Section 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.
Section 221(d)(4) insures 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 safe
Type of Assistance:
FHA provides mortgage insurance to HUD-approved lenders.
Insured 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)(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.
The 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
In Fiscal year 2013, the Department insured one mortgage with 65
units, totaling $5.4 million.