For years, the first eligibility question on an FHA apartment refinance was whether the property had been complete for three years. Newly built lease-ups were simply out, and the standard advice was to take bridge debt and wait.
HUD removed that mandatory wait in March 2020. The three-year threshold still exists, but failing it no longer disqualifies a property. It routes the deal into a different underwriting standard.
Six years on, this is still the most widespread stale fact in HUD multifamily content. Major reference sites continue to publish a flat "property must be at least three years old." Lender term sheets mostly omit the rule entirely, which is better but not informative. We have found no site that publishes the operative numbers below.
The test that replaced the wait
A property that has not reached three years from its final certificate of occupancy can qualify for a 223(f) if it meets a tightened coverage standard over a short, verified operating history:
| Category | Required DSCR | Operating history |
|---|---|---|
| Market rate | 1.17x | 3 consecutive months pre-endorsement |
| Broadly affordable | 1.11x | 3 consecutive months pre-endorsement |
Source: HUD Notice / ML 20-03, Mar. 2, 2020.
Note that the market-rate figure here — 1.17x — is higher than the 1.15x that ML 2025-03 later set for ordinary market-rate 223(f) deals. The recently-completed path carries a coverage premium, which is the point: HUD is accepting a three-month track record instead of three years and pricing the thinner evidence into the ratio.
The cash-out holdback
If a recently completed property takes cash-out, 50% of the cash-out proceeds are held back until the property demonstrates the required coverage over six consecutive months. This is the provision that most often surprises borrowers who have planned a distribution at closing. The money is not denied, but half of it is deferred behind an operating test that has not happened yet at closing.
What this is worth
For a developer who has just stabilized a new building, the 2020 change replaced a three-year bridge with a path to permanent, fully amortizing, non-recourse fixed-rate debt as soon as the property can show a quarter of performance. Against a floating-rate construction or bridge loan, the interest savings and the elimination of refinance risk are usually the largest single item on the comparison.
It also changes the sequencing conversation. A sponsor who assumes a three-year wait will structure a bridge with a three-year term and extension options, and pay for optionality they may not need. Knowing the actual test lets the bridge be sized and termed to the real exit.
This does not help a healthcare facility. The 2020 notice is a multifamily provision. Section 232 has its own debt seasoning regime, and recent purchases are specifically disadvantaged under it rather than accommodated. See the 232 seasoning rules.
How to check whether your advisor is current
Ask what DSCR a property that received its certificate of occupancy fourteen months ago has to hit, and for how many months. An advisor working from current guidance will say 1.17x for three consecutive months on a market-rate deal and mention the holdback. An advisor who says "it has to be three years old" is working from pre-2020 material, which raises a fair question about what else on their term sheet predates 2025.
Primary sources for this article
- HUD Mortgagee Letter 20-03 — revisions to the Section 223(f) three-year rule (Mar. 2, 2020)
- Mortgagee Letter 2025-03 — DSCR and LTV/LTC requirements
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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