Supplemental loan
HUD 241(a): a second loan for improvements or additions to an FHA-insured property
Section 241(a) is an FHA-insured second mortgage for repairs, improvements or new units at an apartment property that already has an FHA-insured first loan. It lends up to 90% of the value of the work, the two loans together must cover debt service at 1.11x, and the owner puts in at least 10% of the cost. It leaves the first loan, and its rate, in place.
Who 241(a) is for
An owner with an FHA-insured first loan they do not want to disturb, usually because its rate is lower than anything available now, who needs money to improve or expand the property. Common uses are a large capital program, a substantial rehab of part of the property, or new units on the same or a neighboring parcel.
It is a small program. HUD’s FY2026 production summary counts 22 initial endorsements for $291.6 million, and the panel beside this page shows the active 241(a) loans in HUD’s file. That is small next to 223(f) or 221(d)(4), but in a market where most insured loans carry rates below today’s, it is often the only way to add money without giving up the first loan.
How the loan is sized
The supplemental loan is the lowest of:
| Test | Rule |
|---|---|
| Value of the work | 90% of HUD’s estimate of the value of the improvements, additions or equipment, by statute; cost of the work and transaction costs (including land at no more than fair value) is recognized as the value |
| Combined coverage | First and second loan payments together supported by 90% of projected net operating income (1.11x), counting the existing and new NOI |
| Statutory limit | The first loan’s balance plus the 241(a) cannot exceed the per-unit limit of the section that insures the first |
| Owner equity | The owner contributes at least 10% of total development cost |
BSPRA and SPRA allowances are not recognized, whatever section insures the first loan, but the cost can include a builder’s profit. Deferred developer fees carried over from a LIHTC deal are not eligible costs. The statutory per-unit limits are on the statutory limits page.
Term and premium
- Term: coterminous with the first loan if the first has more than 25 years left. If less than 25 years remain, HUD will consider up to 40 years, capped at 75% of remaining economic life. The regional office can approve a longer second if it lowers overall risk.
- MIP: 0.25% upfront and 0.25% a year for applications on or after October 1, 2025. Before that, the market-rate 241(a) premium was 95 basis points, the highest of any FHA apartment program, which is one reason the 2025 cut matters here.
- Default: a default on the first loan is a default on the 241(a). A default on the 241(a) does not trigger a default on the first.
Construction rules
- Davis-Bacon applies unless the first loan is a 223(f) or a 223(a)(7). See the Davis-Bacon page.
- Insurance of advances or upon completion: either is allowed; insured advances must be at least $200,000.
- Capital needs assessment covers the whole property, and the two loans share one replacement reserve schedule and account.
- Plans, specs and cost review for any substantial rehab or addition follow 221(d)(4) standards. Working capital and operating deficit reserves follow 221(d)(4) too, with waivers possible.
- Environmental review in HUD’s HEROS system is required.
- Commercial space: up to 25% of net rentable area and 15% of effective gross income.
What is not eligible
- Properties whose first loan is HUD-held rather than FHA-insured.
- Properties financed under a Risk Share program; see risk sharing.
- Additions with more units than the existing building.
Later on
A first loan and a 241(a) on the same property and borrower can later be combined into one loan through a 223(a)(7) refinance, up to the sum of their original amounts. To see the rate, balance and years left on an insured loan, search HUD’s file with the low-rate loan finder.
Sources
- HUD MAP Guide, Handbook 4430.G, 2020 edition, section 3.6 (Section 241(a)) and 3.2.6 (labor standards)
- 90 FR 45789, Changes in Mortgage Insurance Premiums for FHA multifamily programs (Sept. 23, 2025)
- HUD Office of Multifamily Housing, FY2026 production summary
- Annual indexing of statutory mortgage limits, CY2026 (91 FR 24597, FR Doc. 2026-08795)
- HUD, Multifamily FHA insured mortgages, active file
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
Why use a 241(a) instead of refinancing?
To keep a low-rate first loan. A 241(a) adds new money on top of the existing FHA loan, so the first keeps its rate, term and prepayment terms. A 223(a)(7) cannot fund new units or cash, and a 223(f) refinance would replace the whole loan at today's rate.
Can a 241(a) loan fund new units?
Yes. It can pay for an addition or expanded footprint as long as the new addition has no more units than the existing building, on the same parcel or a contiguous or nearby one added to the first mortgage's security.
Does Davis-Bacon apply to a 241(a)?
Usually. It does not apply when the first mortgage is a 223(f) or 223(a)(7) loan, or for certain Secretary-held cases where the property never had an FHA loan subject to Davis-Bacon.
Does my existing equity count toward the 10%?
Not the paper equity. The difference between the property's as-is value and its debt cannot be used. Cash, land from an adjacent parcel added to the security, and replacement reserve money above the required initial deposit can.
Can a different lender make the 241(a)?
Yes. The first lienholder or a new lender can originate it. The two lenders agree in advance which one holds the combined capital needs assessment and the single replacement reserve account.