Affordable Housing: A Look at FHA Section 223(a) (7) Loans

Affordable Housing Multifamily residential buildings provide affordable housing to families. They are one of the most common forms of apartment buildings in the country and allow inhabitants to live comfortably at reasonable rental rates.

The Federal Housing Administration (FHA) introduced FHA sec 223(a) (7) loan to keep multifamily properties affordable.

Since a large number of multifamily real estate loans include a balloon payment after five or more years, it may be advantageous for the property owner to get refinancing with the  FHA 223(a)(7) loan. A balloon payment refers to a large payment at the end of a commercial loan, and is typically used to pay the outstanding balance.

Reducing Interest Rate

For multifamily homes, it is important to reduce the interest rate of the loan so that you can keep renting them out at affordable rates. FHA 223(a) (7) may reduce this interest rate and increase the property’s amortization, or repayment. It also improves the property’s cash flow.

This type of loan has a maximum term of 12 years, but must not exceed the original term. While there are a few exceptions depending on the economic life of the property, this specific FHA loan is limited to the length of the original term.

The FHA 223(a) (7) is exclusively available to multifamily homes that are already qualified for an FHA loan, namely the 223 (f) and 221(d) (4) loans.

Streamlined Process

Though only a few people qualify for FHA 223(a) (7) loan, it is one of the easiest and most affordable types of financing programs available to multifamily properties. On average, you can complete this transaction in three months, though it will vary depending on each case.

Other than having an existing FHA loan, applicants must also complete all major repairs before closing, while non-critical repairs must be completed within the year of closing.