Refinance a converted RAD property
What does a refinance net for a property that converted under RAD years ago? Enter today's NOI, value and existing loan, pick an execution and choose cash out or rehab: you get the new loan, net proceeds, coverage and the change in annual payment.
Worked example: NOI of $560,000 and a $3,200,000 balance refinanced with FHA 223(f) gives a $7,501,170 loan (limited by coverage), about $4,076,135 net of payoff and costs, at 1.11 coverage.
New loan, limited by coverage
$7,501,170- Loan by coverage
- $7,501,170
- Loan by value
- $8,550,000
- Payoff of existing loan
- $3,200,000
- Closing costs
- $225,035
- Net proceeds after payoff, costs and rehab
- $4,076,135
- Coverage, new loan
- 1.11
- Annual debt service, existing
- $203,644 (2.75x)
- Annual debt service, new
- $504,505
- Change in annual payment
- +$300,860
The HAP contract has 12 years left, less than the 35-year loan term. Expect the lender to ask for an extension or to treat it as a short-term contract.
How this works
- Existing debt service = balance x the level-payment constant for its rate and remaining amortization, plus any MIP.
- New loan = the smallest of: NOI / DSCR / (debt constant + MIP); value x maximum LTV; for 223(f) cash out, the greater of 80% of value or the cost to refinance; for 223(a)(7) or a rehab-only refinance, the cost to refinance (payoff + rehab + closing costs).
- Net proceeds = new loan - payoff - closing costs - rehab funded. Closing costs are a percentage you set; 3% is an assumption.
- HAP check: flags a contract with fewer years left than the loan term.
What constrains a RAD refinance
- HUD approval. Owners must get HUD approval for any refinancing or restructuring of secured debt during the HAP term (RAD Notice sections 1.6.D.6 and 1.7.C.6). Build that review into the schedule.
- Contract term and renewal. RAD PBV contracts run 15 to 20 years, PBRA contracts 20. Renewal is mandatory for both sides, subject to appropriations (RAD Notice 1.6.B and 1.7.A). After year 20, PBV rents are re-set at the lesser of reasonable rent or 110% of FMR; PBRA renews under MAHRAA (HUD PBV vs PBRA guide, April 2025).
- Lender treatment. Freddie Mac underwrites a contract with less remaining term than the loan as short-term and excludes above-market subsidy from NOI. FHA sizes 223(f) at 1.11 and 90% for properties with 90% or more of units assisted (ML 2025-03); 223(a)(7) applies only to an existing FHA loan and allows no cash out (MAP Guide 18.3).
- Rents. Contract rents rise each year by HUD's OCAF; use your current rent schedule for NOI, not the conversion-year rent.
What it leaves out: prepayment penalties on the existing loan, the FHA initial MIP, repair escrows, rate floors and each lender's own underwriting.
Questions people ask
Does HUD have to approve a refinance of a RAD property?
Yes. The RAD Notice (Rev 4 as amended, sections 1.6.D.6 for PBV and 1.7.C.6 for PBRA) requires the owner to get HUD approval for any refinancing or restructuring of secured debt during the HAP contract term, so the new financing is consistent with long-term preservation.
What happens if the HAP contract ends before the new loan?
RAD contracts must be renewed: at expiration the contract administrator or HUD must offer, and the owner must accept, renewal, subject to appropriations. Lenders still look at the remaining term. Freddie Mac's Section 8 term sheet treats a contract shorter than the loan as short-term and, where contract rents are above market, leaves the excess out of underwritten income. Extending the contract before closing can help.
Can I take cash out with an FHA loan?
With 223(f), yes, within Criterion 10: the loan is limited to the greater of 80% of value or the cost to refinance eligible debt, repairs and closing costs, and also to the coverage and 90% loan-ratio tests. With 223(a)(7), no: it refinances an existing FHA loan, repairs and costs only.
How long is a RAD HAP contract?
RAD PBV contracts run at least 15 years and up to 20 with the voucher agency's approval; RAD PBRA contracts run 20 years. Both renew under the RAD statute, and a 20-year RAD Use Agreement renews with a PBRA contract.
Sources
- RAD Notice Rev 4 (H-2019-09 / PIH-2019-23), as amended by Supplementals 4B and 4C, master version (as amended January 16, 2025) Sections 1.6.B and 1.7.A: PBV initial term 15 to 20 years, PBRA 20 years, renewal mandatory subject to appropriations. Sections 1.6.D.6 and 1.7.C.6: HUD approval required for any refinancing of secured debt during the HAP term.
- HUD Mortgagee Letter 2025-03, Multifamily Changes in DSCR and LTV/LTC Ratios (January 8, 2025) Properties with 90% or more of units under rental assistance: 90% loan ratio, 1.11 DSCR, 3% vacancy factor, for both 221(d)(4) and 223(f). LIHTC with a rent advantage: 90% and 1.11. Market rate: 87% and 1.15.
- HUD Multifamily Accelerated Processing (MAP) Guide, 4430.G (March 19, 2021 revision) Section 3.1.6: maximum term 40 years for new construction or substantial rehab, 35 years for 223(f). Section 3.7.11, Criterion 10: 223(f) cash-out limit is the greater of 80% of value or the cost to refinance. Section 18.3: 223(a)(7) coverage 1.05 for projects over 90% project-based Section 8, 1.11 otherwise; no cash out; term up to 12 years beyond the existing maturity.
- HUD notice, Changes to Mortgage Insurance Premiums for FHA Multifamily Programs (90 FR 45789, FR-6522-N-02) (September 23, 2025) Annual MIP of 0.25% for all FHA multifamily programs, for applications submitted or amended on or after October 1, 2025.
- Freddie Mac Multifamily, Optigo HUD Section 8 Financing term sheet (September 2025) Minimum DCR 1.20x with at least 50% of units under HUD project-based Section 8, 1.25x for other rental assistance, 1.15x with new LIHTC. Maximum LTV 80% without LIHTC, 90% with. Loan terms 5 to 15 years, amortization up to 35. A contract shorter than the loan term is underwritten as short-term.
This is a sizing sketch, not a loan offer, a commitment or advice. Rates shown are illustrative inputs you can change; this site advertises no rates or terms. Lenders, HUD and investors underwrite with their own figures and current guides. Janover Capital LLC is a commercial mortgage advisor, not a lender, and is not affiliated with HUD.
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Refinancing a converted property?
Send the current rent schedule, operating statement and existing loan terms. A senior advisor at Janover Capital LLC replies with a first read on proceeds across FHA, agency and bank executions.
- FHA 223(f), 221(d)(4) and 223(a)(7)
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