What is an FHA 223(f) loan and how is it sized?

Key product parameters

• •Max term: 35-year amortization plus a 12-month transition (36-37 years total from initial endorsement)
• •Max LTV: 85% market-rate / 87% affordable on refinance
• •Min DSCR: 1.176x market-rate / 1.11x affordable, MIP included in debt service
• •MIP: flat 25 bps annual (declining balance) for applications on/after Oct 1, 2025
• •Non-recourse with standard HUD carve-outs; rate set at endorsement, not locked by HUD
• •Prepayment: typical 10-year lockout then a declining 2/2/1/1/0 penalty

The five-test sizing methodology

HUD applies five sizing tests and the binding loan is the lowest result. This is what makes HUD execution materially different from agency: on strong-NOI deals the per-unit statutory limit or the refinance-cost limit usually binds before DSCR or LTV.

• •DSCR test — NOI ÷ annual DS (incl. MIP) ≥ minimum
• •LTV test — loan ÷ appraised value ≤ max LTV
• •Statutory per-unit limit — published per unit, adjusted for high-cost area
• •Refinance test — existing debt + transaction costs + necessary capital improvements
• •Acquisition test — purchase price + transaction costs + initial replacement reserve

Timeline and sponsor requirements

Plan 120-180 days from sponsor decision to close: 60-90 days from firm commitment through closing, plus 45-90 days of upstream MAP application and review. HUD is slower than agency but trades that for higher LTV and longer amortization.

• •3-deal historical track record; first-time HUD sponsors can use MAP-approved third-party processors
• •Net worth ≥ 20% of the mortgage amount
• •6 months of debt-service liquidity post-closing
• •Replacement reserve typically $250-$400 per unit per year, escrowed monthly
• •Necessary Repairs capped ~25-35% of replacement cost; above that it becomes a 221(d)(4) substantial rehab