Saturday, April 2, 2011
FHA 221(d(4 New Construction
FHA 221(d)4 New construction loans are being funded by FHA but the total amount of new construction funding is much smaller than the 223(f) refinance funding. Rates at about 1.25 percent higher than 223(f) rates which are about 5% currently.
The cost of qualifying for a FHA new construction loan exceeds most other financing programs since the developer must pay for working drawings, about $30,000 in lender required reports and an FHA exam fee of $3 per $1,000 of mortgage request. The contractor must be able to bond a fixed construction price using Davis Bacon Prevailing local wages.
The typical FHA borrower that use the FHA 221(d)4 program ofter is a repeat client and the transactions are normally in excess of $5,000,000 due to the costs of preparing for closing of the loan.
FHA allows a maximum loan of 83.33% of cost for market rate properties and slightly higher for affordable rental housing. They also require an operating deficit fund and a 4% working capital letter of credit or cash deposit. Basically the equity requirement even after net out BSPRA (Deferred Developer Profit) equals or exceeds 20% at this time.