If you are into land development or project development investment, then you should consider a multi-family residential unit. The reason a lot of investors and property owners consider the HUD 221d4 loan is the long-term aspects of the loan, the high percentage of the loan, and the non-recourse clause.
Non-Recourse
One of the soft commitment terms of the loan is the MIP, or mortgage insurance premium. What it means is that part of the owner’s payment goes to the mortgage insurance premium. This ensures that whatever happens to the property, the mortgage is paid.
On top of that, the non-recourse condition means that if in case the loan is not repaid, the lender can only take back the collateral for the loan. Even if the remaining loan balance is more than the value of the collateral, the lender cannot go after any other property.
40 Year Amortization
Single-family units seldom have more than 20-year mortgages. In the instance of the HUD 221D4 loan, the amortization period is an extra long 40 years. This allows the borrower to earn money from the property even as he is still paying the mortgage.
The aim of the loan facility is for the HUD to assure mortgage companies that they will pay if the owner defaults. It also provides for the possibility that the loan may not be repaid.
However, for the property owner, the 40-year amortization means that the monthly amortization will be much lower than any other kind of loan.
Loan Amount of Up to 83.3% of the Property Cost
The property owner can loan up to 83.3% of the property cost, which can be used to extend the property or to repair and improve it. Improving property or extending the property for multi-family units means that either more tenants can rent, or that the improvements can lead to increased rents. 83.5% of the property value is a huge amount which can lead to long-term improvements and repair.
The HUD 221D4 Loan is not for everyone. Only those who are going to invest in the long run development of property should avail of the loan.