Affordable Housing Finance FAQ

|, Resources|Affordable Housing Finance FAQ

Financing for affordable housing communities can get tricky. It oftentimes requires a combination of debt and equity sources and a complex analysis of available financing tools. Love Funding has done it all. Our team has extensive experience underwriting HUD-insured loans involving tax-exempt bonds, low-income housing tax credits (LIHTCs), historic tax credits, new market tax credits, Section 8 rental contracts and various government programs for subordinated loans or grants. Here our experts answer some of the most common affordable housing finance questions:

Contact the project’s Account Executive for more information. The process involves submitting a contract renewal application. In most cases, borrowers utilize the services of an attorney to put the application together.

Contact the project’s Account Executive for more information. This involves an application process similar to the HAP renewal. It will also require the commissioning of a Rent Comparability Study (RCS) to set the requested mark-up-to-market rents, which will be reviewed by HUD.

DID YOU
KNOW?

Between 2005 and 2015, the number of rental units costing less than $800 per month declined while the number costing over $2,000 per month jumped by 1.5 million.

Per HUD Guidelines, underwriters are to use the lower of market rents or Section 8 contract rents. Because Section 8 contract rents are subject to periodic review and potential reductions, this practice is considered risk averse. One exception is the option to underwrite a B-piece with the gap between the market rents and the amount of the Section 8 rents that are above market can create additional loan proceeds.

The property’s affordable status:

  • Broadly Affordable Transactions (0.25 MIP): Projects with 90% or greater of the units covered by either a Section 8 Project Based contract or affordability use restriction under the Low Income Housing Tax Credit Program with achievable and underwritten tax credit rents at least 10% below comparable market rents.  Either scenario requires a recorded regulatory agreement in effect for at least 15 years after final endorsement of Note.
  • Affordable* Transactions (0.35 MIP): Projects with between 10% to 90% of all units covered by either a Section 8 Project Based contract or affordability use restriction under the Low Income Housing Tax Credit Program. Either scenario requires a recorded regulatory agreement in effect for at least 15 years after final endorsement of Note.
    *HUD’s definition of Affordable has been broadened to include properties with inclusionary zoning, density bonus set-asides and other local affordability restrictions meeting the required tests.
BENCHMARKS FOR EQUITY INSTALLMENTS MINIMUM EQUITY INSTALLMENT
223(f): On or before closing
221(d)(4): Initial endorsement
20% of Total Equity
223(f): At 65% completion of repairs
221(d)(4): Construction completion
37.5% of Net Equity
223(f): 100% completion of repairs
221(d)(4): Final endorsement
62.5% of Equity

DID YOU
KNOW?

Nationwide, there were only 35 affordable and available units for every 100 extremely low-income households and 55 units for every 100 very low-income households in 2015.

Equity investors may fund all or part of the required equity pay-ins, with the exception of the first 20% payment, with equity bridge loans subject to certain requirements. However, Investors may not substitute any grant or loan funds, other than funds in the form of Equity Bridge Loans for equity payments.

NEW CONSTRUCTION / SUB REHAB
Section 8 HAP Contract (90% +), and Section 241(a) loans 1.11x
Affordable (20% at 50% of AMI, or 40% at 60% of AMI, or less than 90% Section 8 HAP Contract) 1.15x
Market Rate 1.176x
REFINANCE/ACQUISITIONS
Section 223(a)(7) loans with 90% + units covered by Section 8 HAP Contract 1.05x
Section 8 HAP Contract (90% +), and
Refinances of Section 202 direct loans, and
Section 223(a)(7) loans (except as specified above)
1.11x
Affordable (20% at 50% of AMI, or 40% at 60% of AMI, or less than 90% Section 8 HAP Contract) 1.15x
Market Rate 1.176x
NEW CONSTRUCTION / SUB REHAB (LTC)
Section 8 HAP Contract (90% +), and Section 241(a) loans 90%
Affordable (20% at 50% of AMI, or 40% at 60% of AMI, or less than 90% Section 8 HAP Contract) 87%
Market Rate 85%
REFINANCE/ACQUISITIONS (LTV)
Section 8 HAP Contract (90% +), and Refinances of Section 202 direct loans 90%
Affordable (20% at 50% of AMI, or 40% at 60% of AMI, or less than 90% Section 8 HAP Contract) 87%
Market Rate 85%

Source: Joint Center for Housing Studies of Harvard. (2017). The State of the Nation’s Housing 2017.

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We’re here to answer any questions you have about HUD-insured loan programs. Let us know how we can help.

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2018-01-11T18:14:12+00:00 Industry News, Resources|