Affordable rental properties will be easier to finance under new Federal Housing Administration (FHA) rules announced by the Biden administration.
The U.S. Department of Housing and Urban Development (HUD) announced Wednesday that developers and lenders will have more flexibility in obtaining FHA loans for affordable units that serve low-income residents.
HUD lowered the required debt-service-coverage ratios (DSCR) and increased the maximum allowable loan-to-value/loan-to-cost ratios for mortgages it insures under two separate programs intended to provide units for people at or below 80% of the area income.
Specifically, the debt service coverage for properties with a low-income housing tax credit and rent advantage will drop to 1.11 (from 1.15) and the LTV will go to 90%, up 3 percentage points.
Properties that receive these tax credits without rent advantage will now have a DSCR of 1.15 (from 1.176) with a new LTV of 87%, up 2 percentage points. The changes are effective immediately.
The eligible FHA programs involve refinancing and purchasing multifamily properties and renovating and expanding them.
FHA also announced new policies for a new category of mortgages on properties where at least half of the rental homes are targeted to individuals and families with incomes at or below 120% of the area median income.
“These changes are part of a series of FHA initiatives aiming to meet the evolving needs of lenders, developers, and affordable housing providers as we work toward our shared goal of increasing the availability of quality affordable rental housing,” Federal Housing Commissioner Julia Gordon said.
Gordon further noted that the outgoing administration has made it a priority to make FHA loans more accessible and increase the supply of affordable units for lower-income residents.
Mortgage Bankers Association President Bob Broeksmit praised the moves.
“HUD’s decision to refine FHA underwriting criteria to more appropriate levels should result in an increase in production of much-needed rental housing by tens of thousands of units over the next three years at little to no additional risk to the FHA fund or taxpayers,” Broeksmit said.
