HUD 221(d)(4) Loan for Multifamily Construction HUD 221(d)(4) Loan for Multifamily Construction

By Multi-Family USA Editorial Team · Reviewed by Josh Bauerle · Published 2026-10-07 · Updated 2026-10-08 · 12 min read

HUD 221(d)(4) in one paragraph

Section 221(d)(4) of the National Housing Act lets the Federal Housing Administration (FHA) insure a lender’s mortgage on the new construction or substantial rehabilitation of multifamily rental housing with five or more units. HUD describes it as a program for “long-term mortgages (up to 40 years)” that can be financed with Ginnie Mae securities, and there are no tenant income limits on market-rate projects (HUD multifamily program descriptions). Because HUD, not the lender, carries the insurance risk, lenders can offer leverage and a term that private construction lenders rarely match. The price is paperwork, federal labor rules and a long approval path.

This page is an educational guide from a lender-matching service. We do not originate or fund loans: we help sponsors compare HUD-approved lenders and other capital sources. Program terms below come from HUD documents we read directly, and we say where a term is set by the lender instead.

Terms at a glance

Lender fees, financing and legal costs, and the exact rate are set by your lender and the Ginnie Mae investor. They vary by deal, so the table does not put numbers on them.

Ground-up urban mid-rise projects are a typical use; see mid-rise urban multifamily financing.

How the loan amount is decided

HUD’s MAP Guide says the maximum loan is the lesser of four numbers: the amount requested, the amount allowed by statutory limits, the amount supportable by the debt service coverage ratio, and the amount supportable by the loan ratios. The lowest controls.

Loan to cost. HUD applies the percentage to estimated replacement cost. For substantial rehab, that cost includes the property’s “as is” value. On January 8, 2025, HUD’s Mortgagee Letter 2025-03 raised the market-rate ratio from 85% to 87% and the affordable ratio (LIHTC with a rent advantage) from 87% to 90%. Projects with 90% or more rental assistance stay at 90% (HUD Mortgagee Letter 2025-03). The change applies to any application that had not reached initial endorsement.

DSCR. The same letter lowered the market-rate minimum from 1.176 to 1.15 and the affordable minimum from 1.15 to 1.11, with a 7% vacancy factor for market-rate and 5% for affordable. Use our commercial DSCR calculator to see how your underwritten NOI compares, but remember HUD, not you, picks the vacancy and expense assumptions.

Middle-income option. Mortgagee Letter 2026-1 (which supersedes the earlier ML 2025-2) sets out a path for projects where at least 50% of units are targeted to tenants earning up to 120% of area median income, with no rent advantage. It sets 90% LTC, a 1.11 DSCR and a 7% vacancy factor, against 87% and 1.15 for market-rate projects. The targeted units need a use restriction, monitored annually by a state or local government, of at least 10 years, and in no case less than 5 years (HUD Mortgagee Letter 2026-1).

Per-unit limits. Criterion 4 caps the loan per family unit based on statutory limits and HUD’s annual high-cost percentage for the jurisdiction. In expensive markets this can bind before the percentage tests do, so ask your lender to run it early.

For a quick screen, our loan sizing calculator and debt yield calculator show how leverage, coverage and yield pull in different directions, and the cap rate and NOI calculator helps you test the stabilized value.

Worked example (hypothetical numbers)

This example uses round, made-up numbers to show how the tests interact. It is not a quote or a prediction.

• Total replacement cost: $24,000,000
• Underwritten stabilized NOI (after HUD’s 7% vacancy): $1,600,000
• Assumed all-in rate for sizing (note rate plus 0.25% MIP): 6.25%, 40-year level amortization
• Annual constant at that rate: about 6.81%

The DSCR test is lower, so it controls: roughly $20.4 million, or about 85% of cost. Sponsor equity would be about $3.6 million, plus any cost HUD does not allow. If rates were 50 basis points lower, the DSCR-supported loan would rise and the 87% LTC cap would take over. This is why the interest rate lock matters and why you should size against several rate cases.

On the same hypothetical loan, the upfront capitalized MIP for a two-year construction period would be about 0.25% x 2 = 0.50%, or roughly $102,000. The HUD application fee at $3 per $1,000 would be about $61,000, and the inspection fee at 0.5% about $102,000. All three are examples built from the published rates, and your lender will confirm the real amounts. Our closing cost calculator helps you budget the rest.

Construction period and interest

HUD can insure both the construction and permanent periods (“Insurance of Advances”) or only the permanent period (“Insurance Upon Completion”). Davis-Bacon applies to both. Under Insurance of Advances, one note covers construction and the permanent loan, and the note can carry different rates for the two periods. The term runs up to 40 years counted from completion of construction, so total time under HUD insurance is the construction period plus the amortization term.

Interest during construction is a project cost, funded within the loan, so it counts toward the replacement-cost test. HUD’s formula for substantial rehab uses 50% of the mortgage amount times the construction rate times the construction years (construction months plus two, divided by 12), or the lender’s documented draw-schedule estimate if higher. Model it as a real cost line in your budget.

