Advantages of HUD Financing
Compared to Conventional Financing |
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 | HUD | Conventional |
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| Loan Term | Loan term is 40 years on a fully amortized basis for new construction or major expansion or rehab or 35-year term and amortization for existing refinancing. | Loan term is typically 10 years based upon a 20 to 30-year Amortization Schedule. Renewal options might be negotiated for additional periods. |
| Recourse | Loans are nonrecourse | Personal liability is required in many cases, and there are always "carve-outs" from non-recourse provisions. |
| Loan to Value Ratio | Loan-to-value is 90% for new construction and 85% for typical refinancing. Refinancing may qualify for up to 100% loan-to-cost funding. | 75% loan-to-value is typical |
| Interest Rate | The interest rate is fixed and will not change for the life of the loan. | Loans may be subject to periodic rate adjustments through the life of the loan. |
| Loan Prepayment | Loan is prepayable usually after the fifth year, with minimum prepayment penalties, typically 5% declining 1% per year. | Loan is prepayable; typically with high prepayment penalties via yield maintenance. |
| Cash Equity | Cash equity is 10% on new construction and 15% on purchases. Cash equity can be 0% for refinancing. | Cash equity will be 20% to 35% of loan for new construction and 20% to 25% for acquisitions. |
| Construction & Permanent Financing | Construction and permanent financing are arranged simultaneously | Construction and permanent financing are typically separate transactions, providing for duplication of fees and interest rate risk. |
| Interest Rate Risk | Borrower has no interest rate risk for 35 to 40 years. | Borrower has interest rate risk at end of term on balloon note. |
| Fee Payments | Fees are paid one time for a 35 to 40-year loan. | Borrower may pay both lender's and broker's fees 2 to 3 times over holding period: one for construction, one for permanent and any refinancing will also require additional fees. |
| Loan Assumability | Loan is assumable for qualified purchasers. | Loan is typically not assumable.
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| Underwriting Process | Underwriting process per standardized HUD regulations and timeframes ranging from 60 - 120 days in all 50 states. | Underwriting process will vary from lender to lender |
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