Rules
Opportunity Zone apartment deals with an FHA-insured loan
HUD does not change loan terms for an Opportunity Zone. An OZ property gets a lower HUD application fee (0.20% instead of 0.30%) on 221(d)(4), 220 and 223(f), qualifies by location for Section 220, and a Qualified Opportunity Fund investing through a shell entity skips previous participation filing. The tax benefit is separate, and Public Law 119-21 made it permanent with new zones designated from 2026.
What HUD actually gives an OZ deal
The MAP Guide treats an Opportunity Zone as a location fact, not a separate loan product. Four things change.
| Item | Outside an OZ | In a qualified OZ | MAP Guide |
|---|---|---|---|
| HUD application fee, 221(d)(4), 220, 223(f) | 0.30% | 0.20% | 3.1.36 |
| Section 220 eligibility | Needs one of the other listed area types, such as an urban renewal area or an approved concentrated development area | OZ is itself a listed eligible area | 3.4.1 |
| Previous participation for a QOF | n/a | Fund in a shell structure need not file; shown on the org chart | 8.3 |
| Lender documentation | none | Screenshot of the address and 11-digit census tract showing it is a qualified OZ | Appendix 3, A.3.7 |
| LTV, DSCR, term, MIP | program terms | same | none |
HUD’s application documents also ask whether the project sits in a qualified Opportunity Zone and, if so, whether it is receiving equity from a Qualified Opportunity Fund (MAP Appendix 4), so the lender needs that answer early.
The 0.10% tier. Section 3.1.36 cuts the fee to 0.10% for OZ properties that are “Broadly Affordable” as defined in HUD’s 2016 MIP notice. The September 2025 MIP notice eliminated the Broadly Affordable category for applications on or after October 1, 2025, and HUD has not said how the 0.10% fee works now. Plan on 0.20% unless the HUD office confirms otherwise. The fees guide has the full fee table.
What the fee saves. On a $30,000,000 loan the application fee is $60,000 in a zone against $90,000 outside one.
Section 220 and mixed use
Section 220 insures new construction or substantial rehab of housing in urban renewal and revitalization areas, and the MAP Guide lists Opportunity Zones as one of the eligible area types. It sizes like 221(d)(4) but lets commercial space produce up to 30% of effective gross income, against 15% under 221(d)(4); both cap commercial space at 25% of net rentable area (MAP 3.4.2). For a ground-floor retail building in a zone, that is the main reason to look at 220. See commercial space in HUD loans.
What makes a tract an Opportunity Zone
Under 26 U.S.C. 1400Z-1, a qualified opportunity zone is a population census tract that is a low-income community, nominated by the state’s governor and certified by the Treasury. Public Law 119-21 (July 4, 2025) rewrote the rules for future rounds:
- Low-income community. A tract whose median family income is at most 70% of the statewide (non-metro) or metro median, or that has a poverty rate of at least 20% and median family income no higher than 125% of the relevant median. The older definition borrowed from the New Markets credit.
- Rounds every ten years. Governors nominate within a 90-day determination period starting on the decennial determination date: July 1, 2026, then every July 1 ten years later. Treasury has 30 days to certify; both periods can be extended 30 days.
- Cap. No more than 25% of a state’s low-income communities in any round (25 tracts if the state has fewer than 100).
- Length. A newly designated zone lasts ten years from the January 1 after certification. The rule that let contiguous non-low-income tracts be designated was dropped for new rounds, and Puerto Rico’s automatic designation is repealed effective December 31, 2026.
Zones designated under the original 2017 law keep their own rule: in effect through the close of the 10th calendar year beginning on or after designation. Check a specific address against the current list before you count on the fee reduction.
The tax benefit, old and new
The tax benefit comes from 26 U.S.C. 1400Z-2, not from HUD, and depends on when the capital is invested. Gain must go into a Qualified Opportunity Fund within 180 days of the sale.
| Rule | Invested on or before Dec. 31, 2026 | Invested after Dec. 31, 2026 |
|---|---|---|
| Deferred gain taxed | Earlier of sale or Dec. 31, 2026 | Earlier of sale or 5 years after the investment |
| Basis increase at 5 years | 10% of deferred gain | 10% (30% in a qualified rural opportunity fund) |
| Extra increase at 7 years | 5% | none |
| 10-year hold | Basis equals fair market value at sale | Same, but measured no later than 30 years after the investment |
| Cutoff on the sale that produced the gain | Sales after Dec. 31, 2026 could not be deferred under the original law | Cutoff repealed |
A Qualified Opportunity Fund must hold at least 90% of its assets in qualified opportunity zone property. Real estate counts only if its original use in the zone starts with the fund or the fund substantially improves it, meaning additions to basis within any 30-month period after acquisition exceed the property’s adjusted basis. Since July 4, 2025, the threshold is 50% of adjusted basis for property in a zone made up entirely of a rural area.
