HUD 223(f) Loan: Terms, Limits and Requirements HUD 223(f) Loan: Terms, Limits and Requirements

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

What is a HUD 223(f) loan?

A HUD 223(f) loan is a mortgage insured by the Federal Housing Administration (FHA) under Sections 207/223(f) of the National Housing Act. It finances the purchase or refinance of an existing multifamily rental property that does not need substantial rehabilitation. The lender is a HUD-approved “MAP” mortgagee, not HUD itself. HUD insures the loan and the lender funds it, with long terms and high leverage as the main draw.

HUD’s program description for Sections 207/223(f) sets the basic shape: the property must have at least five residential units with complete kitchens and baths, and must have been completed or substantially rehabilitated at least three years before the application. Underwriting rules sit in the HUD Multifamily Accelerated Processing (MAP) Guide, Handbook 4430.G, Chapter 3, Section 3.7.

This page covers the US commercial multifamily loan only. It is not about FHA loans on one-to-four-unit homes, and Multi-Family USA is a lender-matching service, not a lender. We can route a HUD-ready deal to HUD-approved lenders on our US desk. We do not originate, price or insure the loan.

HUD 223(f) terms at a glance

The LTV and DSCR figures are the HUD ceilings. Your lender’s rate, reserves and your property’s actual NOI decide how close you get.

How HUD sizes a 223(f) loan

HUD does not size to one number. Under Mortgagee Letter 2025-03, the maximum loan is the lesser of four amounts:

1. The mortgage amount you request.
2. The amount allowed by statutory limits, a per-unit cap that HUD publishes and that varies by program and area.
3. The amount supported by the applicable debt service coverage ratio.
4. The amount supported by the applicable loan-to-value ratio.

The January 8, 2025 letter lowered the market-rate DSCR from 1.176x to 1.15x and raised market-rate LTV from 85% to 87%. For affordable properties with a rent advantage to market (LIHTC rents at least 10% below market under the MAP Guide’s definition), DSCR dropped from 1.15x to 1.11x and LTV rose from 87% to 90%. Properties with 90% or more of units on rental assistance were already at 90% and 1.11x and did not change. HUD says the changes apply to any application that had not reached initial endorsement. The cash-out refinance test was left alone.

Two sizing points surprise first-time HUD borrowers:

• HUD underwrites its own NOI. The lender and HUD apply their own vacancy, expense and reserve assumptions to your rent roll and T-12. Your pro forma NOI is a starting point, not the number.
• The premium and reserves are part of the cost of the loan. Ask your lender whether the MIP is included in the debt service used for the DSCR test on your deal. If it is, a higher premium directly cuts proceeds. The worked example below assumes it is.

Run your own numbers first with the loan sizing calculator, the commercial DSCR calculator and the debt yield calculator. If you want the principal and interest payment for a given loan, rate and 35-year schedule, the multifamily mortgage calculator does it. Value is usually the other half of the question, so check it with the cap rate and NOI calculator.

Eligibility: what HUD checks

The property

• At least five residential units. Commercial space is capped at 25% of net rentable area and 20% of effective gross income (MAP Guide 3.7.18).
• A certificate of occupancy at least three years old, with documented stable occupancy of at least 85% and stable operating results (MAP Guide 3.7.2).
• Fee simple ownership, or a HUD-approved ground lease of at least 99 years that is renewable, or with at least 50 years remaining from the date the mortgage is executed (MAP Guide 3.7.19).
• Not a manufactured home park or group home, and not a project that needs substantial rehabilitation (MAP Guide 3.7.3).

The borrower

• Acquisition buyers with no multifamily operating experience are generally not considered unless there are significant mitigants, such as strong finances, a conservative valuation and an experienced HUD-qualified management agent (MAP Guide 3.7.4).
• If the buyer owned the property before the application, HUD treats it as a refinance. In a purchase, any identity of interest between buyer and seller also pushes it into refinance processing, with an exception for certain affordable acquisitions (MAP Guide 3.7.4).
• HUD reviews the principals and parties in control and their previous participation in HUD programs, so expect a longer disclosure package than a typical bank loan.

