All Forum Posts by: Darryl Dahlen

If your closing costs are 500k, then you would need 625k in funds. I've looked to find the guideline regarding that requirement on HUD's website, but haven't found it yet. That requirement comes from my lender, so I've never questioned it.
Regarding the 500K. If the lender sees you've borrowed the money to obtain the necessary funds to close, they will want to know the terms with which you borrowed those funds. You will almost certainly have to prove/show to them their funds are not at risk from the note being called, balloon payment, etc.
I don't want to speculate as to what the process would be in your situation, but I would definitely ask prior to you entering into an arrangement for the money.
I still don't know if your project qualifies for a 221 loan since you haven't mentioned how much square footage the commercial space occupies compared to the total square footage. I should also note that the commercial space cannot account for more than 15% of the total gross income for the property.
Not to rain on your parade, but I would suggest you obtain a market study from an entity familiar with HUD (this is critical). My lender would ask for a market study before lifting a finger, but every lender is different. If the market study does not show a need for more units, there is no need to go any further.
You also need to know if HUD is actively involved in other projects in the area. If they are, those units will be subtracted from the number of units outlined in the study.

Ah, good point. I didn't consider the fact this could be a rehab scenario.

Can you explain what you mean by mixed-use? The 221(d)4 program is geared towards the construction/rehab of multi-family projects and limits the any commercial use of the property to 10% of the total gross square footage.
To address your question. If you were to find 500k from an investor, the HUD lender would more than likely want to see the terms of the loan to ensure that lender could not jeopardize their position or that the terms of the loan adversely affect the numbers used to qualify you.
Also, you must have 125% of the amount of cash required to close the loan, so you need to know what that amount is well in advance. HUD loans are not cheap as there are many fees involved (replacement reserve is .6% of the total improvement costs, HUD application fee which is .3% of the loan amount, market study, phase 1, HUD inspection fee, annual audit, etc).
STILL, you get a 40 year non-recourse loan which no conventional lender can touch at up to a 90% LTV.
My concern would be the mixed-use aspect.

Valerie said it well so I won't try to re-write what she has already pointed out.
What are you trying to do? If your credit is good, and the DTI works, why are you pursuing hard money? Hard money almost always uses lower LTV percentages than conventional financing so that can't be the reason. Are you looking for cash-out?

I'd be interested to see if your bank can compete with this program and what their reaction will once they see HUD's terms. I'll email you a program sheet from my HUD lender so you read up on the details of the program, but here are the basics.
As of last week, the floor rate on a rate and term refi was 5% with HUD.
You get a 35 year fully amortizing loan that is fixed
Non-recourse
Assumable
Up to 85% LTV, but you'll pay MIP
Typically, the PPP is a 2 year lockout with a step-down PPP after that (8,7,6,5, etc), but you "can" negotiate that to some degree.
HUD does have some costs that a bank won't. Their replacement reserve requirement can be a pain, and their anual audit fee of $2500 bucks is worth mention, but if you plan on keeping the property, a fixed rate for 35 years is hard to beat.

Hello from a fellow Mainer. I'm sure you'll fit right in here and will find a lot of the information useful.

You can refi out of a bridge loan into a HUD 223(f) loan providing you qualify.
HUD loans are ideal for those who are going to hold onto the property on a long term basis as they are expensive to obtain and have a hefty pre-payment penalty (PPP).
Here are some facts for you to consider:
-Most HUD lenders don't entertain loans under 2M, but I've gotten a term sheet on a 1.5M project.
-The property must be stabilized at 90% occupancy for 3 consecutive months to be considered.
-HUD likes you to have prior experience owning multi-family properties.
-No cash-out allowed on properties newer than 3 years and the borrower must have held the current note for 2 years (this is a new rule).
- Typically, the most expensive component is the replacement reserve, but there are also HUD inspection fees, a phase 1, an application fee of 1/3 of 1% of the loan amount, MIP if over 80%, and audit fee, etc.
- HUD 223(f) loans go up to 85% LTV on a 35 year term
-Typical PPP is 10 years. This is normally broken down into a 2 year lockout followd by a step-down PPP.
-Loans are assumable and non-recourse.

That covers most of the basics, but if you have a specific question please ask.

Jason, as you now know, HUD loans are not for everyone. They are expensive, time consuming, and have no shortage of requirements. Still, they are advantageous for those who plan on holding onto the property long term since the terms are hard to beat.
If you are referring to the 223 program, which allows for market rents, it is similar to all HUD loans in that it is not easy to qualify for
The property has to be at 90% occupancy for 3 months, HUD has clamped down on cash-out refis, and they like very much for you to have relevant multi-unit ownership experience, and the replacement reserve can be expensive. That is just a few of the hurdles, but it gives you an idea of what you're in for.
I hope this answers your question, but if not, let me know and I'll do my best to do so.

Given the low dollar amount, there might be an alternative by obtaining a loan against your stock/mutual fund portfolio.

I won't bore you with the details here as I'm not trying to sell you, but I'd be happy to share the info with you if you want to learn more.

Great point Will. I will be sure to bring this matter up. Even though I am no longer involved in the loan, looking out for a client's best interest has a way of generating referrals.
NASB was willing to overlook the seasoning issue since the property is owned free and clear and the owner had done some capital improvements on it. Given what the loan amount was, we could have used the PNS as a bases for the loan amount.
Thanks again for all the great input!