3.6.1 Eligibility

A. Section 241(a) is now a MAP-eligible program. It provides secondary financing for improvements or additions to properties with a HUD-insured first mortgage that need repairs, substantial rehabilitation, or additional units. Deferred Developer fees carried over from a LIHTC transaction are considered ineligible costs under the 241(a) loan program.

1. Projects with HUD-held debt (as opposed to FHA-insured), or Risk Share financing are not eligible to apply for Section 241(a) loans.

2. Improvements consisting of repairs, alterations, or additions to, or substantial rehabilitation of existing structures may be financed with a Supplemental Loan.

3. Construction of additional units, or expansion of the footprint of the existing building, is allowed, so long as the number of units in the new addition is equal to or less than the existing building. Such

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Chapter 3 Programs 3.6 Section 241(a) Mortgage Insurance for Supplemental Loans

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work may be completed on the existing parcel secured by the first mortgage, or a contiguous or nearby parcel acquired and included in an amendment to the existing first mortgage security documents.

4. A cross-default provision should be placed in the Section 241(a) mortgage loan documents such that a default under a “prior recorded insured mortgage” will trigger a default under the Section 241(a) mortgage. However, a default under the Section 241(a) loan should not trigger a default under the first mortgage.