Davis-Bacon, cost certification and completion security

Four federal requirements shape the budget and schedule:

1. Davis-Bacon wages. The general contractor and all subcontractors must pay prevailing wages and file weekly certified payroll. HUD says the rule applies to new construction and substantial rehab loans, whether HUD insures the advances or only the permanent loan. Off-site improvements and demolition completed before the “federal nexus” (the pre-application or Firm Commitment filing) are exceptions (HUD MAP Guide, Chapter 3). Price labor on the wage determination, not on a private-market bid.
2. Cost certification. An independent CPA certifies actual costs after completion. HUD can reduce the final endorsed loan based on the certified amounts, so do not assume a draw-down of every dollar budgeted.
3. Assurance of completion. The general contractor must provide a combined performance and payment bond, cash or a letter of credit in an amount HUD approves.
4. Single-asset borrower. The mortgaged property must be the borrower’s only asset, with one borrower entity. Natural persons and tenants-in-common structures cannot be the mortgagor, though they can hold upper-tier interests.

These steps cost time and money, which is why 221(d)(4) rewards experienced HUD teams and punishes first-timers who treat it like a bank loan.

Mortgage insurance premium

HUD cut the annual MIP for all FHA multifamily programs to 0.25%, the statutory minimum, for applications submitted or amended on or after October 1, 2025 that had not been initially endorsed. Before that, 221(d)(4) carried 65 basis points. The notice also eliminated the green, affordable and broadly affordable reduced categories. For new construction with advances insured, the upfront capitalized premium is the annual rate applied to the whole construction period, rounded up to the nearest year (Federal Register notice, September 23, 2025). HUD declined to apply the lower rate to loans that were already initially endorsed.

Timeline: what to expect

HUD does not publish a single closing date, and we have not found an official figure for new construction, so we do not give one. What the MAP Guide does set:

• Concept meeting and pre-application. HUD responds in writing within 5 business days of a concept meeting. An invitation letter is effective for 120 calendar days, and the lender must tell HUD within 30 days if it will file a Firm Commitment application.
• Firm Commitment. The application must be filed within 120 days of the invitation letter, with one possible extension of up to 90 days.
• Market study. The market study for a Firm Commitment application must be within 180 days of issuance.
• Initial endorsement and construction. The rate is locked, the note is endorsed and construction begins under HUD inspection.
• Final endorsement. After completion, cost certification and HUD review set the final insured amount.

Realistically, plan on a long approval period before the first draw, then your construction schedule, then cost certification. Ask your lender for their recent Firm Commitment times in your HUD region, since regional offices differ.

Who it fits

• Sponsors building or substantially rehabbing 5+ units who want high leverage on cost and a fixed permanent rate locked at the start.
• Developers with a hold strategy of years, not months, because early exit costs depend on negotiated prepayment terms.
• Teams with a HUD-experienced architect, general contractor and lender, and enough liquidity for equity, reserves and a long carry.
• Middle-income and affordable projects that can use the 90% LTC and 1.11 DSCR options.
• Sponsors who value non-recourse debt and can accept a single-asset borrower and regulatory agreement.

Who it does not fit

• Sponsors who need to close in weeks or start work right away. Early-start rules exist, but they add approvals and risk.
• Quick flips and short-hold value-add. See bridge value-add loans instead.
• Stabilized acquisitions or refinances. Those fall under HUD 223(f) or the agencies, so read the agency stabilized guide and the broader FHA HUD multifamily overview.
• Projects with fewer than five units, or 1-4 unit rentals. Those belong to DSCR Authority.
• Sponsors who cannot use prevailing wages in the budget, or cannot hold a bond or letter of credit.
• Individuals who need to sign personally as the borrowing entity. HUD requires a single-asset entity.

Compared with other construction debt

Bank terms vary widely by lender and market, so treat that column as a typical pattern, not a rule. Read more in our multifamily construction financing guide and the FHA vs agency comparison.

Checklist before you ask for quotes

1. Total project budget with contingency, soft costs and interest during construction.
2. A site-specific market study plan and a realistic stabilized NOI.
3. A general contractor who has worked with Davis-Bacon and HUD draws, plus bonding capacity.
4. A single-asset borrower entity and an organizational chart showing upper-tier owners.
5. Equity and reserves proof for the gap between loan and cost.
6. Sources for any subordinate or gap funding, which HUD reviews.
7. Two or three HUD-approved lenders to compare on rate, fees and prepayment.

Check the current multifamily rates for reference rates, the multifamily mortgage calculator for payment scenarios, and the yield maintenance calculator when you compare prepayment on other products. When you are ready, send the deal through our deal review. It is a free first look at which lenders may fit, and it does not involve a credit pull.

Related loan programs

Compare this with HUD 223(f) loans and bank balance-sheet loans, which cover other financing routes for 5+ unit buildings.

Sources

• HUD, Descriptions of Multifamily Programs, Section 221(d)(4).
• HUD, Mortgagee Letter 2025-03, January 8, 2025 (DSCR and LTV/LTC changes).
• HUD, Mortgagee Letter 2026-1, January 22, 2026 (middle-income option; supersedes ML 2025-2).
• HUD, Multifamily Accelerated Processing (MAP) Guide, March 2021 edition, Chapters 3, 4, 7 and 11. Chapter 3 ratios were changed by the mortgagee letters above, and HUD may have revised the guide since.
• HUD, Changes in Mortgage Insurance Premiums Applicable to FHA Multifamily Insurance Programs, 90 FR 45789, September 23, 2025.

HUD changes its underwriting standards by mortgagee letter, so confirm current limits with a HUD-approved lender before you commit equity or contracts. This content is educational and does not replace advice from financing, legal, tax and accounting professionals.

Frequently asked questions