HUD financing for apartment construction.

87% LTC, and when 90% may apply

For covered market-rate projects, current HUD ratios allow up to 87% of eligible cost with a 1.15 DSCR. The loan must also satisfy statutory unit limits and the other applicable sizing tests. A budget that qualifies under LTC can still fail the income test. Mortgagee Letter 2025-03.

Qualifying affordable housing may use 90% and 1.11 DSCR. The separate middle-income pathway can also permit 90% LTC and 1.11 DSCR, but only for projects meeting the issued policy. A plan to charge moderate rents is not enough.

Under the 2026 middle-income letter, the general framework includes at least half the units for households at or below 120% of area median income, an eligible program or specified alternative pathway, and a recorded use restriction generally lasting at least ten years. Read the middle-income guide before using 90% in a capital plan.

Build the cash plan around more than LTC

• Separate the eligible development budget from costs that cannot be financed.
• Identify land basis, existing debt and any equity credit. Do not assume an appraisal increase becomes spendable construction cash.
• Budget report deposits, financing and legal costs, construction interest, mortgage insurance, escrows and contingencies.
• Understand working-capital and operating-deficit reserve requirements, including when deposits must be made.
• Map the draw process against contractor payments. Funding a percentage of total cost does not eliminate temporary cash needs.

For covered multifamily construction, the revised MIP notice calculates upfront capitalized insurance over the construction period rounded up to whole years. The annual 0.25% figure is not necessarily the entire upfront premium. Review the MIP notice.

The site, plans and team need to fit together

A complete concept includes site control, zoning and entitlements, unit mix, market rents, plans, detailed costs, contractor experience, ownership and management. Environmental, floodplain, access and utility issues can change the design or schedule before a financing application is ready.

HUD construction also brings specific construction administration, inspections and applicable prevailing-wage requirements. Have the contractor and design team incorporate those requirements before treating an ordinary private construction budget as a HUD budget.

Major rehabilitation requires a coordinated scope and resident or relocation planning where applicable. The 2026 threshold update does not eliminate the other substantial rehabilitation tests.

Where build-to-rent fits

The issued 2026 guidance allows qualifying rental communities of detached homes, duplexes and triplexes to be considered under 221(d)(4) new construction. The community must meet the site, ownership, management and operating requirements. Individual home sales and partial collateral releases are not the intended exit.

Compare HUD build-to-rent financing with lot development financing if your business plan involves selling lots or completed homes.

Start the review before the closing deadline

Send Stonehaven the location, unit count, total budget, requested financing, site status, development team and intended rental hold. We can help organize the structure and determine which items need review first.

If land acquisition must close sooner, evaluate the interim financing and HUD path separately. An anticipated permanent loan is not an approval or a guaranteed takeout. Continue with application preparation and the cash-to-close example.