FHA 223(f) for a RAD property

FHA’s Section 223(f) program can finance a RAD conversion at up to 90% of value and 1.11 debt service coverage when 90% or more of the units carry rental assistance, which describes nearly every RAD property. The mortgage insurance premium is 0.25%, the loan amortizes over up to 35 years, and repairs must stay under HUD’s substantial rehabilitation limit, which starts from $20,406 per unit in 2026.

That combination makes 223(f) the default FHA execution for conversions with light or moderate scopes: an acquisition by the new ownership entity, a modest repair program and a long fixed-rate loan. Heavier scopes go to 221(d)(4) or 4% credits and bonds.

The terms in 2026

Term	223(f) for a RAD property	Source
Maximum loan-to-value	90% when 90% or more of units are assisted	ML 2025-03
Minimum debt service coverage	1.11	ML 2025-03
Underwritten vacancy	3% for 90%+ assisted	ML 2025-03
Mortgage insurance premium	0.25% upfront, 0.25% annual	90 FR 45789
Amortization	Up to 35 years	MAP Guide, chapter 3
Repair limit	Below the substantial rehab Aggregate Cost Limit	MAP Guide 5.1.2; ML 2026-05
Developer fee	RAD without LIHTC: 10% of total budget, mortgageable; RAD with LIHTC: the allocating agency’s limit	MAP Guide developer fee table, 3.1.29

Mortgagee Letter 2025-03 eased the affordable and market-rate categories (affordable 223(f) went from 87% and 1.15 to 90% and 1.11). It left the 90%-assisted category where it already was. A RAD property with a few unassisted units still falls in the 90% category as long as at least 90% of units are assisted; a property with more non-RAD units may drop into the affordable or market category, which changes both ratios and vacancy.

The premium change matters more than it looks. Before October 1, 2025, a 223(f) carried 100 basis points upfront and 60 annually. The current 25 and 25 lowers the debt constant, which raises the loan a fixed income supports.

The rehab limit

A 223(f) is a refinance or acquisition program. Under MAP Guide section 5.1.2, the aggregate cost of repairs, including change orders, must not exceed the Aggregate Cost Limit:

Aggregate Cost Limit = base per-unit limit × high cost percentage × number of units

HUD set the base at $15,000 in 2016 and indexes it each year. Mortgagee Letter 2026-05 sets it at $20,406 per unit for applications submitted or amended on or after January 1, 2026. The MAP Guide bars using the higher 315% high cost area multiplier in this calculation, so use the local high cost percentage only.

Worked example (illustrative)

A 120-unit RAD project in an area with an assumed 250% high cost percentage:

Line	Amount
Base limit, 2026	$20,406 per unit
× high cost percentage (assumed)	250%
Per-unit limit	$51,015
× 120 units	$6,121,800

A scope above about $6.1 million would make the deal a substantial rehab, outside 223(f). The local high cost percentage comes from HUD and differs by area; confirm it with the lender.

In HUD’s RAD Resource Desk data, as of October 24, 2026, 237 closed conversions had FHA-insured debt and 235 of them reported hard costs; 184 of those reported more than $20,406 per unit. That is not a sign they broke the limit: some used 221(d)(4), and high cost percentages raise the dollar limit well above the base in most markets.

How the loan is sized

The loan is the lowest of several tests. For a RAD property the binding test is usually debt service coverage, because the RAD contract rents set the income:

1. Coverage: net operating income divided by 1.11, divided by the debt constant (interest, 0.25% MIP and amortization).
2. Value: 90% of the appraised value. The appraiser values the property with its new HAP contract in place; ask the lender early how the contract rents compare with market in the appraisal.
3. Acquisition or refinance cost: limits tied to the acquisition price or existing debt plus costs, per the MAP Guide.

On the income side, the lender takes the CHAP rents, deducts 3% vacancy, operating costs and replacement reserves, and sizes from there. The RAD debt sizer runs the coverage test against any project’s RAD rents.

Timing against the RAD clock

The FHA process and the RAD process run in parallel, and the hard link is the RCC:

RAD step	FHA step	What has to line up
CHAP issued	Lender engaged, third-party reports ordered	The CHAP rents drive the underwriting
Concept Call	Lender’s early read on sizing	Debt amount in the plan should be realistic
Financing Plan (within 270 days of CHAP, or 60 days after a Concept Call invitation)	Firm application in preparation or submitted	Plan carries the lender’s terms; environmental documents due no later than the plan
RCC issued (30 days to sign)	Firm commitment	RCC requires a firm commitment on substantially the same terms
Closing (within 90 days of the RCC)	Initial endorsement	Conversion and FHA closing happen together

“Substantially the same terms” has a definition in the RAD notice: the debt service coverage may not fall by more than 0.05, and amortization and term must stay the same. A rate move between the Financing Plan and the firm commitment that pushes coverage down more than that sends the deal back to HUD.

Environmental review is not duplicated. Supplemental 4C makes the FHA production underwriter the Part 50 reviewer on FHA-insured deals outside Risk-Share. Radon testing applies to all conversions, and the screening standard depends on scope: a Phase I ESA for substantial rehab or new construction, a transaction screen for the rest.

The MAP lender process

FHA multifamily loans run through MAP-approved lenders. The lender orders the third-party reports (appraisal, capital needs assessment, environmental), underwrites, and submits the firm application to HUD’s Office of Multifamily Production. HUD issues the firm commitment, and the loan closes and is initially endorsed. The MAP Guide gives RAD and other affordable deals with scattered sites “greater flexibility” (section 3.1.30), which helps when a project is several small public housing sites.

Two RAD-specific points come up often:

• Use agreement priority. The RAD Use Agreement is recorded ahead of all liens, including FHA security instruments. The lender and HUD’s counsel expect it.
• Davis-Bacon. A 223(f) loan does not by itself trigger prevailing wages, but RAD’s own rule does: Davis-Bacon applies to work that qualifies as development and starts within 18 months after the HAP effective date, on projects with 9 or more assisted units.

When 223(f) is the wrong tool

• The scope exceeds the Aggregate Cost Limit: use 221(d)(4) or credits.
• The property already has an FHA-insured loan: a 223(a)(7) refinance may be simpler (see refinancing a RAD property).
• The deal is a Section 18 blend or new construction: those are 221(d)(4) or tax credit executions.

The financing guide compares every execution side by side.

Sizing a 223(f)

For a 223(f) sizing on a specific project, send the CHAP rents, unit count and scope to Janover Capital LLC, a commercial mortgage advisor, not a lender. Get a financing quote for a comparison against agency and bank terms.

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

Sources

• HUD, Mortgagee Letter 2025-03, January 8, 2025: loan-to-value, coverage and vacancy by category.
• 90 FR 45789, September 23, 2025 (FR Doc. 2025-18379): MIP of 0.25% for all FHA multifamily programs.
• HUD, Mortgagee Letter 2026-05, May 20, 2026: 2026 base per-unit substantial rehab limit of $20,406.
• HUD, MAP Guide, 2020 edition revised March 19, 2021: sections 3.1.29, 3.1.30 and 5.1.2, and the developer fee table.
• HUD, RAD Notice Revision 4 as amended by Supplementals 4B and 4C: sections 1.4.A.13 (use agreement), 1.4.A.14 (Davis-Bacon), 1.12 and 1.13 (Financing Plan and RCC).
• HUD, Supplemental Notice 4C, H-2025-01 / PIH-2025-03: Part 50 reviewer by program; feasibility benchmarks.
• RAD Resource Desk, Component 1 data export, October 24, 2026.