HUD 232 new construction loans require a working capital escrow of 4% of the loan amount. 2% of this, or half the amount, is a construction contingency escrow intended to help fund cost overruns or approved change orders that might occur.

If, by the end of the construction process, the construction contingency escrow has not been used, it is refunded to the developer. The other 2% of the escrow, the working capital escrow, is refunded to the lender 12 months after closing, as long as the project has experienced 6 consecutive months of break-even occupancy, or a DSCR of 1.0 (this calculation can include ancillary income sources as well as rent).

The minimum escrow requirement for HUD 232 loans is 4% of the loan amount.

HUD 232 loans require a working capital escrow of 4% of the loan amount. 2% of this, or half the amount, is a construction contingency escrow intended to help fund cost overruns or approved change orders that might occur. The other 2% of the escrow, the working capital escrow, is refunded to the lender 12 months after closing, as long as the project has experienced 6 consecutive months of break-even occupancy, or a DSCR of 1.0 (this calculation can include ancillary income sources as well as rent).

In addition, HUD 232 properties require a replacement reserve of at least $1,000 per unit, at least for the first 15 years of property operation.

For more information about HUD 232 loans, please fill out the form to speak to a HUD/FHA loan expert.

HUD 232 Loan Escrow Requirements require a working capital escrow of 4% of the loan amount. 2% of this, or half the amount, is a construction contingency escrow intended to help fund cost overruns or approved change orders that might occur. If, by the end of the construction process, the construction contingency escrow has not been used, it is refunded to the developer. The other 2% of the escrow, the working capital escrow, is refunded to the lender 12 months after closing, as long as the project has experienced 6 consecutive months of break-even occupancy, or a DSCR of 1.0 (this calculation can include ancillary income sources as well as rent).

In addition, borrowers must provide their lenders with evidence of insurance on or before the closing date or before the policy’s renewal date. HUD 232 properties require a replacement reserve of at least $1,000 per unit, at least for the first 15 years of property operation.

HUD 232 loans require a working capital escrow of 4% of the loan amount. 2% of this, or half the amount, is a construction contingency escrow intended to help fund cost overruns or approved change orders that might occur. The other 2% of the escrow, the working capital escrow, is refunded to the lender 12 months after closing, as long as the project has experienced 6 consecutive months of break-even occupancy, or a DSCR of 1.0 (this calculation can include ancillary income sources as well as rent).

In addition, property operators must submit quarterly financial statements. Funds are also be placed in escrow on a regular basis to contribute to a property’s required replacement reserves, as well as to pay property taxes and MIP.

If, by the end of the construction process, the construction contingency escrow has not been used, it is refunded to the developer. The other 2% of the escrow, the working capital escrow, is refunded to the lender 12 months after closing, as long as the project has experienced 6 consecutive months of break-even occupancy, or a DSCR of 1.0 (this calculation can include ancillary income sources as well as rent).

HUD 232 Loan Escrow Requirements require a working capital escrow of 4% of the loan amount. 2% of this, or half the amount, is a construction contingency escrow intended to help fund cost overruns or approved change orders that might occur. Escrow is when sums of money, deeds, securities, or property is held in trust (in escrow) until a transaction’s conditions are met. Once the conditions are met, the escrow agent transfers funds (or whatever was held in escrow) to the appropriate party.

If, by the end of the construction process, the construction contingency escrow has not been used, it is refunded to the developer. The other 2% of the escrow, the working capital escrow, is refunded to the lender 12 months after closing, as long as the project has experienced 6 consecutive months of break-even occupancy, or a DSCR of 1.0 (this calculation can include ancillary income sources as well as rent).