Happy New Year! We’re off to a great start in 2025. HUD just made it official with two recent announcements: we now have lower debt service coverage (DSC) ratios and higher loan to cost/value (LTV/LTC) ratios for market-rate multifamily insured loans. And, we also have a new, higher leverage financing option for middle-income, or “workforce housing” projects.
Here is a recap of the new DSC and LTV/LTC limits:
- DSC ratios for Section 221(d)(4) new construction and Section 223(f) refinancing/acquisition loans went from 1.176 to 1.15.
- LTC ratios for Section 221(d)(4) loans went from 85% to 87%.
- LTV ratios for Section 223(f) loans went from 85% to 87%.
- Vacancy/collection loss ratios remain unchanged at 7.00%
Here is a summary of the new program for middle income projects:
- HUD defines “middle income” as households earning up to 120% of area median income.
- Projects that dedicate 50% of the units for middle income households will benefit from a lower DSC ratio and higher LTC/LTV ratio.
- The DSC ratio is 1.11 and the new LTV/LTC ratios are 90%. Vacancy and collection loss for loan underwriting remains no lower than 7.00%.
- All targeted units must be secured by a use restriction and must be monitored by a state or local government entity annually. A minimum use restriction period of 10 years is required to ensure that middle income tenants benefit from this policy.
- However, because individual state and local programs vary widely, HUD has waiver authority to approve a term of less than 10 years when enhanced benefits to middle income tenants exist (ex. the proposed use restriction is less than 10 years, but targeted units exceed the 50% minimum.) In no case, however, should the use restriction agreement be less than 5 years.
Please contact us for additional information on these new and exciting developments from HUD.
