The FHA was formed in the 1930s to facilitate the construction, renovation, and acquisition of affordable housing. In 1965, the FHA officially became a part of the Department of Housing and Urban Development (HUD). HUD’s main function is to fund and promote the development of affordable multi-family housing. The program has expanded to include senior housing, assisted living facilities, skilled nursing facilities, and hospitals. However, developers are restricted by limitations on the amount of commercial (non-residential) space in qualifying projects.

The FHA does not originate loans. The agency instead insures loans that are made by commercial lenders. There are hundreds of licensed HUD/FHA lenders, each with diverse appetites, expertise, and qualifications. The insurance is available only to qualifying properties, and serves as a credit enhancement by which the lender can confidently offer higher loan proceeds at a lower interest rate than is otherwise possible. These fully amortizing, non-recourse loans are used to build, renovate, and hold rental apartment and healthcare properties.

In addition to the program’s implied U.S. Government guaranty, FHA-insured financing is distinguished by high loan to value ratios, low equity requirements, and flexible borrower qualification standards. Furthermore, extended fixed-rate loan terms and amortization schedules of 35 to 40 years reduce monthly debt service payments.

Note that despite their overall affordability, FHA-insured loans often carry additional costs. These include significant fees, closing expenses, and a required use of “fair wage labor” for construction. A mortgage insurance premium (MIP) is added on to the interest rate. The program also includes cost-per-unit restrictions that preclude projects from luxury housing specifications. Lastly, note that FHA loans take a long time to close, and for this reason can be difficult to utilize for acquisitions.

Apartment construction or substantial rehabilitation-Multifamily-Senior independent apartments FHA 221-FHA 221(d)(4)-FHA 221(d)(4)

Apartment acquisition or refinancing-Market rate affordable-Refinancing of property with existing FHA-insured loansHA 223-FHA 223(f)-FHA 223(a)(7)

Mark-to-market restructuring through HUD’s OAHPFHA 223(a)(7)

Refinancing of section 202 HUD direct loanFHA 223(f)

Refinancing of section 236 loanFHA 223(a)(7) or FHA223(f)

Senior independent apartmentsFHA 223(f)

Nursing homes new construction or substantial rehabilitationFHA 232

Assisted living facilities new construction or substantial rehabilitationFHA 232

Board and care facilities new construction or substantial rehabilitationFHA 232

Hospital construction or substantial rehabilitation

Latest News

Los Angeles Private Lender Expands into Distressed Residential Market

October 17th

Two Real Estate Powerhouses Unite to Offer Information, Capital

October 17th


October 17th

San Francisco Chronicle

October 17th