| Existing apartments | 223(f), subject to scope and eligibility |
| Construction or major rehab | 221(d)(4) |
| First decision | Condition, income and business plan |
The choice between HUD 223(f) and 221(d)(4) starts with the property’s condition and the work ahead. An occupied apartment acquisition with limited repairs presents a different financing problem from a vacant building needing major systems replacement. Choose the program around that scope before comparing leverage.
A useful first question is: are you financing an operating property, or financing the work required to create one? The answer also changes the documents, timing, cash plan and obligations during construction.
Use 223(f) for an eligible existing property
Section 223(f) can support acquisition or refinancing of an eligible multifamily rental property with at least five units. Some repairs are allowed, but work meeting HUD’s substantial rehabilitation definition belongs outside this route. Income must support the permanent loan under the applicable operating-history rules.
The maximum term can reach 35 years, subject to remaining economic life. Review actual prepayment provisions alongside the intended hold. A long amortization does not make an early sale inexpensive.
Use 221(d)(4) for construction or substantial rehabilitation
Section 221(d)(4) connects an eligible rental construction or substantial rehabilitation project with permanent financing that can extend up to 40 years after construction. Detailed plans, contractor qualifications, construction administration and the lease-up plan become central to the file.
A conventional renovation budget may need adjustment for HUD requirements. Price the actual scope, required wages where applicable, inspections, contingency, interest and reserves before deciding how much equity is sufficient.
Two hypothetical apartment requests
- Operating acquisition: A buyer finds a 30-unit building with an established rent roll, supportable expenses and a limited repair scope. A 223(f) review may be appropriate, subject to condition, income and all other tests.
- Major repositioning: A developer intends to replace major systems in a largely vacant 30-unit building. The same unit count does not make it a 223(f) deal. Classify the work under the substantial rehabilitation rules and evaluate 221(d)(4) or another construction structure.
These are teaching examples, not Stonehaven transactions. Neither the purchase price nor a phrase such as “cosmetic rehab” settles the classification.
Do not choose by the largest advertised percentage
Current covered market-rate ratios permit up to 87% applicable value or cost and 1.15 debt service coverage. Other applicable criteria still control, and some qualifying affordable or middle-income projects have different treatment. The same headline percentage does not imply the same cash requirement across the two programs.
A 223(f) refinance also has separate cash-out rules. Construction needs a draw and reserve plan. Compare net usable proceeds, cash invested before closing and obligations after closing, not just LTV or LTC.
A four-part decision for the owner
- Scope: Obtain a meaningful repair or construction description before selecting the application route.
- Income: Distinguish achieved operations from projected rents after the work.
- Time: Reconcile purchase deadlines and maturities with the reports and review still required.
- Exit: Decide whether the goal is a long-term rental hold, an earlier sale or an interim financing step.
Stonehaven can help organize that comparison. Start with the 223(f) apartment guide or 221(d)(4) construction guide, then share the property and business plan.
Sources and review date
Checked October 20, 2026. These are program explanations and illustrative planning examples, not a commitment or current rate quote. Issued HUD updates control over older summaries.