| Applicable route | Qualifying 221(d)(4) projects |
| Potential ratios | Up to 90% LTC and 1.11 DSCR |
| Key question | Does the actual program and restriction qualify? |
HUD’s middle-income pathway can improve the permitted financing ratios for a qualifying 221(d)(4) rental development. It is not a universal 90% construction loan, and “workforce housing” on a presentation is not enough to establish eligibility.
The current starting point is Mortgagee Letter 2026-01, which superseded the 2025 middle-income letter. Review the project’s program participation and recorded restrictions before assuming the enhanced terms in a development budget.
What changes for an eligible project?
The letter permits up to 90% LTC and a 1.11 DSCR for qualifying middle-income 221(d)(4) projects, with 7% underwriting vacancy. Other applicable sizing and underwriting criteria remain. The policy does not apply those terms to 223(f), Section 232 healthcare or every other HUD program.
The financing benefit must be considered alongside the operating restrictions. A smaller modeled equity contribution is only one part of the decision.
The general eligibility framework
- At least 50% of units are generally designated for households at or below 120% of area median income.
- The property participates in a qualifying established state or local middle-income program, Military Rental Partnership Program, or another pathway expressly described by the letter.
- A recorded use restriction generally lasts at least ten years and survives a change in ownership.
- The applicable program supplies the required framework and compliance oversight. A one-off arrangement created just for one developer is not the general state/local program route.
HUD has defined review discretion and limited alternatives. Do not take a reference to a possible waiver or lower unit share as an automatic entitlement. The general rule remains the correct starting point for a first assessment.
What should the developer obtain?
Obtain the actual program documents, income limits, proposed unit designations, incentives and compliance process. Confirm who monitors compliance annually, how it will be evidenced and how the recorded restriction will work.
The 2026 letter includes specific treatment for qualifying Military Rental Partnership Program participation and certain land acquired or ground-leased from the Departments of Defense or Interior from 2025 onward. Those are defined pathways, not a general exemption for any property near a military base.
Model the restrictions as well as the loan
A hypothetical developer comparing two plans should use separate operating forecasts: the unrestricted rental plan and the documented middle-income plan. Compare actual program obligations, achievable revenue, compliance costs, reserves and exit flexibility alongside loan sizing.
Also consider a future buyer. A recorded restriction that survives ownership transfer remains relevant to valuation and due diligence. Do not assume it disappears when the original developer sells.
Prepare the question for Stonehaven
Share the location, unit count, development budget, proposed program, expected qualifying unit share, restriction term and current approvals. We can help organize the financing comparison and identify the eligibility questions that need confirmation.
Continue with 221(d)(4) construction financing and the cash-needed example. A qualifying ratio still does not guarantee the final loan or eliminate reserves.
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.