Affordable housing
Financing a RAD conversion with an FHA-insured loan
Under the Rental Assistance Demonstration (RAD), a public housing property converts to a long-term project-based Section 8 contract, which lets it carry private debt. If repairs are moderate, the conversion can use an FHA 223(f) loan; if they amount to substantial rehabilitation, a 221(d)(4). A property with project-based assistance on 90% or more of its units sizes at up to 90% at 1.11x.
How a RAD conversion works
The RAD notice (REV-4, issued September 5, 2019, and since amended by Supplemental Notices 4B and 4C) lays out the sequence for a public housing agency:
- RAD application for each project.
- CHAP, a Commitment to enter into a Housing Assistance Payments contract, once HUD selects the project.
- Financing plan, including any FHA-insured loan, reviewed by HUD.
- RCC, the RAD Conversion Commitment, issued after the financing plan is approved.
- Closing, where the property leaves public housing, is released from the declaration of trust, gets a RAD use agreement, and receives a long-term Section 8 contract.
PBV or PBRA
| Project-based vouchers (PBV) | Project-based rental assistance (PBRA) | |
|---|---|---|
| Administered by | The voucher agency under its voucher contract with HUD | Generally HUD’s Office of Housing |
| Initial contract | At least 15 years, up to 20 with approval | 20 years |
| Rent adjustment | Annual OCAF, subject to appropriations and rent reasonableness | Annual OCAF, subject to appropriations |
| At expiration | Renewal must be offered and accepted | Renewal must be offered and accepted; eligible under MAHRAA |
| Use agreement | RAD use agreement that renews with the contract | 20-year RAD use agreement that renews with the contract |
Source: RAD notice REV-4 as amended (master version). The choice affects who the lender deals with after closing and how rent increases work, so it should be settled before the FHA application.
Which FHA program
The RAD notice is direct about it: properties may qualify for 223(f), which can include repairs, and if the scope of repairs amounts to substantial rehabilitation under the MAP Guide, the right FHA program is 221(d)(4). The dividing line is the substantial rehabilitation cost limit; see 223(f) vs 221(d)(4).
For FHA-insured conversions, the financing plan’s requirements and feasibility tests come mainly from the MAP Guide as revised by Mortgagee Letter 2012-20 (Notice H 2012-20), with certain items also uploaded to HUD’s RAD Resource Desk.
How HUD sizes a RAD loan
- Ratios. A property with assistance on 90% or more of its units is in HUD’s top affordable tier: 90% LTV or LTC at 1.11x coverage with a 3% minimum vacancy (ML 2025-03; MAP Appendix 3).
- Value on substantial rehab. On a RAD 221(d)(4), the appraiser uses the CHAP rents, with historical occupancy and expenses where available (MAP 7.13.6).
- Developer fee. For a RAD 223(f) without tax credits, the MAP Guide allows a mortgageable developer fee of 10% of the total budget; with LIHTC, the allocating agency’s fee limit applies (Appendix 3).
- MIP. 0.25% upfront and 0.25% a year, as for every FHA multifamily program since October 1, 2025.
- Reserves. FHA conversions keep replacement reserves under FHA rules, sized through HUD’s CNA e-Tool; HUD is the approving agency for all CNAs on insured RAD loans. See replacement reserves.
Layering with tax credits
The RAD notice encourages agencies to use 4% or 9% LIHTC alongside FHA debt, and notes that converting properties may be eligible for HUD’s LIHTC pilot processing track under 223(f). See LIHTC and HUD for the affordable ratios and what is and is not confirmed about the pilot today.
Other HUD requirements that come along
- Previous participation. The notice applies the APPS / 2530 review to all FHA transactions. See previous participation.
- Section 8 rules. After conversion the property is a Section 8 property, with the contract renewal, rent and asset management rules that follow. See Section 8 HAP refinancing.
- Regulatory agreement. An FHA-insured RAD property signs HUD’s standard regulatory agreement in addition to the RAD use agreement.
HUD has not, as far as we found, published a count of FHA-insured RAD conversions in its production data, so we do not show one.
Sources
- HUD, RAD Notice REV-4 (H-2019-09 / PIH-2019-23) as amended by Supplemental Notices 4B and 4C, master version
- HUD, RAD statute, notices, regulations and tools
- HUD MAP Guide, Handbook 4430.G, 2020 edition, sections 3.1.12, 3.1.29, 7.13.6, 14.6 and Appendix 3
- HUD Mortgagee Letter 2025-03, Multifamily changes in DSCR and LTV/LTC (Jan. 8, 2025)
- 90 FR 45789, Changes in Mortgage Insurance Premiums for FHA multifamily programs (Sept. 23, 2025)
Checked against these sources on October 30, 2026. HUD changes program rules by Mortgagee Letter and Federal Register notice; the lender's commitment governs any loan.
Short answers
What is a RAD conversion?
The Rental Assistance Demonstration lets a public housing agency convert a public housing property's subsidy to a long-term project-based Section 8 contract. The property leaves the public housing program and its declaration of trust, a RAD use agreement is recorded, and the owner can borrow against the property to fund repairs, which public housing usually cannot do.
Can a RAD conversion use FHA financing?
Yes. The RAD notice points converting properties to FHA 223(f) when repairs are moderate and to 221(d)(4) when the scope reaches substantial rehabilitation under the MAP Guide. HUD's Office of Housing issued separate underwriting instructions for RAD deals with FHA insurance, and the MAP Guide adds RAD-specific rules on valuation and developer fees.
What is the difference between PBV and PBRA in a RAD conversion?
Project-based vouchers (PBV) are administered by the voucher agency under HUD's PBV rules, with an initial contract of at least 15 years and up to 20. Project-based rental assistance (PBRA) is generally administered by HUD's Office of Housing, with a 20-year initial contract and a 20-year RAD use agreement. Both renew at expiration and both adjust rents annually by HUD's OCAF.
How much can a RAD property borrow from FHA?
Where 90% or more of the units carry project-based assistance, HUD sizes 223(f) at up to 90% of value and 221(d)(4) at up to 90% of cost, at a 1.11x debt service coverage, subject to the statutory limits and the other sizing tests. On a RAD 221(d)(4) substantial rehab, the appraiser sets value using the CHAP rents with historical occupancy and expenses where available.