FHA207(m) and FHA221d4 loans for m/h land lease and apartment communities (using HUD Code Homes)
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Loan Information
A Federal Loan Guarantee program for private lender financing of manufactured housing land lease communities (mobilehome parks)
- Purchasing an Existing Community (with rehabilitation)
- Re-financing an existing community (with rehabilitation)
- Financing an existing community by residents as a cooperative
- Acquisition of land and construction of a new community development
Loan Amounts
Loan amount is limited to $20,700 per homesite including land, existing debt or acquisition price, plus rehab or new construction costs, interest, taxes, insurance and other allowable fees during the construction phase of the loan and before audit and Final Endorsement. A High Cost Percentage (HCP) is used as a multiplication factor increasing the allowable loan per homesite by area. A list of current HCPs may be found at:
- Purchasing an Existing Community (with rehabilitation)
- Re-financing an existing community (with rehabilitation)
- Financing an existing community by residents as a cooperative
- Acquisition of land and construction of a new community development
Funding:
- May be for land + infrastructure & amenities only4
- Construction: interest only until home-sites at stabilized occupancy
- Audit: 60 days after construction finished or at stabilized occupancy
- Final Endorsement: after audit, and loan starts amortization and collection of MIP
- May include Sponsor's overhead, profit, property taxes, insurance and interest during construction
- Initial Endorsement 30 days after Firm Commitment (acquisition plus first months construction draws) .
Limitations:
- No funding for excess land
- All construction must be on-site
- Property must be properly zoned or grandfathered
- No environmental, flood plain or archeological issues
- Investors and management subject to "debarment" clearance
- Construction labor costs must meet David-Bacon Act minimums
- Must be 8 home-sites or more + Mortgagees (lenders) minimums
- No limitations on lease payment rates, but loan maximum may be limited to market rates
- 111% DSC ratio on NOI which includes external management and maintenance reserves in expenses
- No limit on % of value for rehabilitation but must improve marketability or health & safety of residents
- No specific requirements for residents other than certification of compliance with Federal Fair Housing Act
Timing:
- TAP processing by the HUD staff (not MAP)5
- Third Party Reports: ordered after Invitation to submit
- Two informal stages: preliminary feasibility, mortgagees engagement,
- Two formal stages: pre-application, application direct to Firm Commitment
- Minimum processing time: 4 months, 6 months more typical to Initial Endorsement (construction loan closing)
Rates and Fees:
- 0.2% audit fee (before Final Endorsement)
- 2.0% working capital (may be secured with LOC)
- 3.5% statutory limitation (inclusive of brokerage)
- Interest rates tied to 10 year T-bill at Initial Endorsement
- 0.3% application fee (submitted to HUD with Application for Firm Commitment)
- Operating Deficit & Interest reserves LOC required (for non-cash flowing projects)
Approval Enhancements:
- Previous m/h community management experience is preferred but not mandatory
- Proof of viable resident home financing which meet target buyer's income and credit worthiness
- Historical vacant home-sites fill rates sufficient to create NOI to support proposed loan at 111% DSC
- Current Net Operating Income which meets 111% DSC without the need to lease additional home-sites
- Favorable markets (hard to obtain approvals in areas with high vacancies, high unemployment, or low incomes
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1 This unique non-recourse loan guarantee program has been created by Congress to assist in the development of new manufactured housing land lease communities or the rehabilitation of existing communities by private lenders. The project must be pre-approved by the HUD staff at a HUD Multi-Family office, as submitted by an approved HUD mortgage lender.
4 Communities with new HUD code homes on homesites as apartments may use the FHA 221(d)4 program, if the land is properly zoned for m/h.
5 Although the program is intended to be processed as TAP (Traditional Application Processing), some HUD offices are processing the applications using the MAP (Multi-family Accelerated Processing) system.
FAQs:
May it be used for RV parks?
Income from permanent RV home sites may only be used as an "ancillary income" source. RV units may temporarily occupy homesites.
May it be used for sub-divisions or condominium parks?
No, but it may be used to create and finance a cooperative community with the residents as the primary shareholders. Individual home-sites may not be conveyed separately but must remain as a part of a community.
Why haven't there been more of these loans issued in the past few years?
New community development or loans on projects with large numbers of vacancies have been required to establish viable home financing programs for home buyers. These chattel loans on leased homesites have not generally been available at rates and terms which were competitive with entry level site built homes until recently. Now with the July 2010 updates to the FHA Title I financing program, selling homes into vacant homesites is realistic, provided the sponsor can show plans for a marketing program using local or in-community retail sales operations.
What is the loan minimum?
Most lenders require a loan of at least $1.5M, but there are exceptions. Check with your mortgagee (lender).
May it be used for a seniors community?
Yes, if the area HUD office approves provisions for age 55+ communities, otherwise communities financed may be limited to age 65 or over.
May rental homes be included in the community?
Yes, but only the income from the home-site rent portion of the rent may be used in the loan underwriting.
What reporting requirements are there?
A rent roll, and operating statement are required to be submitted annually.
Are there limitations on the size and/or type of homes?
All homes must be built to the HUD Codes and may be single or multi-section.
What are the construction standards?
Construction standards are the same as for any other standards which are applied by the jurisdiction. Must have 1 off-space parking site for every 8 homesites, and hookups to public water and sewer are preferred but not absolutely required. Home-sites must be improved to current local standards during rehabilitation.
When I sell the community, may I take back a sub-ordinate or "second" mortgage?
The only liens or encumbrances allowed on the property is the HUD insured mortgage. When the property is sold, there must be no additional liens placed on the property to secure the seller's equity participation.
How long does processing take?
Minimum statutory processing takes 4 months. Most loans take up to 6 months or longer depending on the Sponsor's level of engineering documentation prior to submitting the Application for Firm Commitment.
How much are loan fees?
Not including processing fees, and costs of third party reports (which are credited to equity requirements at closing) or interest reserves, operating deficit account, and working capital (which may be secured with LOCs), the statutory fees are 3.5%. Mortgages may negotiate lower fees for larger loans.
How can I know if HUD will approve my project?
Funding on the loan by the private lender is completed within 30 days of the issuance of a Firm Commitment Letter by HUD. During the application process, the HUD staff has the responsibility to further determine overall market conditions and valuation to current and anticipated market standards. Their opinions are expressed at an informal pre-application meeting which has been setup by a HUD approved lender, prior to making the application for Firm Commitment. It is recommended going through the process of preliminary feasibility, prior to a formal application. This will assure compliance with the technical requirements (subject to later verification) of the program, and provide a degree of comfort in proceeding with the application process.