Tax treatment is for your tax adviser. The point for financing is what the holding and improvement rules do to the choice of HUD program.
Which HUD program fits
- New construction. Original use begins with the fund, so the tax test is met by building. That is 221(d)(4) or Section 220 territory, with the reduced application fee.
- Buying an existing building. The fund generally has to substantially improve it. 223(f) is for properties that do not need substantial rehabilitation, and in 2026 HUD’s substantial rehab threshold starts at a base of $20,406 per unit before the high cost percentage (ML 2026-05). Compare the fund’s required spend with that limit: when the improvement test is larger, the deal is a 221(d)(4) substantial rehab, not a 223(f).
- Refinancing a stabilized OZ asset. Once the improvement work is done, a 223(f) refinance can replace construction or bridge debt, with the 0.20% fee if the property is still in a qualified zone.
The 10-year OZ hold sits comfortably beside long fixed HUD debt. The one timing rule to watch is the statutory bar on prepaying a 223(f) loan in its first five years; see HUD prepayment. HUD loans can also be assumed by a buyer with HUD approval, which avoids a payoff on sale.
Previous participation for the fund
Every principal who controls the borrower files a previous participation certification. A Qualified Opportunity Zone Fund that has invested in the insured project through a shell entity does not need to file, but the fund and its participants must be shown on the organizational chart (MAP 8.3). See Form HUD-2530.
Sources
- HUD MAP Guide, Handbook 4430.G, 2020 edition: 3.1.36 Opportunity Zones, 3.4.1-3.4.2 Section 220, 8.3 previous participation, Appendix 3 A.3.7, Appendix 4
- 26 U.S.C. 1400Z-1, designation of qualified opportunity zones
- 26 U.S.C. 1400Z-2, special rules for capital gains invested in opportunity zones
- Public Law 119-21, section 70421, permanent renewal and enhancement of opportunity zones (July 4, 2025)
- 90 FR 45789, Changes in Mortgage Insurance Premiums for FHA multifamily programs (Sept. 23, 2025)
- HUD Mortgagee Letter 2026-05, CY2026 high cost percentages and substantial rehabilitation threshold
Checked against these sources on October 31, 2026. HUD changes program rules by Mortgagee Letter and Federal Register notice; the lender's commitment governs any loan.
Short answers
Does HUD offer better loan terms in an Opportunity Zone?
No. Loan to value, debt service coverage, term and the 0.25% MIP are the same inside and outside a zone. The HUD-side benefits are a lower application fee (0.20% of the loan instead of 0.30% on 221(d)(4), 220 and 223(f)), eligibility for Section 220 by location, and a simpler previous participation filing for a fund that invests through a shell entity.
What is the HUD application fee for an Opportunity Zone property?
$2 per $1,000 of the requested loan (0.20%) on 221(d)(4), 220 and 223(f), against the standard $3 per $1,000. On a $30 million loan that is $60,000 instead of $90,000. The MAP Guide also lists 0.10% for Broadly Affordable OZ properties, but the September 2025 MIP notice eliminated that category, so confirm with the lender whether any 0.10% tier still applies.
Does a Qualified Opportunity Fund have to file Form HUD-2530?
Not if it invested in the insured project through a shell entity. The MAP Guide (8.3) says such a fund need not file a previous participation certification, but the fund and its participants must appear on the organizational chart. The principals who control the borrower still file.
Can I use a 223(f) loan to buy an existing building with OZ money?
The loan program allows it, and the reduced fee applies, but the tax test is the hurdle. An existing building generally has to be substantially improved by the fund, which means adding more than its adjusted basis within 30 months, and 223(f) does not allow substantial rehabilitation. Those two rules pull in opposite directions, so many OZ rehab deals fit 221(d)(4) substantial rehabilitation better. Run both numbers with your tax adviser and lender.
Are Opportunity Zones ending in 2026?
No. Public Law 119-21 made the program permanent. Governors nominate a new set of tracts in the 90 days starting July 1, 2026, and every ten years after that, and each new zone lasts ten years from the January 1 after Treasury certifies it. The old December 31, 2026 deadline for electing deferral was repealed.