HUD Code Homes As Single Family Attached/Detached
Apartments
With the virtual demise of HUD Code home
sales into communities due to the strict credit requirements and
high interest rates for chattel mortgages, along with difficulties
with getting viable financing for land/home financing in many areas
of the US, many prospective home buyers are being "locked" out of
the marketplace.
One "old, but new again" idea which is just
beginning to prove itself is the concept of building all rental
communities using low cost HUD Code homes, in concert with the FHA
221(d)4 loan guarantee program.
Will this idea prove viable for the
disenfranchised traditional m/h home buyers? It's anyone's
guess, however, three recently developed communities have all been
successful, with "fill rates" ranging from 8 to 12 units per month.
Background
The majority of apartments built in the US
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.
In 2002 over $2.5 Billion in HUD Loan
Guarantees were provided to apartment builders under the provisions
of the 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 2 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.
SFD
Apartments
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
HUD Code factory built for inclusion as the housing component in the
HUD Multi-Family Housing Loan Guarantee Programs. If not,
it may be necessary to have the home units built to the so-called
"modular" building codes, 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,
under current HUD regulations, must be built to "modular"
codes.
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 To
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 which inhibit
privacy,
- no dangerous and unsightly stairways,
- secure fenced rear or side yards
(optional),
- easy access adjacent carport or garages
(optional),
- individualized home
elevations
Advantages To
Developer
To the developer of single family detached
apartments using HUD Code homes, advantages include
- lower cost construction costs for units
over 1,400 sq. f
- lower engineering/architectural expense
- minimal incremental costs as sizes
increase,
- more market acceptance as SFD housing,
- virtually no competition in rural markets,
- longer average tenant residency,
- easier maintenance,
- minimal need for amenities,
- accommodates larger families,
- extra room for office, home business
- minimal tenant/landlord
negative interaction, etc.
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:
- up to 2 years construction,
- interest, taxes, insurance included in
funding,
- funding at 95% of approved costs
(including BSPRA),
- funding on land value (not cost),
- BSPRA credit at Initial Endorsement
- non-recourse
- fixed term
- fixed rate,
- assumable,
- 40 year term, or 75% of the remaining life
of the unit.
Of course, there are some program
limitations which 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
stiffle a well planned project. Understanding program
application procces and underwriting
guidelines is the job of the
mortgage broker, and the mortgagee.
HUD Loan Guarantee
Underwriting
Loan underwriting is done by the
mortagee/lender under HUD's MAP processing guidelines.
Approval steps include:
A. Pre
Invitation:
1. Site Plan Approvals, Cost
Analysis: Engineer/Broker/Developer
2. Preliminary Due
Diligence/Feasibility: Broker
3. Mortgagee/lender
Engagement/Deposits: Developer
4. Third Party Reports:
ordered by Mortgagee
5. Mortgagee/lender's Request
for Invitation: issued by
Mortgagee/Broker
6. Invitation to
Submit: issued by HUD
B. Post
Invitation
7. Engineering
Design/Permitting:
Developer/Engineer/Architect
8. Business & Marketing
Plan: submitted by Broker
9. Application For Firm
Commitment/Application Fees: Developer
10. Firm Commitment
Letter: issued by HUD
11. Rate Lock/Construction Draw
Conference: Mortgagee/Developer/HUD
12. Initial
Endorsement (Closing on Construction):
HUD/Mortgagee
C. Post
Construction
13. Build infrastructure/install
units: Developer
14. Lease up units: Developer
15. Cost certification
& audit: HUD/Mortgagee
16. Final
Endorsement/start amortization (Closing on Permanent):
Mortgagee
Funding
Basis
Funding on land, infrastructure,
foundation, home, installation, accessory structures, carport or
garage, driveway, a/c, landscaping, etc. is based on:
- 111% DSC Ratio, 90% of NOI
- 40 Year amort or 75% of the remaining
economic life of the dwelling unit
- 0.5% MIP after Final Endorsement
- 7% Vacancy & Collection Factor
- Investment property management fees
included in expenses
- first two years MIP included in Initial
Endorsement
- maintenance reserves included in expenses
- subject to area statutory loan limits x
High Cost Percentages
- no off site costs or "excess land" funded
- funding on utility tap and/or impact fees
- Initial Endorsement (construction loan
funding)
- Final Endorsement (permanent loan funding)
- Rate lock between Initial and Final
Endorsements
Approved
Mortgagee/lenders
Loan approvals and funding for all three
was 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 ortgagee/lenders with
Initial Endorsements on 221(d)4 loans.
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, Florida, New York 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 "Eddie" Hicks
November 2003 Issue
"Ask Eddie" in the Journal of M/H
Easteddie@aol.com/
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