Mortgagee Letter 2025-03, issued January 8, 2025, revised the debt service coverage and loan-to-value criteria for the two largest FHA multifamily programs. It is short, and it is the single most frequently miscited document in HUD multifamily finance — usually because people quote the new ratios without the vacancy floors, or apply it to programs it does not touch.
The table
| Category | LTV / LTC was → is | DSCR was → is | Vacancy floor |
|---|---|---|---|
| Market rate, or LIHTC without rent advantage | 85% → 87% | 1.176x → 1.15x | 7% |
| Affordable — LIHTC with rent advantage to market | 87% → 90% | 1.15x → 1.11x | 5% |
| 90% or more units with rental assistance | 90% (no change) | 1.11x (no change) | 3% |
Source: ML 2025-03, Jan. 8, 2025. Vacancy factors are from the same table and were not changed by the letter.
Three things the letter does not do
It does not raise the cash-out LTV. The letter states that there is no change to the cash-out refinancing loan-to-value under Criterion 10. Cash-out remains capped at 80%. A market-rate borrower reading "87%" and planning an equity distribution against it has misread the document; this is common enough that we treat it separately.
It does not touch Section 232. The letter says in terms that it is not applicable to the health care programs administered by the Office of Healthcare Programs — Section 232, or refinancing of Section 232 loans under Sections 223(f) or 223(a)(7). Healthcare coverage stays at 1.45x. Risk-Share loans under Section 542 are likewise excluded.
It does not change the other sizing criteria. LTV and DSCR are two tests among several. The statutory per-unit limits, the cost tests, and the requested-loan-amount ceiling all still apply, and the insurable mortgage is the lowest result among them. Moving the LTV ceiling from 85% to 87% only matters if LTV was the binding constraint, and on a well-located property with strong value it frequently is not — the per-unit statutory limit binds instead.
Which tier applies
The three-way split is the part most borrowers get wrong, because the middle tier is not simply "has tax credits." A LIHTC property qualifies for the affordable tier only if its restricted rents carry an advantage to market; LIHTC without that advantage is underwritten as market rate, at 87% and 1.15x. The top tier requires 90% or more of units covered by rental assistance, which in practice means project-based Section 8 or a comparable contract, not a scattering of tenant-based vouchers.
The vacancy floor matters more than it looks. A 7% underwriting vacancy on a property running 3% physical vacancy is a real haircut to underwritten NOI, and NOI drives the DSCR test. Two otherwise identical properties in different tiers can size very differently on the vacancy floor alone, independent of the coverage ratio.
Effective date and pending applications
The letter was effective immediately on issuance and applies to any application that had not reached initial endorsement. That is a borrower-favorable transition rule: a deal already in HUD's queue in January 2025 could be resized under the new criteria rather than having to re-apply. It remains in effect until amended, superseded or rescinded.
A draft mortgagee letter revising the MAP Guide more broadly was posted to HUD's drafting table in February 2026 and would change several related provisions. It is not yet effective and should not be cited as current.
Primary sources for this article
- Mortgagee Letter 2025-03 — DSCR and LTV/LTC requirements
- MAP Guide, Handbook 4430.G (2020 ed., rev. Mar. 19, 2021)
Figures stated as current are current as of October 13, 2026. 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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