Yes, HUD 223(a)(7) loans typically allow prepayment. However, there is often a 0-2 year lockout period, during which the loan cannot be prepaid at all, followed by an 8-10% declining prepayment penalty. This means that the prepayment penalty will decline by 1% each year, starting after the lockout period ends.
Prepayment and the HUD 223(a)(7) Refinance Program
Yes, HUD 223(a)(7) loans typically allow prepayment. However, there is often a 0-2 year lockout period, during which the loan cannot be prepaid at all, followed by an 8-10% declining prepayment penalty. This means that the prepayment penalty will decline by 1% each year, starting after the lockout period ends.
For instance, if a loan had a 1-year lockout period, followed by an 8% declining prepayment penalty, and a borrower wanted to pay off the loan after the first year, they would need to pay a penalty of 8% of the remaining loan. However, if they waited until after the fourth year, they would only need to pay 5% of the remaining loan amount. After the ninth year, there would be no penalty to prepay the loan.
To learn more about the HUD 223a7 refinance program, get a financing quote to speak to a HUD/FHA loan expert.
Related Questions
What are the benefits of a HUD 223(a)(7) loan?
The HUD 223(a)(7) loan program offers many benefits, including:
What are the requirements for a HUD 223(a)(7) loan?
HUD 223(a)(7) loans have terms including:
- Loan Size: Loans are allowed up to 100% of the eligible transaction costs, including:
- Existing debt principal
- Eligible repairs
- Initial replacement reserves
- Prepayment penalties
- Third-party reports (the only one required is a project capital needs assessment, or PNCA)
- Loan Term: May be increased up to 12 years, as long as the new loan doesn't have a term greater than 40 years (for HUD 221(d)(4) loans and HUD 232 loans) or 35 years (for HUD 223(f) and HUD 232/223(f) loans)
- DSCR:
- Non-profit entities: 1.05x minimum Debt Service Coverage Ratio (DSCR)
- For-profit entities: 1.11x minimum DSCR
Eligible Properties for HUD 223(a)(7) Loans: Multifamily and healthcare properties with existing HUD-insured debt are eligible for the HUD 223(a)(7) refinance loan program.
- Loan Size: Loans are allowed up to 100% of the eligible transaction costs, including:
What are the terms of a HUD 223(a)(7) loan?
HUD 223(a)(7) loans have terms including:
- Loan Size: Loans are allowed up to 100% of the eligible transaction costs, including:
- Existing debt principal
- Eligible repairs
- Initial replacement reserves
- Prepayment penalties
- Third-party reports (the only one required is a project capital needs assessment, or PNCA)
- Loan Term: May be increased up to 12 years, as long as the new loan doesn't have a term greater than 40 years (for HUD 221(d)(4) loans and HUD 232 loans) or 35 years (for HUD 223(f) and HUD 232/223(f) loans)
- DSCR:
- Non-profit entities: 1.05x minimum DSCR
- For-profit entities: 1.11x minimum DSCR
For more information, please refer to our easy-to-understand HUD 223(a)(7 loan term sheet.
- Loan Size: Loans are allowed up to 100% of the eligible transaction costs, including:
What types of properties are eligible for a HUD 223(a)(7) loan?
Multifamily and healthcare properties with existing HUD-insured debt are eligible for the HUD 223(a)(7) refinance loan program.
To learn more about the HUD 223a7 refinance program, fill out the form to speak to a HUD/FHA loan expert.
What is the maximum loan amount for a HUD 223(a)(7) loan?
The maximum loan amount for a HUD 223(a)(7) loan is 100% of eligible refinancing costs, including the principal amount of existing debt, fees, repairs, third-party costs, and initial reserve deposits. A minimum debt service coverage ratio (DSCR) is required - 1.11x for for-profit borrowers or 1.05x for non-profit borrowers. Source and Source.
Does a HUD 223(a)(7) loan allow for prepayment?
Yes, HUD 223(a)(7) loans typically allow prepayment. However, there is often a 0-2 year lockout period, during which the loan cannot be prepaid at all, followed by an 8-10% declining prepayment penalty. This means that the prepayment penalty will decline by 1% each year, starting after the lockout period ends.
For instance, if a loan had a 1-year lockout period, followed by an 8% declining prepayment penalty, and a borrower wanted to pay off the loan after the first year, they would need to pay a penalty of 8% of the remaining loan. However, if they waited until after the fourth year, they would only need to pay 5% of the remaining loan amount. After the ninth year, there would be no penalty to prepay the loan.