What are HUD’s Large Loan Specifications?

The following underwriting and mortgage credit requirements will apply to Large Loans:

1. Principal’s net worth and liquidity requirements for loans greater than $120 million:

Principals of the borrowing entity must have, in aggregate, net worth equal to at least 20% of the loan amount and liquidity equal to at least 7.5% of the loan amount. This requirement may be waived for sponsors of subsidized affordable housing properties.

2. Underwriting ratios for large loans:

For New Construction/Sub-Rehab large loans under Sections 220, 221(d)(4), 231, and 241(a):

• Market Rate and LIHTC (without rent advantage)

  • 1.30x DSCR — 75% LTV/LTC

• Affordable

  • 1.25x DSCR — 80% LTV/LTC

• >90% Rental Assisted

  • 1.15x DSCR — 87% LTV/LTC

• Section 241(a) loans are limited by statue to 90%.

For refinancing large loans under Section 223(f):

• Market Rate and LIHTC (without rent advantage)

  • 1.30x DSCR — 75% / 70% LTV/LTC (without / with cash out)

• Affordable

  • 1.25x DSCR — 80% / 70% LTV/LTC (without / with cash out)

• >90% Rental Assisted

  • 1.15x DSCR — 87% / 80% LTV/LTC (without / with cash out)

3. Increased Reserves for Large Loans:

New construction/sub-rehab projects need an appropriately sized operating deficit reserve to help assure success of these projects during their early, most vulnerable stages of rent-up. For large loans, the minimum operating deficit reserve amount shall be the greater of 12 months amortizing debt service plus MIP or the amount calculated per MAP Guide Chapter 7, Section 7.14.

For large loans under Section 223(f), for properties with certificates of occupancy issued less than 3 years prior to application, a debt service reserve is required which shall be the greater of 12 months debt service (principal, interest, and MIP) or 50% of any excess loan proceeds (cash out). The debt service reserve will be released upon six consecutive months of operating results meeting or exceeding the underwritten debt service coverage requirement, including any such months prior to endorsement. If prior to endorsement six consecutive months of underwritten debt service coverage have been achieved, no operating deficit reserve is required.

4. Extended Lease-Up Period:

A large loan is often associated with large property size measured in number of units, which may indicate a lengthy lease-up or absorption period. The absorption period for estimating market demand is up to a maximum of 18 months. HUD Regional Office Directors may waive the 18-month absorption period restriction only in cases where there is an unusually strong market that will support initial rent-up to sustaining occupancy beyond 18 months and where the Borrower has clearly demonstrated successful experience with developing such projects in the recent past. Such projects may require larger operating deficit or debt service reserves.

5. Experience requirements for large new construction or substantial rehabilitation projects with loans greater than $25 million:

Large Loan borrowers must have substantial prior experience developing, constructing and owning multifamily projects that are similar in size and scope to what is proposed. Borrowers or contractors without substantial prior experience in multifamily construction, lease up and property operations, and who have not previously successfully owned or developed other large multifamily projects, will not qualify for a Large Loan under any of the Multifamily New Construction or Substantial Rehabilitation programs. Borrowers with no experience operating multifamily rental housing will not be considered for acquisition financing under Section 223(f) unless there are significant mitigants (e.g. the principals have clean credit, strong diversified financial capacity, and the property will be managed by a third party management agent with relevant and positive HUD experience, conservative valuation.)

Related experience in single family development or in development of commercial properties is not an acceptable substitute for the required prior multifamily experience and may not be a basis for a waiver of the experience requirement.