FHA 221(d)(4) for RAD substantial rehab and new construction

FHA’s Section 221(d)(4) program is the construction-to-permanent loan for RAD conversions that go beyond a repair program: substantial rehabilitation, new construction, transfers of assistance to a new site, and Section 18 blends with demolition. For a property with 90% or more of its units assisted it lends up to 90% of cost at 1.11 debt service coverage, with a 0.25% mortgage insurance premium. On a RAD substantial rehab, the appraiser uses the CHAP rents.

The program is slower and more prescriptive than a 223(f), but it carries the construction period and the permanent loan in one insured note, which removes take-out risk from a heavy scope. In HUD’s RAD Resource Desk data, as of October 24, 2026, 367 closed conversions included new construction, and 38 of those used FHA-insured debt.

The terms in 2026

Term	221(d)(4) for a RAD property	Source
Maximum loan-to-cost	90% when 90% or more of units are assisted	ML 2025-03
Minimum debt service coverage	1.11	ML 2025-03
Mortgage insurance premium	0.25% upfront, 0.25% annual (previously 65 and 65 basis points)	90 FR 45789
Structure	One loan through construction and the permanent term; advances insured during construction	MAP Guide
Amortization	Up to 40 years after construction	MAP Guide
Prevailing wages	Davis-Bacon applies	MAP Guide; RAD notice 1.4.A.14
Large loan threshold	$130 million, unchanged for 2026	ML 2026-05

ML 2025-03 also moved affordable 221(d)(4) deals (LIHTC with a rent advantage) to 90% and 1.11 from 87% and 1.15. A RAD project with a large share of unassisted tax credit units may fall in that affordable category; the ratios are now the same, but vacancy is 5% instead of 3%.

Which RAD deals end up in 221(d)(4)

Substantial rehab. A scope above the Aggregate Cost Limit (2026 base $20,406 per unit × local high cost percentage × units) is substantial rehab under MAP Guide 5.1.2 and is outside 223(f). See FHA 223(f) for RAD for the arithmetic.

New construction and transfers of assistance. RAD lets a PHA move assistance to a new site. In the same data, 240 closed conversions were transfers of assistance.

RAD/Section 18 blends. A blend lets part of the units leave public housing under Section 18 and come back with tenant protection voucher level rents, which raises the blended rent. HUD’s tiers allow a higher Section 18 share as the rehab gets deeper: 30/70 above 30% of HUD’s Housing Construction Costs, 60/40 above 60%, and 90/10 above 90% or for demolition and redevelopment, small PHAs, or transfers to a new site. Deep rehab is what qualifies for the richer blends, so blends and 221(d)(4) travel together. 267 closed conversions in HUD’s data were blends. The blend calculator shows the rent and debt effect, and HUD’s 2026 RADBlast on tenant protection voucher eligibility should be read before sizing one.

How the appraisal works on RAD

MAP Guide section 7.13.6 tells the appraiser on a RAD 221(d)(4) substantial rehab to use the CHAP rents. Three consequences follow:

1. The CHAP sets the ceiling. More debt requires higher rents, and higher rents require an amended CHAP (a blend, rent bundling, or another flexibility in the notice) before the firm application.
2. The cost test and the income test meet. The loan is the lower of 90% of eligible cost and what the CHAP-rent income supports at 1.11. On most RAD projects the income test binds, and the gap is filled with credits, a seller note and soft funds.
3. PBRA versus PBV changes the rent. PBRA initial rents may reach 120% of fair market rent less utilities (up to 150% with a rent comparability study), PBV 110%. See PBV vs PBRA.

Worked example (illustrative)

An 80-unit substantial rehab, blended rent after a 60/40 blend assumed at $1,250 per unit per month:

Line	Amount
Gross potential rent, 80 × $1,250 × 12	$1,200,000
Less 3% vacancy	$1,164,000
Less operating costs and reserves, assumed $7,000 per unit	$560,000
Net operating income	$604,000
Debt service at 1.11	$544,144
Loan at an assumed 5.5% rate, 0.25% MIP, 40-year amortization	about $8.4 million
Total development cost, assumed $260,000 per unit	$20.8 million
90% of cost	$18.7 million

Income binds at about $8.4 million, roughly 40% of cost. The rest comes from equity and subordinate sources (4% credits and bonds, sources and uses builder). These are assumptions, not a quote.

