Terms: 

• For cash loans: Five-year minimum, 15-year maximum
• For tax-exempt financing: 10-year minimum, 30-year maximum

Amortization: Up to 30 years for cash loans, up to 35 years for tax-exempt financing

Maximum LTV: 80% for non-Low-Income Housing Tax Credit (LIHTC) properties, 90% for LIHTC properties

Minimum DSCR: 

• Properties with Section 8 Housing Assistance Program (HAP) contracts in above average markets, with physical vacancies of 5% or less: 1.20x

• Properties with new LIHTC credits: 1.15x

• Some excess rent may be underwritten for above market long-term LIHTC contracts

Prepayment Options: Defeasance for non-LIHTC properties, yield maintenance for LIHTC properties

Eligible Borrowers: Need previous Section 8 ownership/management experience 

Eligible Properties: High-rise properties, mid-rise properties, and garden apartment properties. Must have a Section 8 project-based contract or voucher. 

Sellers/Servicers: 

• Cash loans with Section 8 project-based contracts: Targeted Affordable Housing (TAH) and Freddie Mac Multifamily Approved Conventional Sellers

• Cash loans with Section 8 tenant based vouchers: Freddie Mac Multifamily Approved Conventional Sellers

• Tax-exempt financing: TAH sellers only

Section 8 Subsidies: 

Eligible Section 8 subsidies include: 

• Project-based subsidies: Rental assistance tied to a specific property. Properties get cash payments determined by the number of tenants living in eligible units.

• Tenant-based subsidies: Rental assistance tied to a specific tenant, not a specific property. Properties get cash payments determined by the number of qualifying occupants-- i.e. those with vouchers. Vouchers include:

  • Regular vouchers: Most vouchers are regular vouchers, which limit payments to HUD's fair market rent in the particular area where the property is located.

  • Enhanced vouchers: Enhanced Section 8 vouchers are provided to tenants living in properties that used to receive project-based subsidies, including properties where the owner has either determined to leave the Section 8 program, or has prepaid their government-insured mortgage. For tenants living in these properties, enhanced vouchers help them pay for rent increases — which means these vouchers are typically based on the actual rent of the property.

Subordinate Financing: Permitted with additional requirements and analysis

Advantages

• Very competitive interest rates

• Loans are non-recourse

• Certain mixed-use properties are eligible

Disadvantages

• Typically requires third-party reports, including appraisal, Phase I Environmental Assessment, and physical condition assessment

• Requires application fees, commitment fees, and other fees

Case Study: Buying Affordable Housing in Portland

Meet Robert, an established real estate investor with a keen interest in supporting affordable housing solutions. Living in Portland, Oregon, Robert was passionate about contributing to his community and identified an opportunity to invest in a 40-unit property within the city. A good portion of this property was already under a Section 8 project-based contract, providing essential housing to low-income families in the area.

Despite his experience in the market, Robert faced a challenge: finding a financing solution that would cater to the specific needs of a Section 8 property. Most conventional loans didn't offer the flexibility or the favorable conditions necessary to make his investment worthwhile.

Enter the Freddie Mac HUD Section 8 Loan. This product was perfectly tailored to Robert's situation, offering attractive terms specifically designed for properties like the one Robert wanted to invest in. One of the appealing features of the loan was the non-recourse nature, limiting Robert's personal liability.

Robert planned to purchase the property for $4 million. He was eligible for the Freddie Mac HUD Section 8 Loan at 80% LTV for non-Low-Income Housing Tax Credit (LIHTC) properties, which resulted in a loan amount of $3.2 million. The loan had a term of 15 years, and Robert could look forward to up to 30 years of amortization, which gave him a comfortable repayment schedule.

With this loan, Robert could invest in the Section 8 property without the worry of personal financial risk, while also contributing to the Portland community by ensuring the availability of affordable housing options. The Freddie Mac HUD Section 8 Loan offered Robert both financial reward and personal satisfaction.

This is a fictional case study provided for illustrative purposes.

In this article:

1. Housing Assistance Program Project-Based Contract or Tenant-Based Voucher Properties 
2. Sample Freddie Mac Terms For HUD Section 8 Loans in 2024
3. Advantages
4. Disadvantages
5. Case Study: Buying Affordable Housing in Portland
6. Get Financing