The 3-year rule, in plain English

The program page says the property must be completed or substantially rehabilitated at least three years before the application. The MAP Guide turns that into practice:

• Certificate of occupancy three or more years old: eligible for ordinary 223(f) sizing, with at least 85% stable occupancy documented.
• Newer than three years: accepted only once the property has hit the programmatic DSCR for at least one full month, and then with extra requirements, including that DSCR for three consecutive months before endorsement, a rent roll, lease-up history and disclosure of concessions. HUD also suggests a concept meeting for properties with less than three years of operating history.

If you own a 2-year-old lease-up and want HUD takeout, expect a harder file and a longer clock. If you are two to three years out, it may be cleaner to wait or to bridge.

Repairs: light work only

223(f) is not a construction loan. The MAP Guide splits repairs into critical and non-critical:

• Critical life-safety repairs must be finished before endorsement.
• Critical accessibility repairs should be finished before endorsement, or as soon as possible, within 12 months of closing, if that is not possible.
• Non-critical repairs approved by HUD may be completed after endorsement, within 12 months, with a possible extension of up to six months for unusual circumstances.
• Deferred repairs need detailed work write-ups, credible bids for items above $35,000, and an escrow at closing equal to 120% of their cost.
• HUD’s program page says the repairs cannot involve replacing more than one major system. A program that would take more than about a year is treated as substantial rehabilitation, which does not fit 223(f). For that, see the FHA and HUD multifamily loan page (221(d)(4)) or a bridge value-add loan.

Cash-out refinance

A cash-out 223(f) refinance is allowed, tested under a separate HUD criterion rather than the standard LTV (the cash-out test was unchanged by Mortgagee Letter 2025-03). When repairs are deferred, 50% of cash-out proceeds, after mortgageable closing costs and assurance of completion, stay in escrow until the repairs are done and HUD approves the release (MAP Guide 3.7.12). HUD also says statutory limits will not be increased to raise the amount of cash-out equity, so ask your lender early what the cash-out test allows.

Mortgage insurance premium (MIP)

HUD cut multifamily MIPs to the statutory minimum. In a September 23, 2025 Federal Register notice, HUD set the rate at 0.25% annually for all FHA multifamily programs, for applications submitted or amended on or after October 1, 2025 that have not been initially endorsed. The same notice shows the 223(f) upfront premium falling from 100 basis points to 25, and the market-rate annual premium from 60 to 25. HUD eliminated the Green and Energy Efficient, Affordable and Broadly Affordable rate categories because they became obsolete at a flat rate.

What that means for you:

• There is no longer a separate lower “Green MIP” rate to chase. Older guides that quote 0.25% for green and 0.60% to 0.65% for market rate predate the change.
• The upfront premium is capitalized into the loan at initial endorsement, so it adds to the balance rather than to your closing check.
• If your application was submitted before October 1, 2025 and not yet endorsed, ask your lender whether it was amended onto the new rate.

Fees and closing costs

HUD loans have more line items than most, but several have hard caps:

• HUD application (exam) fee: $3 per $1,000 of requested mortgage, earned and non-refundable once HUD accepts the application. On a $10M loan, that is $30,000.
• HUD inspection fee for 223(f): $1,500 where repairs are under $100,000; $30 per unit where repairs exceed $100,000 but are $3,000 or less per unit; and the greater of $30 per unit, 1% of the cost of repairs, or $1,500 where repairs exceed $3,000 per unit (MAP Guide 3.1.9).
• Lender financing and placement fees: capped at 3.5% of the mortgage, including the lender’s legal fee. Bond deals can go to 5.5%. Third-party costs such as the appraisal and capital needs assessment are outside that cap (MAP Guide 3.1.11).
• MIP: 0.25% upfront, capitalized, plus 0.25% annual.
• Third-party reports, legal, title, survey, reserves: vary by property and market.

Total costs are usually a few percent of the loan, but you should not accept a rule of thumb. Budget them with the closing cost calculator and ask the lender for a line-by-line estimate.

Third-party reports and the process

Expect to commission, through the lender:

• Appraisal, written to USPAP and HUD’s MAP Guide requirements (Chapter 7).
• Capital needs assessment (CNA), required for every 223(f) application except properties receiving new tax credits, completed no earlier than 180 days before the Firm Commitment application (MAP Guide 5.10.3).
• Phase I environmental site assessment and a HUD environmental review submitted through HUD’s HEROS system (MAP Guide Chapter 9).
• Market study only when HUD or the lender thinks the market is volatile or declining. Otherwise the appraisal’s market section is normally enough (MAP Guide 3.7.22).