Davis-Bacon and Section 3

Two separate rules apply, and both need a budget line:

• FHA: a 221(d)(4) carries federal prevailing wage requirements on the construction contract.
• RAD: Davis-Bacon applies to work in the Financing Plan and RCC that qualifies as development (remodeling that changes the nature or type of units, reconstruction, or substantial improvement in the quality of original equipment) started within 18 months after the HAP effective date, on projects with 9 or more assisted units.

Section 3 applies to post-closing rehab and construction on RAD properties.

Construction-to-perm and the RAD clock

The 221(d)(4) closes at conversion: the RAD closing, the HAP contract and the initial endorsement happen together, and the RCC allows 90 days from issuance to close. The firm commitment must therefore be in hand by the RCC, which is conditioned on a firm commitment on substantially the same terms (coverage no more than 0.05 lower, same amortization and term).

The HAP contract takes effect on the first day of one of the two months after closing. Residents are relocated during construction under the RAD Fair Housing, Civil Rights and Relocation Notice (H-2016-17) with a right to return. Relocation costs and any lost rent during construction belong in the development budget.

Picking 221(d)(4) over a credit-only structure

A 221(d)(4) is not an alternative to tax credits; on most deep RAD scopes it sits alongside them as the first mortgage. The choice is between an insured construction-to-permanent loan and a two-loan structure, such as a bank construction loan or short-term bonds taken out by a permanent loan at conversion. The insured loan removes the take-out risk and fixes the permanent terms before construction starts, which suits a long schedule. A two-loan structure is often faster to close but leaves the permanent rate open until the work is done. The RAD financing guide lays out the full range.

Restore-Rebuild

Restore-Rebuild (formerly Faircloth-to-RAD) let PHAs build new public housing up to their Faircloth limit under 24 CFR 905 Subpart F and convert it to RAD at completion, using a NARR, mixed-finance approval and a RAD Conversion Conditional Approval. HUD’s November 2024 guide estimated nearly 260,000 units of unused Faircloth authority. HUD then announced a wind-down of the initiative in a 2026 RADBlast. Projects already in process should confirm with HUD where they stand before carrying Restore-Rebuild rents in a 221(d)(4) application.

Next step

For a 221(d)(4) sizing on a specific rehab or new construction scope, send the CHAP or blended rents, the budget and the schedule to Janover Capital LLC, a commercial mortgage advisor, not a lender. Get a financing quote and it will be compared with credit and bond structures. The financing guide covers every option.

HUD’s notices and mortgagee letters control; nothing here is legal advice.

Sources

• HUD, Mortgagee Letter 2025-03, January 8, 2025.
• 90 FR 45789, September 23, 2025 (FR Doc. 2025-18379): MIP.
• HUD, Mortgagee Letter 2026-05, May 20, 2026.
• HUD, MAP Guide, 2020 edition revised March 19, 2021: sections 5.1.2 and 7.13.6.
• HUD, RAD Notice Revision 4 as amended by Supplementals 4B and 4C: sections 1.4.A.14 and 1.4.A.15 (Davis-Bacon, Section 3), 1.6 and 1.7 (rents), 1.13 (RCC).
• HUD, Supplemental Notice 4C, H-2025-01 / PIH-2025-03, section II (blends).
• HUD, RAD Contract Rents Look-Up Tool, May 27, 2026: blend tiers.
• HUD, RAD Fair Housing, Civil Rights and Relocation Notice, H-2016-17 / PIH-2016-17, November 10, 2016.
• HUD, Restore-Rebuild Guide, November 2024; HUD, RADBlast 2026: Restore-Rebuild and changes to TPV.
• RAD Resource Desk, Component 1 data export, October 24, 2026.