Refinancing a property after its RAD conversion

A converted RAD property can be refinanced much like any other Section 8 property, with FHA 223(f), FHA 223(a)(7) when the existing loan is already FHA-insured, or agency and bank debt. Two RAD rules travel with it: the RAD Use Agreement stays recorded ahead of every new lien, and public or nonprofit ownership or control must continue. Rent growth comes from the operating cost adjustment factor (OCAF), which averaged 5.1% nationally in 2026.

The questions owners face years after closing are different from the conversion itself. The Financing Plan and the 4C feasibility benchmarks belong to the conversion; a refinance is driven by the HAP contract, the use agreement, and whatever lender and investor consents the original deal created.

The contract the lender underwrites

Feature	RAD PBV	RAD PBRA
Initial term	At least 15 years, up to 20	20 years
Renewal	Mandatory; after a 20-year initial term, rents re-determined under 24 CFR 983.301 and 983.302 (4C section VII)	Mandatory under MAHRAA renewal options (4C section VII)
Annual adjustment	OCAF, not above reasonable rent, never below the initial rent	OCAF
Contract administrator	The voucher agency	HUD Multifamily or a PBCA

The statute is what lenders rely on: at each expiration “the Secretary shall offer and the owner of the property shall accept renewal,” subject to appropriations. Initial contract rents may be adjusted “only by an operating cost factor established by the Secretary.” That is a strength (the assistance does not go away) and a constraint (income grows at OCAF, not market).

OCAF and rent growth

The 2026 OCAFs were published at 91 FR 4934 on February 3, 2026, for anniversaries on or after February 11, 2026. The national average was 5.1%, ranging from 3.3% in Maine to 12.3% in the U.S. Virgin Islands, with Louisiana at 9.8% and Florida at 8.2%. The 2027 factors had not been published as of October 30, 2026.

Two levers exist when OCAF falls behind costs:

• Alternative operating cost factor (4C section IV). In extraordinary circumstances an owner may ask HUD’s Office of Recapitalization for an alternative factor. For PBV, the contract administrator must consent.
• PBV contracts in a voucher shortfall. Under PIH 2026-12 Rev 2 (June 9, 2026), a PHA in a confirmed HCV funding shortfall may submit extraordinary operating cost factor requests for RAD properties but may not implement any until the shortfall ends. A lender sizing a PBV refinance may ask about the voucher agency’s funding position.

The RAD Use Agreement and ownership rules

The RAD Use Agreement (RAD notice 1.4.A.13) is recorded superior to all liens, including FHA security instruments, and runs with the HAP contract. If the HAP contract were ever removed, it would still limit new tenants to 80% of area median income with rents capped at 30% of 80% AMI. Every refinance lender takes behind it.

Ownership or control must stay with a public or nonprofit entity throughout (notice 1.4.A.11), through fee ownership, ground lessor status, 51% or more of the GP or managing member interest, a smaller GP share with HUD-approved control rights, or another HUD-approved arrangement. A refinance that also changes the ownership structure is a transfer, which brings HUD review.

Public Law 119-101 added two points. PHA-owned property in a conversion must be used to replace, create, preserve, improve or expand affordable housing, which bears on how a PHA uses cash taken out. And HUD may impose civil money penalties for material violations of RAD requirements under both components, so compliance through a refinance carries more weight than before. HUD had not issued implementing guidance as of October 2026.

HUD consent and third-party approvals

HUD’s Post-Conversion Approval Processing Guide, posted on the RAD Resource Desk, lists the post-closing actions that need HUD approval and the office that handles each. Treat it as the first document to read. Beyond HUD, a refinance commonly needs:

• the contract administrator’s estoppel on the HAP contract;
• the tax credit investor’s consent, if within the compliance period;
• the consent or payoff of soft lenders and the PHA seller note holder, whose subordination agreements set the terms;
• the allocating agency, if its regulatory agreement covers refinancing.

