Refinancing a LIHTC Property with a HUD Loan

Answer first

In brief

A low-income housing tax credit (LIHTC) property can refinance with HUD 223(f), often around the end of the tax credit compliance period when the investor exits and the sponsor wants long-term debt. The lender underwrites restricted rents under the recorded land use restriction agreement, and the deal needs consents from the tax credit investor, the state housing finance agency and any subordinate lenders.

Written by Bravo Capital, a HUD-approved MAP and LEAN lender. Bravo’s 223(f) page covers how it finances these transactions.

Key points

LIHTC properties meeting HUD's affordable definition can qualify for a more favorable 223(f) sizing tier than market-rate properties; confirm current levels in the MAP Guide.
Rents are underwritten at the restricted levels in the LURA, not market rents.
The extended use period continues after the compliance period, so restrictions remain in place under the HUD loan.
Investor buyouts, HFA consents and soft debt subordination often take longer than HUD processing itself.
IRS Form 8823 findings and other compliance issues need to be resolved before closing.

What triggers this scenario

LIHTC properties are usually financed at development with construction debt, a permanent loan and tax credit equity, often alongside soft loans from public lenders. When the compliance period ends, the tax credit investor typically wants to exit, and the sponsor often wants to buy out the investor's interest and refinance the permanent loan.

A HUD 223(f) loan can provide a long fixed-rate term that matches a long-term affordable hold. Some sponsors combine the refinance with a resyndication using new tax credits and bonds, which is a more complex transaction and typically involves different structures; discuss with your lender which path fits.

How HUD and the lender underwrite a LIHTC property

Underwriting starts with the land use restriction agreement (LURA). It sets income and rent limits for the restricted units, and the lender will underwrite rents at or below those limits, also checking that they are achievable against market rents. If restricted rents are close to or above market rents in the area, the lender uses the lower figure.

The lender also reviews compliance history: annual owner certifications, HFA monitoring reports and any IRS Form 8823 findings. Unresolved noncompliance is a risk to the restrictions and to the property's operations, so it needs to be cured or explained.

Expenses get specific attention on LIHTC properties: compliance monitoring fees, the costs of annual income certifications, and any service coordination the LURA requires are all underwritten as ongoing costs.

Fitting the LURA and soft debt into a HUD loan

The HUD loan will be secured by a first mortgage with HUD's regulatory agreement. The LURA usually remains recorded, and the HUD lender and the HFA need to agree on how the documents relate. HUD has standard approaches for this, but the HFA's own requirements vary by state.

Subordinate soft loans from public lenders are common. HUD permits certain subordinate financing on affordable properties when it meets HUD's requirements, so the soft lenders typically must agree to subordinate and to terms HUD accepts. Start these conversations early because public lenders often have board approval cycles.

Sequencing the investor exit and refinance

In many deals the investor buyout, the HFA consent and the refinance close together. If the buyout has to happen first, a bridge loan can fund it and carry the property until the HUD closing. The bridge lender will want to see that the LURA, HFA consent and soft debt plan support the HUD exit before closing the bridge.

Budget time accordingly. At Bravo the HUD process itself runs about six months from engagement to closing; investor and HFA negotiations can add to that and should begin before the HUD engagement.

Common failure points

Investor exit disputes over the buyout price can stall a refinance that is otherwise ready. HFA transfer or refinance approvals may require fees, updated physical inspections or new commitments. Rent limits that drop because of area median income changes, or properties underwritten at maximum LIHTC rents that the market will not support, shrink loan proceeds.

What to prepare

Recorded LURA and any amendments, and the HFA's current compliance monitoring report.
Partnership agreement with the investor exit provisions highlighted.
Rent roll showing income designation and rent limit by unit.
Soft loan documents and contact information for each public lender.
Any IRS Form 8823 notices and evidence of correction.

Where to go next

For Bravo's 223(f) terms and requirements, see HUD 223(f) loans.

For bridge loans that fund an investor buyout ahead of a HUD closing, see Bridge-to-HUD financing.

For portfolio figures by state, metro and program, see the HUD multifamily data hub. Bravo Capital’s record: all 26 HUD firm commitments received since April 2022 have closed, totaling $526.0 million (HUD Closing Scorecard).

Primary sources

This page is based on public guidance from the U.S. Department of Housing and Urban Development. Program rules are transaction-specific and subject to change.

Common questions

Frequently asked questions

Do the LIHTC restrictions go away when I refinance with HUD?

No. The extended use restrictions in the LURA generally continue for their full term regardless of the refinance, and HUD underwriting reflects them. The HUD regulatory agreement adds its own requirements alongside them.

Can I refinance before the compliance period ends?

It may be possible, but investor consent is usually required and the investor's tax position must be protected. Most owners plan the refinance around Year 15 or a resyndication for that reason.

Will my soft loans have to be repaid?

Not necessarily. Many soft loans can remain in place in a subordinate position if the public lender agrees and the terms meet HUD's subordinate financing requirements. Confirm with each lender and with your HUD lender before assuming either outcome.

Can a HUD loan be combined with new tax credits and bonds?

Yes, HUD-insured loans are used in resyndications that combine new tax credits and tax-exempt bonds, but those transactions add credit allocation, bond issuance and investor closing requirements. They are more complex than a straight 223(f) refinance and should be planned with the lender, HFA and tax credit counsel together.

Editorial review

Created by Bravo Capital, a HUD-approved MAP and LEAN lender, and expert-reviewed by the Bravo Capital HUD Underwriting Team. Last updated November 4, 2026. This page is educational and is not a credit decision or commitment to lend.