The flow is: engage a MAP lender, assemble the package, submit the application for a Firm Commitment, respond to HUD review, close and initially endorse, then manage the loan under HUD’s reserve and reporting rules. Lenders commonly quote about 45 to 60 days to submit, another 45 to 60 to reach commitment, and 30 to 45 more to close. That adds up to roughly four to six months in a good case, and HUD queue times can stretch it. That is lender experience, not a HUD commitment.

Worked example (hypothetical)

This example is illustrative only. The numbers are round, made up for teaching, and are not a quote, a rate forecast or a real deal.

Assumptions: a 120-unit market-rate apartment community, built 12 years ago, 94% occupied for two years, appraised value $12,000,000, HUD-underwritten NOI $750,000. Assume a 5.50% note rate plus 0.25% MIP, so 5.75% all-in on a 35-year fully amortizing schedule, which works out to a payment constant of about 6.64% per year.

The binding limit is DSCR at roughly $9.82M, which is about 82% of value, not the 87% headline. Upfront MIP at 0.25% is about $24,500, capitalized into the loan. The HUD application fee is $3 per $1,000 of the requested mortgage, so on the $10.5M request it is $31,500, even though the sized loan is smaller. Lender fees could be up to 3.5%, which is $343,700 at the cap.

Two takeaways. First, the 87% LTV figure is a ceiling, and at a 5.75% all-in rate this deal never reaches it. Second, a 25 basis point change in rate moves proceeds by several hundred thousand dollars, so check current rate context before you anchor on a number. If you want a second set of eyes on your own figures, our deal review routes a real deal to the right lenders.

Who HUD 223(f) fits, and who it doesn’t

It fits when:

• You hold stabilized, well-maintained apartments (5+ units) with 85%+ occupancy and clean operating history.
• You plan to hold 10+ years and value a long, fully amortizing structure over speed.
• You want high leverage, or a cash-out refinance, on a property that agency loans size more tightly.
• The property is affordable or has significant rental assistance, where the 90% LTV and 1.11x DSCR tiers matter.
• You can absorb a four to six-month process and the HUD paperwork.

It does not fit when:

• You need to close in 30 to 45 days. Compare agency stabilized execution instead.
• The property needs real rehabilitation, is in lease-up, or has occupancy below about 85%. Look at bridge value-add.
• You plan to sell within five years. HUD’s prepayment bar and the loan documents’ penalties will cost you. Model prepayment cost with the yield maintenance calculator before you commit, and compare it with other structures.
• The deal is below the size where HUD’s fixed costs and lender fees pay off. Fixed costs weigh more on smaller loans.
• You are a first-time multifamily owner buying with no experienced manager.

Read the FHA vs agency comparison for the full trade-off, and the FHA and HUD multifamily financing guide for program context.

Questions to ask a HUD lender before you apply

1. Which MIP and DSCR tier applies to my application date and property type?
2. What is your rate today, and when do I lock: at application or at commitment?
3. What will HUD underwrite as NOI, and what is my likely binding test?
4. What are your fees in dollars, inside and outside the 3.5% cap?
5. What reserve for replacements will the CNA require?
6. What is the realistic timeline in the current HUD queue?
7. What are the prepayment terms after year five, and the recourse carve-outs?

Related loan programs

Compare this with HUD 221(d)(4) loans and Freddie Mac Optigo loans, which cover other financing routes for 5+ unit buildings.

Sources

• HUD, Mortgagee Letter 2025-03, Multifamily Changes in DSCR and LTV/LTC, January 8, 2025.
• HUD, Changes in Mortgage Insurance Premiums Applicable to FHA Multifamily Insurance Programs, Federal Register, September 23, 2025.
• HUD, Sections 207/223(f) program description.
• HUD, Multifamily Accelerated Processing (MAP) Guide, Handbook 4430.G, March 2021 edition: Chapter 3 (Sections 3.1 and 3.7), Chapter 5 (5.10), Chapter 7 and Chapter 9. HUD revises the guide, so confirm current text with your lender.

HUD rules change, and individual lenders add overlays. This page is educational, is not an offer or commitment to lend, and should be combined with advice from your lender, attorney and tax adviser.

Frequently asked questions