Which loan

Execution	When it fits a converted RAD property
FHA 223(a)(7)	The existing first mortgage is FHA-insured; streamlined FHA-to-FHA refinance at the 0.25% premium
FHA 223(f)	Non-FHA debt to replace, or more proceeds needed; 90% LTV and 1.11 for 90%+ assisted (ML 2025-03); repairs under the substantial rehab limit
Freddie Mac HUD Section 8	Stabilized property; min 1.20x DCR at 50%+ project-based Section 8; max 80% LTV; contract term rule
Bank	Small balance or short-term needs

The detail on terms is in FHA 223(f) for RAD; the post-conversion refinance tool runs proceeds from current HAP rents.

Worked example (illustrative)

An 80-unit PBRA property converted several years ago, now at an assumed $1,150 contract rent after OCAFs:

Line	Amount
Gross potential rent, 80 × $1,150 × 12	$1,104,000
Less 3% vacancy	$1,070,880
Less operating costs and reserves, assumed $7,200 per unit	$576,000
Net operating income	$494,880
Debt service at 1.11	$445,838
New 223(f) loan at an assumed 5.5% rate, 0.25% MIP, 35 years	about $6.66 million
Existing first mortgage balance, assumed	$3,400,000
Gross proceeds above payoff, before costs and repairs	about $3.26 million

What the owner can actually take out depends on the 223(f) cash-out criterion, required repairs and reserves, and the consents above. Rates and costs are assumptions, not a quote.

Timing a refinance

Two dates shape when to refinance. The first is the OCAF anniversary: a refinance sized just after the year’s adjustment uses the higher rent, while one sized before it leaves that growth out. The second is the remaining HAP term against the new loan’s term, which some lenders test directly. Owners with PBV contracts approaching the end of a 20-year initial term should also expect rents to be re-determined at renewal under 24 CFR 983.301 and 983.302, which can move the income in either direction.

Year 15 in a tax credit deal

A RAD conversion that used credits reaches the end of its 15-year compliance period (IRC 42(i)(1)) while its RAD contract and use agreement continue. The extended use commitment runs at least 15 years after the compliance period (IRC 42(h)(6)(D)). Typical year-15 steps:

1. Investor exit. The limited partner sells its interest, often to the general partner or the PHA. A qualified nonprofit may hold a right of first refusal under IRC 42(i)(7).
2. Recapitalization. New debt pays off subordinate loans and funds the next round of capital needs; deep scopes may support a new allocation of 4% credits and bonds (4% credits and bonds).
3. Control check. The new structure must still meet the public or nonprofit ownership or control requirement.

The RAD financing guide compares the executions available at recapitalization.

Refinance terms

To size a refinance from today’s HAP rents, send the contract, the current loan and the rent roll to Janover Capital LLC, a commercial mortgage advisor, not a lender. Get a financing quote and the options will be compared against the same contract.

HUD’s notices, the HAP contract and the use agreement control; nothing here is legal advice.

Sources

• HUD OGC, RAD statute, comprehensive Ramseyer, updated March 19, 2024 (P.L. 112-55 as amended): renewal and OCAF provisos.
• Public Law 119-101, section 212, July 11, 2026: govinfo.
• HUD, RAD Notice Revision 4 as amended by Supplementals 4B and 4C: sections 1.4.A.11, 1.4.A.13, 1.6 and 1.7; Supplemental Notice 4C, sections IV and VII.
• 91 FR 4934, February 3, 2026 (FR Doc. 2026-02201): 2026 OCAFs.
• HUD, Notice PIH 2026-12, Rev 2, June 9, 2026.
• HUD, Mortgagee Letter 2025-03, January 8, 2025; 90 FR 45789, September 23, 2025.
• Freddie Mac, Optigo HUD Section 8 Financing.
• 26 U.S.C. 42(h)(6) and (i): govinfo.
• RAD Resource Desk, home page and Post-Conversion Approval Processing Guide.