A cash out refinance on an apartment building is one of the most common reasons owners look at HUD financing. The program does allow it, with a firm ceiling and one definition worth understanding before you plan around it.
The cap is 80% of value
Standard 223(f) leverage runs to 87% of value on a market rate property and 90% on affordable and rental assisted properties. Cash out is capped at 80% across all three tiers. Mortgagee Letter 2025-03 raised the ordinary leverage limits and left the cash out criterion where it was.
| Purpose | Market rate | Affordable | Rental assisted |
|---|---|---|---|
| Refinance, no cash out | 87% | 90% | 90% |
| Acquisition | 80% of cost | 80% of cost | 80% of cost |
| Cash out | 80% | 80% | 80% |
Cash out does not require a cheque
This catches people. If the insured loan exceeds the eligible costs of the transaction, meaning the debt payoff, transaction costs, repairs, escrows and reserve deposits, the excess counts as cash out and the 80% ceiling applies to the whole loan. A transaction can be recharacterised as cash out without the sponsor ever having described it that way.
Coverage may bind before leverage does
Leverage is one test among several and the loan is the lowest result. A market rate cash out has to satisfy the 80% ceiling, the 1.15x coverage requirement at a 7% underwriting vacancy, and the statutory per unit limits. On a high value property with moderate income, coverage often binds well before 80%.
Newer properties: half the cash out is deferred
A property under three years from its final certificate of occupancy can still qualify, at 1.17x coverage on a market rate deal demonstrated over three consecutive months. If cash out is taken, 50% of the proceeds are held back until the property shows the required coverage over six months.
Healthcare is different
Section 232 facilities, meaning skilled nursing, assisted living, board and care and memory care, cannot take cash out at all. If liquidity is the goal on a healthcare asset, that is worth knowing on day one. See how the healthcare rule works.
Planning a distribution
Size the deal against the 80% ceiling and the coverage test from the start, and get a value indication early. The most common avoidable disappointment in this program is a sponsor who modelled 87%, told their partners what the distribution would be, and then had to walk it back.
Send us the property and we will tell you what the cash out math looks like before you promise anyone anything.
Primary sources for this article
HUD revises mortgagee letters and handbooks frequently; where a provision is a draft rather than operative guidance we say so on the page. This is general information, not legal, tax or financial advice, and not a commitment to lend.
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