Debunking Myths About FHA-Insured Multifamily Loans

January 7, 2023

Loans insured by the FHA (Federal Housing Administration) are one of the biggest secrets in multifamily financing. Although they offer competitive rates and terms, many investors are missing out due to common misconceptions about these loans.

What characteristics of FHA-insured multifamily loans pique the interest of savvy investors? Here is a sampling of what they offer:

• Fully amortizing loan terms of up to 40 years
• Low interest rates
• High LTV ratios
• Low DSCRs

Perhaps you’ve heard myths about FHA-insured multifamily loans that have made you discount this financing solution. Let’s dispel those myths and get you thinking about how these loans can work for you! Here are the five most common misconceptions we hear:

• The FHA is a mortgage lender

Here’s how it works: Private lenders provide the funding for these loan programs, and the Department of Housing and Urban Development (HUD) insures them. Thus, if the borrower defaults on their loan, HUD takes on the risk.

• FHA-insured multifamily loans only apply to affordable housing developments

The FHA’s single-family home loan program targets low- and moderate-income borrowers, but this isn’t true for their multifamily housing programs. FHA-insured loans are available for practically all market-rate developments that meet the necessary qualifications. You don’t need to have a single low-income unit within your property!

• You shouldn’t opt for an FHA-insured loan when time is tight

Those who believe this myth have it partially correct. FHA-insured loans do have a longer approval process than other forms of financing. If time is of the essence, don’t shy away from them! Bridge loans can help you close the gap between when you need financing and when you can get approved for that coveted FHA-insured loan.

• FHA-insured multifamily loans aren’t flexible

When it comes to FHA loans, you have options! There are multiple programs available to address different borrower situations. There is even an option to refinance as interest rates fall!

• FHA-insured loans don’t let investors maximize their surplus cash

As of September 2022, many FHA-insured loans allow monthly surplus cash distributions. Although this benefit doesn’t include all loans, it makes it worthwhile to see if it applies to your situation.

Are you involved in the multifamily housing market? Contact us today to see if an FHA-insured multifamily loan is right for you!