Affordable Housing Loan Programs

Affordable Housing Loan Program Summary

Property Types:	Multifamily housing, senior housing, and assisted living Mixed use projects with commercial and housing Student Housing 9% and 4% LIHTC projects Health Care and Education Facilities Ğ only for tax-exempt bonds
Loan Limits:	Tax Credit Investors typically look for a minimum debt service coverage ratio of 1.11x to 1.25x depending upon project.
Occupancy:	Projects can have occupancy over 10% and still be financeable with LIHTC. Tax Credit investor looks primarily to how risk of occupancy will affect ability to pay debt service on the first mortgage. Most lenders and investors look for at least 90% occupancy.
Borrowing Entity:	Single purpose entity Partnership or limited liability company for tax credit investments 501(c)(3) corporation for tax-exempt bonds without LIHTC Local Housing Agency
Loan Terms:	LIHTC investors typically look for a mortgage that has a term of at least 17 years to cover the initial LIHTC compliance period of 15 years after construction and lease-up. The loan or enhancement program underlying the bonds will usually determine the term of the bond issue. Can have bonds structured with different maturities depending upon the size of the financing so that different bond pricing levels are achieved. Up to 40 for many bond financings. Shorter terms (5, 10, 18 years) are available with balloon maturities.
Amortization:	Flexible.
Rates:	Depending upon length of loan/bond maturity, rates typically are about 50-100 basis points less with tax-exempt securities. Tax-exempt or taxable variable interest rates (weekly reset is typical) are available for larger financings. Annual cost of such variable rate financings has averaged about 4% over the long-term plus the cost of a letter of credit (about 1-2% depending upon the quality of the borrower).
Minimum Denomination	$3,000,000 in fixed-rate bonds. $10 million for Variable Rate Debt. $300,000 for taxable loans for LIHTC projects.
Guarantees:	Tax Credit Investor: Completion Guaranty. Assurance of completion of construction. Operating Deficit Guarantee. Assurance that the Operating Deficit Reserve will be funded if falls below a certain level. At some point deficiencies in Operating Deficit Reserve ar allowed to be paid out of excess cash flow. Credit Reduction Guarantee. If credits delivered are less than anticipated, assurance that tax credit investor is made whole for actual credits delivered. Trust Indentures for tax-exempt bonds typically do not usually require any additional guarantees than what is addressed by tax credit investor or mortgage lender.
Developer Fee / Cash Out:	For tax credit projects, undeferred developer fee is paid out both upfront and over the construction and lease-up periods, and upon receiving the final Form 8609 approval. The developer fee payout is related to a variety of factors. Deferred developer fees are paid out from project cash flow over time. Tax Abatement Will typically be underwritten as additional mortgage value on either a tax-exempt for taxable basis.
Assumable:	Yes
Reserves	Annual replacement reserve requirements are typically funded at a minimum rate of $250 per unit per year depending upon whether a project is new construction or existing and the amount of rehabilitation. Tax Credit investors will frequently require about 3-6 months of operating expenses and first mortgage debt service to be funded upfront when used in conjunction with bonds.
Prepayment:	Prepayment lockout varies with the term of the bonds. A 10-year lockout is usual for a long-term bond issue.
Use of Proceeds:	LIHTC investors have few restrictions on use of tax credit proceeds. Can be used for mortgageable and non-mortgageable uses.
Subordinate Debt/Grants:	Tax Credit investors find subordinate loans acceptable in most cases. The repayment of such loans is a concern as it concerns basis or pay back of developer fee. Grants are usually not allowed or encouraged when tax credits involved.