MORTGAGE INSURANCE PREMIUM:
During the construction period, the MIP is paid annually in advance, based on a rate established by FHA. The rate is fixed at initial endorsement. After commencement of amortization, the MIP is escrowed monthly based on the average principal balance.

ESCROWS:
Monthly escrows for real estate taxes, property insurance, reserves for replacement (as determined by FHA) and mortgage insurance premiums.

COMMERCIAL SPACE:
Up to 10% of the gross floor area of the project.
Commercial income cannot exceed 15% of gross project income.

ENVIRONMENTAL ISSUES:
Special rules apply for properties which are located in Flood Hazard Zones as designated by FEMA. Phase I site assessment required.

APPLICATION FEE:
A non-refundable fee of 0.3% of the requested mortgage amount is payable to FHA at the time of application.

INSPECTION FEE:
0.5% of the mortgage amount (or cost of improvements for Sub-Rehabilitation projects) is payable to FHA at Initial Endorsement.

FINANCING AND PLACEMENT FEES:
Negotiable.

BOND ENHANCEMENT:
Program can be used to provide a AAA rating of tax exempt bonds.

CLOSING EXPENSES:
Standard transaction costs, including legal fees, title insurance and survey.

DEVELOPER’S FEE:
8% of the mortgage.  Minimum of $40,000 and a maximum of $400,000 + 2% of the mortgage over $5M.

FURNITURE, FIXTURE & EQUIPMENT:
Reasonable costs of furniture, fixture and equipment may be included in the mortgageable project costs.

OTHER FHA REQUIREMENTS:
Cash escrows or letters of credit are required for the following:

1. Forecasted operating deficits, to be released one year after final endorsement or after 6 months of breakeven operations have been achieved, as determined by FHA.
2. 4% of the mortgage amount for working capital, to be released one year after project completion if loan is not in default.
3. 100% performance and 100% payment bond or a letter of credit equal to 15% or 25% (depending on structure type) of the construction contract.
4. If not covered by performance and payment bond, 2.5% of the construction contract amount as latent defects guarantee.
5. 100% of off-site construction costs.

FHA PROCESSING TIME:
FHA Multifamily Accelerated Processing (MAP) Procedures:

1. Pre-Application Stage: 45 days for review. 
2.  Firm Commitment Stage: 45 days for review.

PRELIMINARY SUBMISSION PACKAGE:
Include the following in your request for a loan quote:

1.  Property description and location map.
2.  Number of units with breakdown of proposed rents by unit type.
3. Pro forma operating budget, including breakdown of other income.
4. Development cost estimate.
5. Acquisition cost of land.
6. Sponsor resume.