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In brief

A property with a project-based Section 8 Housing Assistance Payments (HAP) contract can refinance with a HUD 223(f) loan, and properties with substantial rental assistance generally qualify for higher leverage than market-rate properties. The lender underwrites the contract rents and remaining term, so the HAP renewal status, rent comparability, inspection history and any existing use or regulatory agreements must be lined up before application.

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

Key points

  • HUD's 223(f) sizing tiers give properties with substantial rental assistance more favorable leverage than market-rate properties; confirm the current tiers in the MAP Guide.
  • The remaining HAP term and renewal plan drive how the lender underwrites the assisted rents.
  • Contract rents relative to market rents matter, because renewals can move rents toward market.
  • Recent physical inspection results and management reviews are part of the file.
  • Existing HUD use agreements, distribution limits and reserve accounts need to be addressed in the refinance.

What triggers this scenario

Owners of project-based Section 8 properties refinance for several reasons: an existing loan maturing, a need to fund capital repairs, a HAP contract renewal that changes rents, or a change in ownership. Many of these properties carry older HUD-insured or HUD-held debt; others have conventional financing.

If the existing loan is already FHA-insured, the owner should compare a 223(a)(7) streamlined refinance (which cannot take out equity) with a full 223(f), which allows a broader refinance subject to HUD's limits.

How the lender underwrites HAP income

The HAP contract is the core of the credit. The lender looks at the remaining term, whether the owner has renewed or committed to renew, and the renewal option under which rents are set. Section 8 renewal policy under the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) includes several options, and the rent outcome differs by option.

Contract rents are compared to market rents through a rent comparability study. If contract rents exceed market, renewal may bring them down, and the lender will be cautious about underwriting the higher figure. If they are below market, there may be room to increase them at renewal. In both cases the lender will want the current contract and rent schedule, not a projection.

Leverage and term for assisted properties

HUD's 223(f) program applies different maximum loan-to-value and debt service coverage levels depending on whether a property is market rate, affordable, or has a high share of units covered by rental assistance. Properties with substantial rental assistance are in the most favorable tier. HUD has revised these levels over time, so confirm the current figures in the MAP Guide for your property's category.

Sequencing the refinance around the contract

Avoid applying while the HAP contract is close to expiration without a renewal in hand. If the contract is up for renewal, complete or commit to the renewal first, then submit the firm application with the renewed contract. If repairs are needed, the HUD loan can fund them, and HUD contract administration may need to approve the work plan and any change to replacement reserve deposits.

For a bridge-to-HUD scenario, for example an acquisition of an assisted property, the bridge loan has to accommodate HUD approvals for the transfer of the HAP contract to the new owner, which follow their own process.

Common failure points

Weak physical inspection scores and open findings from a management and occupancy review slow approvals and can block a transaction until resolved. Tenant file compliance problems (missing income certifications, late recertifications) surface during underwriting.

Owners also miss existing restrictions: use agreements, limited distribution rules and residual receipts accounts on older assisted properties have to be addressed in the refinance, and some require separate HUD approvals.

What to prepare

  • Current HAP contract, all renewals and amendments, and the current rent schedule.
  • The most recent rent comparability study.
  • Latest physical inspection report and evidence that findings were corrected.
  • Most recent management and occupancy review and closure letter.
  • Existing regulatory, use and restrictive agreements, and statements for reserve and residual receipts accounts.

Where to go next

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

If the property already has an FHA-insured loan, see HUD 223(a)(7) loans.

Related guides: How HUD Loan Sizing Works in a Bridge-to-HUD Plan; The First-Time Borrower’s Guide to a HUD Exit; Third-Party Reports in a Bridge-to-HUD Execution.

Related terms: HAP Contract: What It Means in a HUD Refinance; Mark-to-Market: HUD's Section 8 Debt Restructuring Program; NSPIRE Inspections: HUD's Physical Inspection Standard; Replacement Reserve: How HUD Sizes and Controls It.

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

Does a HAP contract make a HUD refinance easier?

It provides predictable income and can qualify the property for more favorable sizing, but it adds approvals and documentation. The net effect is usually positive when the contract has a clear renewal path and the property's inspections and management reviews are in good order.

What happens if my HAP contract expires during processing?

That is a real risk to the loan, because the lender is underwriting assisted rents. Resolve the renewal before submitting the firm application or at least have a committed renewal the lender can rely on.

Can I take cash out of a Section 8 property?

A 223(f) refinance may permit some equity take-out subject to HUD limits and any restrictions in existing agreements on the property; a 223(a)(7) does not permit equity take-out. Older assisted properties may carry use agreements or distribution limits that restrict how proceeds can be used, so have the lender review them first.

Does a buyer need HUD approval to take over a HAP contract?

Yes. Assignment of a project-based HAP contract to a new owner requires HUD approval, which runs alongside the financing. A bridge loan used for the acquisition needs a term that covers both the contract assignment and the later HUD refinance.

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 . This page is educational and is not a credit decision or commitment to lend.