Section 221(d)(3) and 221(d)(4) program insures mortgage
loans for multifamily properties consisting of single-room occupancy (SRO) apartments.
There are no Federal rental subsidies involved with this SRO program. It is aimed
at those tenants who have a source of income but are priced out of the rental
apartment market. SRO projects generally require assistance from local governing
bodies or charitable organizations in order to reduce the rents to affordable
levels. Although SRO housing is intended for very low-income persons, the program
does not impose income limits for admission.
221(d)(3)(nonprofit borrowers) and Section 221(d)(4)(profit motivated borrowers)
insure lenders against loss on mortgages. The program encourages construction
or substantial rehabilitation of single-room apartment buildings with financing
insured by HUD, thus enabling people with very limited incomes to find clean and
Type of Assistance:
FHA provides mortgage
insurance to HUD-approved lenders.
mortgages may be used finance construction or substantial rehabilitation of projects
consisting of five or more one room SRO units, with no more than 10 percent of
the total gross floor space dedicated to commercial use (20 percent for substantial
rehabilitation projects). Each SRO apartment can have its own kitchen or bathroom
facilities, or these facilities may be shared by several apartments. Apartments
can be designed to allow for more than one occupant, but the number of people
living in a unit cannot exceed the number permitted by occupancy requirements
in State and local codes and the Fair Housing Act.
The maximum amount
of a Section 221(d)(3) nonprofit loan is 100 percent of the estimated replacement
cost. The maximum amount of a Section 221(d)(4) profit motivated loan is 90 percent
of the estimated replacement cost. The maximum mortgage term is 40 years or up
to three-fourths of the building's remaining economic life, whichever is less.
Contractors for new construction and substantial rehabilitation projects must
comply with prevailing wage standards under the Davis-Bacon Act.
The program is used by nonprofit organizations, builders or
sellers teamed with a nonprofit purchaser, limited-distribution entities, profit-motivated
firms, or public agencies. Cooperative lenders or investors are not eligible.
Residents are subject to normal tenant selection
procedures. There are no income limits for admission. This program cannot be used
with project-based subsidies.
Applicants must document
(1) a clear need for the proposed SRO, (2) its experience operating SROs, (3)
local government support of the project; and a relocation plan, if needed.
sponsor has a preapplication conference with the local HUD Multifamily Hub or
Program Center to determine preliminary feasibility of the project. The sponsor
then must submit a site appraisal and market analysis application (SAMA) (for
new construction projects), or feasibility application (for substantial rehabilitation
projects). Following HUD's issuance of a SAMA or feasibility letter, the sponsor
submits a firm commitment application through a HUD-approved lender for processing.
Considerations include market need, zoning, architectural merits, capabilities
of the borrower, availability of community resources, etc. If the proposed project
meets program requirements, the local Multifamily Hub or Program Center issues
a commitment to the lender for mortgage insurance.
This program is authorized by Section 221(d) (12 U.S.C. 1751(d)) and pursuant
to Section 223(g) (12 U.S.C.1715l (d)) of the National Housing Act, pursuant to
Section 223(g) of the National Housing Act (12 U.S.C. 1715n(g)). Program regulations
are found in 24 CFR 221.565. The basic program instructions are in HUD Handbook
"Mortgage Insurance for Single Room Occupancy (SRO) Projects, Section"
4560.3 available on HUDclips. The program
is administered by the Office of Multifamily Housing Development.
No loans were insured under this program for Fiscal Year 2012.