FHA 223(f) or an agency loan for an apartment property

Where the extra leverage comes from

HUD’s advantage has two parts. The limits are looser: 87% LTV and 1.15x DSCR under ML 2025-03 (Effective January 8, 2025, for any application not yet initially endorsed). The schedule is longer too: Up to 35 years (or 75% of remaining economic life), minimum 10³. A longer schedule lowers the payment, and a lower coverage test lets more of the NOI go to debt service. The mortgage insurance premium counts in the payment, but at today’s rate it costs far less than it did before the cut.

Sizing a 120-unit purchase at HUD and at an agency

Illustration. A buyer is purchasing a 120-unit, market-rate property for $24,000,000 with $1,500,000 of underwritten NOI. Assume HUD prices the note at 5.85% on a 35-year schedule, with the annual premium, 0.25% (25 basis points) per year, added to the payment for sizing. Assume the agency quotes 6.05% fixed for 10 years on a 30-year schedule.

Sizing (illustration)	FHA 223(f)	Agency
Leverage limit	87% = $20,880,000	80% = $19,200,000
Coverage limit	1.15x on principal, interest and premium: about $18,709,000	1.25x: about $16,590,000
Loan offered	about $18,709,000	about $16,590,000
Annual principal and interest	about $1,257,600	about $1,200,000
Annual mortgage insurance	about $46,800	none
Balance after 10 years	about $16,499,000, still amortizing	about $13,902,000, due as a balloon

HUD lends about $2,119,000 more on the same building, which is $2,119,000 less equity at purchase. The agency borrower pays down more principal over ten years, but then must refinance the balloon at whatever rate exists in year ten. The HUD borrower’s rate is fixed until the loan is paid off.

Upfront costs on the HUD side (illustration, same loan). Upfront premium: 0.25% upfront, capitalized into the loan⁴, about $46,800 here. Application fee: $3 per $1,000 of loan (0.30%)³, about $56,100. Lender financing and placement fees are capped: Up to 3.5% of the loan (5.5% in bond deals)³. Required repairs add an inspection fee: 1% of the cost of required repairs (HUD may set a higher minimum)⁵.

The trade-offs that decide it

Time. HUD processing runs through a lender’s underwriting, then HUD’s own review, then a firm commitment. Plan on months more than an agency closing. That rules HUD out for most purchases with a fixed closing date, unless the buyer can close with bridge debt and refinance into HUD later.

Prepayment. HUD’s lockout makes the loan a long-term commitment: Prepayment generally prohibited for 5 years from endorsement³. Fannie Mae offers a declining premium alternative to yield maintenance, and its schedule is 10-year fixed: 5-5-4-4-3-3-2-2-1-1, no lockout.

Property fit. HUD wants seasoning: Certificates of occupancy issued 3 or more years before application (newer properties need 1 month at the program DSCR)³. Its occupancy rule: Stable occupancy of at least 85%. A property with too much commercial space fails the limit: Commercial up to 25% of net rentable area and 20% of effective gross income³. New build-to-rent communities are now eligible in limited cases: HUD Mortgagee Letter 2026-12 (October 14, 2026) opened 221(d)(4) new construction and, for properties under 3 years past certificate of occupancy, 223(f) to build-to-rent communities.

Labor rules. On Davis-Bacon wages: Not required on 223(f) purchase or refinance³. That keeps repair work on a 223(f) simpler than on a HUD construction loan.

Affordable deals. HUD goes further for rent-restricted property: 90% LTV at 1.11x DSCR for affordable properties.

The costs people miss

• Reserves for replacement. HUD sets the deposit from its own property condition review and holds it in an escrow you draw from only with HUD’s consent.
• Annual audited financials. HUD borrowers file annual financial statements, which adds an accounting cost every year the loan is outstanding.
• The agency balloon. The agency loan’s lower premium cost is partly an illusion if you will refinance in year ten at a higher rate.
• The rate lock window. A HUD rate is locked near the end of the process; an agency rate can be locked earlier, and Fannie Mae offers 30- to 180-day rate lock commitments.

Credit performance

Both are low-loss lenders. MBA’s Q3 2026 survey: FHA multifamily delinquency 0.90%, down from 1.06% in Q2 (MBA), and Fannie Mae and Freddie Mac 1.16%, up from 1.11% in Q2 (MBA). Each investor group’s rate has its own definition, so read them as trends, not a direct comparison.

Considering HUD for a long hold? Send the rent roll, trailing twelve months and your timeline, and we will price HUD against both agencies.