8.11.1 Determining Mortgage Amounts, Cash Requirements, and Related Matters

• A. Firm Commitment Processing for Section 207 Pursuant to Section 223(f)

1. Amount of loan in a purchase transaction. In a purchase transaction involving an arm’s length sale, the mortgage may not exceed the lowest of 5 criteria on form HUD-92264-A, Supplement to Project Analysis: the application amount, the loan to value amount, the statutory limits amount, the debt service amount, and the cost amount, which are described below. Refer to Chapter 3 for the applicable maximum loan ratios and the debt service coverage ratios needed to complete criteria for a Firm application for a purchase transaction.

   • Application amount.

• Loan-to-Value Ratio amount . Refer to Chapter 3 for ratios. These loan-to-values apply to both for-profit and nonprofit Borrowers. (The amount based on value for Section 202 or 202/8 Direct Loan purchase transactions is 90%.).

• Statutory Limits Amount. This limit is based on maximum costs. The maximum per family unit limitation for refinance under Section 207 may be increased by the percentage of the High Cost Percentages (HCP) plus the percentage loan ratio noted in Section 8.11.1.A.1.b, above. Follow the same guidance for inclusion of cost not attributable as set forth in Section 8.10.1.A.1.c.

NOTE: Per family unit limits may be increased by the High Cost Percentages. The per-unit limits and HCP may be obtained on the HUD web site at:

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/hicost/hicost

• Debt Service Amount . Debt service is the loan amount supported by the applicable percentage of the project’s estimated net operating income (NOI). The mortgage may exceed this limit by capitalizing the savings from any tax abatement. In such cases, the net earnings estimate will not reflect that temporary tax abatement.

The NOI used to support this mortgage criterion may be split into two or more income streams to capitalize the savings from tax abatement or to recognize other revenue sources such as from an IRP decoupling or the difference between market rents and HAP contract rents.

• 1. That portion of the maximum mortgage supported by the tax abatement or other source of revenue must be amortized over the same period as the additional NOI is available.
• 2. Any tax abatement must run with the real estate and not with the type of sponsorship if it will be recognized in the mortgage proceeds.

• Acquisition Cost . The applicable percentage from Appendix 3, Section A.3.2 must be applied to the Borrower’s acquisition cost. Acquisition cost is defined as the sum of the items:

• 1. Purchase price shown in the purchase agreement and determined allowable by the Lender.

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• 2. The Lender’s estimate of repair cost, if any, provided such costs are paid by the Borrower and are not included in the purchase price.
• 3. The sum of reasonable financing charges, legal, organizational, and title and recording expenses paid by the Borrower.
• 4. Eligible discounts paid by the Borrower at property acquisition.

NOTE: Any fees, discounts or other amounts paid by the seller for or on behalf of the purchaser must be reflected as a reduction to the acquisition cost.

• 5. Eligible Architect's fees, mechanical engineering fees, municipal inspection fees, HUD inspection fees, if applicable, and other fees as may be determined eligible by the Lender including the cost of Lender third party reports.

2. Amount of Loan in a Refinancing Transaction. The subject loan will be the lesser of a or b:

   • Amounts in Section 8.11.1.A.1 above, except e.

Cost to Refinance . An amount that equals the greater of the following:

• 1. 80% of the Lender's estimate of the value of the project, or
• 2. The cost to refinance the project, which is defined as the sum of:

  • a) The amount needed to pay off the existing indebtedness as determined eligible by the Lender.

  • b) The initial deposit to the Reserve for Replacements.

  • c) The sum of reasonable financing charges, legal and organizational, and title and recording expenses paid by the Borrower.

  • d) The Lender’s estimate of repair cost, if any.

  • e) Eligible discounts paid by the Borrower.

  • f) Eligible Architect's fees, mechanical engineering fees, municipal inspection fees, HUD inspection fees, if applicable, and other fees as may be determined eligible by the Lender including the cost of Lender third party reports.

  • g) Less the amount of any Reserve escrow for replacement and/or major movable equipment that will be purchased as an asset of the project.

• Cash-Out / Equity from Loan Proceeds. The maximum loan-to-value ratio for cash-out refinances is 80%. In cases where the completion of repairs is deferred (i.e., non-critical repairs and any deferred accessibility remedies) and the mortgage amount exceeds the costs of refinancing and all required costs including repairs (“cash-out transaction”), the Lender must withhold fifty percent (50%) of the cash-out proceeds in a dedicated account until all repairs are completed in a manner acceptable to the MAP Lender and to HUD. When the sum of cash held back from cash-out proceeds exceeds $1,000,000, HUD will allow Regional/Satellite Offices the discretion to reduce the holdback amount when the following criteria are satisfied: (1) the noncritical repairs are minimal, (2) the owner has demonstrated both the ability to complete repairs in a timely manner and a commitment to keeping the property in good repair with no deferred

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maintenance; and (3) that any reduction in the holdback below the $1,000,000 represents no risk to HUD.

Critical repairs are not subject to this cash-out or withholding of proceeds. Critical repairs are completed before Initial/Final Endorsement and are not deferred. Refer to Chapter 12, Section 12.17 to see the guidance on when and how repair funds are released from escrow.

• Funding Repair Escrow and an Additional Assurance of Completion (Escrow Agreement for Deferred Repairs (form HUD-92476.1M (6/2018).

  • 1. 100% cash escrow equal to the total cost of estimated repairs must be established and withheld in cash from mortgage proceeds to cover the total cost of the estimated repairs (non-critical repairs/deferred repairs) identified in the CNA (Chapter 5, Section 5.10.8.H) for completion after endorsement. See also Chapter 14 for funding of completion escrow for LIHTC transactions.
  • 2. Additional escrow for an assurance of completion is a percentage of the repair cost. The additional escrow is broken down as follows:

    • a) Section 223(f) 20% in cash or letter of credit,

    • b) Section 223(a)(7) 10% in cash or letter of credit, and

    • c) For Tax Credits 10% tax credit equity or letter of credit.