Utilizing the FHA 221(d) Program for All-Rental Communities
By Edward Hicks
With the lack of chattel financing still a major problem, many community developers are experimenting with different development opportunities. One “old, but new again” idea which is beginning to prove itself is the concept of building all-rental communities using low cost HUD-Code homes. Only this time they are being developed in concert with the Federal Housing Administration’s (FHA) 221(d)4 loan guarantee program. Will this idea prove viable for the disenfranchised traditional manufactured home buyer? It’s anyone’s guess. However, three recently developed communities (one pictured at right) have all been successful, with fill rates ranging from eight to 12 units per month.
Non-Recourse Financing Available
In 2002, over $2.5 billion in HUD loan guarantees were provided to apartment builders under the provisions of the FHA 221(d)4 (for profit) and 221(d)3 (non profit) new apartment construction and permanent loans. These loans provide for combined construction loans for up to two years, with automatic conversion to 40-year permanent, non-recourse loans at low-fixed interest rates, by private mortgagee/lenders with FHA loan guarantees which are provided on a project by project basis.
The majority of apartments built in the U.S. as condominiums or rental units use high-density multi-family construction. Few are lower density single-family attached housing units in the form of duplexes, triplexes or quadraplexes. And virtually none are constructed as single-family detached units.
Single-family detached apartments where the land/home combination as a single-family unit are rented and managed by a landlord may be included in the HUD multi-family loan guarantee programs for apartments. Further, if the land is zoned or land use is allowed for homes built to the HUD Code, the units may be factory built for inclusion as the housing component in the HUD multi-family housing loan guarantee programs.
HUD will provide funding on homes built to the HUD Code if the zoning and land use regulations in force allow for HUD-Code home use. If not, it may be necessary to use modular homes built to the state or local code. Depending on the area, this may increase the cost by as much as 15% to 18% or more. Single-family attached units, such as duplexes, triplexes and quadraplex units, are not allowed under the HUD Code, so they must be built to the modular code.
In rural and semi-rural market areas, few typical apartment builders develop multi-family dwellings, especially those which are larger than 1,100 sq. ft. as 3/2 or 4/2 units. Market demand in these areas is high for such dwelling units, especially for larger families, joint households, or households with a need for a separate interior room as an office, workspace or other non-household use. Many of these units may be from 1,400 to 2,000 sq. ft. or larger.
Advantages for Residents
Single-family detached apartment units have several advantages to the residents over multi-family buildings. These include:
--Large spacious unit sizes, often over 1,400 sq. ft.;
--No noisy common walls that inhibit privacy;
--No dangerous and unsightly stairways;
--Secure fenced rear or side yards (optional);
--Easy access adjacent carport or garages (optional); and
--Individualized home elevations.
Advantages To Developer
For the developer of single-family detached apartments using HUD-Code homes, advantages include:
--Lower cost construction costs for units over 1,400 sq. ft.;
--Minimal incremental costs as sizes increase;
--More market acceptance as SFD housing;
--Virtually no competition in rural markets;
--Minimal need for amenities;
--Accommodates larger families; and
--Extra room for office or home business.
HUD Loan Guarantee Features
Using the FHA 221(d)4 loan guarantee program from a private mortgagee/lender with HUD approvals, for construction and permanent loans provides for:
--Interest, taxes, insurance included in funding;
--Funding at 95% of approved costs;
--Funding on land value (not cost);
--40-year amortization, 40-year term;
--Fixed rate; and
Loan funding is on the land, infrastructure, foundation, home, installation, accessory structures, carport or garage, driveway, a/c, landscaping, etc. Of course, there are some program limitations that may include sound levels, soil types, municipal or public utilities, access to public thoroughfares, sharing of amenities, etc. But none of them are so onerous as to stifle a well-planned project. Understanding program application process and underwriting guidelines is the job of the mortgage broker, and the mortgagee.
Loan approvals and funding comes from one of the 105 MAP (Multi Family Accelerated Processing) approved mortgagee/lenders, not by HUD or any other government agency. In 2002 there were a total of 39 mortgagee/lenders with initial endorsements on 221(d)4 loans.
A knowledgeable and experienced mortgage broker should be able to help you understand how to adapt the program to your proposed project and do a draft underwriting to help qualify with an approved lender. Ready made templates can help analyze the financial viability of the project, with information on market rents, development costs, estimated fill rates, operating expenses, etc.
More Information may be found at:
Although it mentions nothing specific about using HUD Code homes, but does make reference to “single-family detached housing units,” the FHA official website outlining the 221(d)4 loan guarantee program may be found at:
Of course, three projects do not make a clear new direction in housing, but their successes are very appealing. With other projects under loan processing approvals in California, Illinois, and Michigan, we may soon know if this “old but new again” concept is going to be a viable solution for m/h residents housing needs.
Edward Hicks is president of Consultants Resource Group, Inc. in Bradenton, Fla., a firm providing community development marketing and economic consulting services. The firm is a member of the National Communities Council. He can be reached at (813) 661-5901 or firstname.lastname@example.org