FHA 221(d)(4): new construction and substantial rehab

A 221(d)(4) loan is FHA insurance on a single loan that funds construction or substantial rehabilitation and then converts to a fixed-rate, fully amortizing term of up to 40 years, without a second closing. Market-rate projects can borrow up to 87% of cost at 1.15 coverage; affordable, heavily assisted and, since January 2026, qualifying middle-income projects up to 90% at 1.11.

What it finances

Ground-up apartments, and existing buildings whose renovation passes HUD’s substantial rehabilitation line ($20,406 per unit times the high-cost percentage in 2026, about $55,100 a unit at the 270% most areas get). Mortgagee Letter 2026-12 added detached single-family, duplex and triplex build-to-rent communities to the eligible property types.

Loan ratios

Tier	Loan to cost	Coverage	Source
Market rate, or tax credits without a 10% rent advantage	87%	1.15	ML 2025-03
Affordable: tax credit or Section 8 rents at least 10% below market	90%	1.11	ML 2025-03
90% or more of units with rental assistance	90%	1.11	ML 2025-03
Middle income: at least half the units restricted to 120% of area income or less under a state or local program, for at least 10 years	90%	1.11	ML 2026-01

The statutory per-unit limits apply too, and at the 2026 multiplier they rarely bind on family units. Loans of $130 million or more use the large-loan ratios (75% and 1.30 for market rate). The sizer runs the tests.

Costs

The annual MIP is 0.25%. The upfront premium is 0.25% for each year of construction, rounded up: a 20-month build pays 0.50% up front (90 FR 45789). HUD’s application fee is 0.30% and its inspection fee for new construction 0.50%. Lender fees are capped at 3.5%, or 5.5% in a bond deal.

What to plan for

• Davis-Bacon prevailing wages apply to the construction (MAP Guide 3.7.9).
• A longer HUD process than 223(f): a pre-application stage, then the firm application with plans, specifications and a market study.
• The term: up to 40 years, limited to 75% of the building’s remaining economic life (MAP Guide 3.1.6).

In exchange: non-recourse construction and permanent debt in one loan, with no refinance risk at completion.