HUD 223(f): the 35-year loan with no balloon, ever

There is a loan that fixes your rate for 35 years, amortizes fully over that term so there is never a balloon, is nonrecourse to you, and is priced below what a bank or even an agency will offer, because the federal government insures it. It is the HUD 223(f), and almost no owner of a small apartment building has heard of it, because it takes months to close, requires mortgage insurance, and comes wrapped in a federal process most brokers would rather avoid. For an owner who intends to hold a property for decades, it is close to the best permanent debt in existence. For anyone else, the time it takes is the reason to look elsewhere.

A HUD 223(f) is a 35-year fixed-rate, fully amortizing, nonrecourse loan insured by the federal government. There is no balloon, ever. The price is mortgage insurance and months of process.

Insured, not lent

HUD does not lend money. It insures loans made by approved lenders under FHA programs, and the insured loans are funded through securitization backed by the government’s guarantee, which is why the rates run below conventional and agency debt. The lender’s risk is covered by federal insurance, so the lender can offer terms that would be reckless on its own balance sheet. The 223(f) is the program for acquiring or refinancing an existing apartment property of five or more units, market-rate or affordable, whether the owner is a for-profit, a nonprofit, or a public entity.

The term that answers the balloon

The 223(f)‘s defining feature is its maturity. The loan is fixed-rate and fully amortizing for up to 35 years, capped at three quarters of the property’s remaining economic life. Read that against the rest of this pillar. Almost every commercial loan carries a balloon, a term that ends years before the loan is paid off, forcing a refinancing that no one can promise. The 223(f) has no balloon. The borrower who closes it in year one has answered the maturity-wall and refinance-failure risk that runs through everything else here, for three and a half decades, at a fixed rate locked at commitment. It is also nonrecourse to the key principals, subject to the standard carve-outs, and fully assumable on a small fee, which makes it valuable on exit as well as during the hold.

What it costs, in money and in time

Two prices, and both are real. The first is mortgage insurance: HUD charges an annual mortgage insurance premium on the loan, the MIP, which is the program’s distinctive cost and the reason the headline rate has to be read together with it. The premium tiers have been restructured over time, with reductions for green and affordable properties, so confirm the current schedule rather than assuming. The second price is time. A 223(f) closes in months, not weeks, through a federal application process with its own documentation, its own inspections, and its own underwriting standards. Prepayment is protected for roughly a decade, commonly a two-year lockout followed by a step-down, though an assumption carries no penalty at all.

The borrower must also be a single-asset entity, typically bankruptcy-remote, so the single-purpose-entity requirements apply here as they do on agency debt, and the entity has to be built that way before the application, not after.

The tell that you are at the right lender

You are at the right program when you own or are buying a stabilized apartment property of five or more units that you intend to hold for a very long time, when you want the longest fixed-rate fully amortizing debt available, and when you can absorb mortgage insurance and a closing measured in months. You are at the wrong one when you might sell in a few years, when the property is transitional, or when you need to close on a timeline a seller will accept. The 223(f) is patient money for patient owners, and for that owner it removes the single largest risk this pillar describes.