You’ve been patient through the application process, and now it’s paid off. Congratulations on receiving your first HUD loan! As you put this money to good use, you also now have to consider how HUD’s closing documents and regulatory agreement affect the operation of your property. There’s a lot of changes in store, but your project now has an insured mortgage to serve your organization’s mission. That’s good news!

Common HUD Terms

The full list of HUD terms and acronyms is an overwhelming resource when you’re just starting out with HUD. For now, you can keep your focus on these key HUD terms:

  • HUDUnited States Department of Housing and Urban Development — This government agency exists to increase home ownership in communities across the country, forging partnerships and extending resources to accomplish this goal.
  • FHAFederal Housing Administration — The FHA provides mortgage insurance for those who are approved through FHA’s certified lenders. It is the world’s largest mortgage insurer, securing mortgages for more than 34 million properties since 1934. In most cases, HUD and FHA are used interchangeably.
  • REACReal Estate Assessment Center — This agency is responsible for monitoring the financial and physical condition of the properties HUD insures.
  • Project — Properties insured by HUD are called “projects.”
  • EIN — Employee Identification Number — The number assigned to the project or partnership used for taxes and regulatory filing.
  • DECDepartment of Enforcement Center — This is HUD’s policing agency. If you receive communications from the DEC, please notify your auditor and respond promptly. Questions? We’re here to help. Feel free to contact us if you have specific questions.

What to Do After Receiving Your First HUD Loan

Once you’ve been approved and receive a mortgage insured by HUD, you’ll get several important documents and will also need to get started on a few necessary tasks. Use this checklist to keep yourself on track during the first few weeks after being approved.

  1. Store the HUD closing statement, regulatory agreement, and other closing documents in a safe place.
  2. Determine who will be the HUD coordinator of the property. This person will be responsible for receiving and responding to HUD and REAC notifications.
  3. Choose an auditor to perform the required annual HUD audit.
  4. Communicate clearly to your management agent and auditor about any funds received after financing the HUD loan. Some of this money may need to flow back into the property and be distributed as surplus cash.

This is just the start of an often confusing journey of annual audits and government regulations, so it’s helpful to surround yourself with property managers, accountants, and other professionals who understand your mission and industry and who treat your property well.

Advice For First-time HUD Mortgagors

Every multifamily property is a little different, but there are a few things first-timers may not be aware of that apply across the board.

  • Initial Reporting Period — If you receive your first HUD loan within 120 days of your property’s year end date, you are allowed to file a HUD waiver for the current year. This can save your property and owners one year of audit fees.
  • Distributions — For-profit HUD mortgagors are allowed to receive distributions from the project twice per year (usually in June and December), based on the results of surplus cash calculations.
  • Financial Statement Preparation — The amount of your loan affects what assurance HUD requires from your financial statements. Check the table below to find out what type of preparation REAC will ask for:
Loan Amount For-Profit Projects Not-For-Profit Projects
<$500,000 Owner-certified F/S Owner-certified F/S
$500,000 – $750,000 Audited Financial Statement Owner-certified F/S
>$750,000 Audited Financial Statement Audited Financial Statement

Affordable Housing Auditors

If you’re required to file audited financial statements with your new HUD loan, make sure you find an auditor as soon as possible. The audit process typically takes several months, and is tricky during the first year of financing a HUD loan. Ask your property management company to submit Requests for Proposals (RFPs) to auditing firms as soon as possible to keep your property compliant with the regulations under HUD and REAC.

While any CPA auditor is capable of preparing audited financial statements, it takes discernment to choose one who will best serve your property’s needs. Lemler Group is not only experienced with HUD loans, but also enjoys a reputation of completing audits on time every year.

If you want to learn more, feel free to contact us or call us at (317) 991-1965. We’re here to serve you!