Take a Proactive Approach to FHA Financing and Reap the Benefits
Everyone knows that FHA offers some of the most attractive rates available on certain types of multifamily housing—not to mention higher leverage, lower debt service coverage ratios, and much longer amortizations. But all too many borrowers take a pass on these highly attractive advantages, discouraged by what they assume to be the time and effort required to secure FHA financing.
Yes, it’s true that FHA does require more documentation and time than other financing options. But it is also true that with planning, FHA financing can be a lot simpler than you might think. And with HUD set to increase its charges for its multifamily insurance premium on October 1 from 45 basis points to 60 basis points, there’s no better time to get started.
Think Ahead. Act Ahead.
The first thing to do is calibrate your timing. This means looking more deeply into your portfolio—as much as a year—to identify properties that may qualify for FHA programs. This gives you ample time to assemble the documentation you need, submit your application, and deal upfront with issues that might snag your application once it is submitted.
The majority of these red flags are predictable. For example, if the electrical panels on your property are outdated, the time to start replacing them is before you send in your paperwork.
Partner with an Expert
The second task—and one that greatly simplifies the first—is to establish an ongoing partnership with an experienced FHA lender, one who understands FHA processes and priorities and who has established relationships at your HUD office. You should work with a lender who will:
- Commit to learning your portfolio and provide a realistic assessment of which properties are eligible for FHA financing.
- Surface issues that could slow your application down—like components that have exceeded their useful life—and work with you to develop a repair plan.
- Help you produce the documentation that meets all FHA standards, a process that should take no longer than 60 days.
In other words, work with a lender who is knowledgeable and willing to make a professional investment in a successful FHA submission.
Track Your Submission
Your lender should know how long it typically takes your FHA office to turn around a project—and should keep tabs on its progress. Rates may not be as much of a concern as you may think. Recent performance has shown that FHA rates are fairly sticky and don’t necessarily react in lockstep with changes in Treasuries. But if there is a sudden uptick in rates or if you find yourself running up against your deadline, there are always other financing alternatives for you to try. The key, again, is to be proactive and have an application for alternative financing in your pocket, ready to use at a moment’s notice.
The bottom line: A more thoughtful, proactive, and collaborative approach can take serious time off the clock, simplify your process, and shorten the overall timeline. This is where Beech Street can make a substantial difference in a timeline versus many other FHA lenders. FHA's unbelievably low rates, higher proceeds and longer amortizations, certainly justify taking a hard look at this financing option - it may very well surprise you.