Mortgages Insurance for Single Room Occupancy (SRO) Projects

The Single Room Occupancy (SRO) Program provides mortgage insurance for multifamily properties consisting of single-room units. There are no Federal rent subsidies involved with this SRO Program. It is aimed at those tenants who have a source of income but are priced out of the rental apartment market. SRO projects will generally require assistance from local governing bodies or charitable organizations in order to reduce the rents to affordable levels.

Eligible applicants may be nonprofit entities; builder/sellers teamed with a nonprofit purchaser, a limited distribution entity, profit-motivated entities or public entities. Cooperative lenders or investors are not eligible.

Residents are subject to normal tenant selection procedures. There are no income limits for admission.

Along with the Application for Mortgage Insurance, the applicant must provide a market profile demonstrating a clear need for the proposed SRO, experience profiles as to SRO operation, a certification from the local government assuring support of the project, and a relocation plan if needed.

The SRO Program insures lenders against loss on mortgages used to finance construction or substantial rehabilitation of projects consisting of five or more units comprised primarily of one room residential units. Projects must be designed primarily for residential use. Any commercial activity must be compatible with the use of the project and primarily for the benefit of the residents. Commercial space is limited to 10 percent of the total gross floor area (20 percent in substantial rehabilitation projects), and 15 percent of gross rental income in a project. Contractors for new construction and substantial rehabilitation projects must comply with prevailing wage requirements under the Davis-Bacon Act.

The maximum mortgage term is 40 years, or not in excess of three-fourths of the remaining economic life, whichever is less.

The sponsor submits an application for a SAMA or feasibility application to the local HUD office for review. Following HUD's issuance of a SAMA or feasibility letter, the sponsor submits a firm commitment application through a HUD-approved mortgagee to the local HUD Multifamily Hub and Program Center for processing.

The project is reviewed to determine its feasibility. If the project meets program requirements, the HUD Multifamily Hub or Program Center issues a commitment to insure the mortgage.

Processing time depends upon the degree of preparation by the sponsor and the workload of the HUD Multifamily Hub or Program Center.

The term of a commitment to insure may be extended when more time is required to close the loan.

If an application for mortgage insurance is denied, HUD will state the reasons for the denial. If reapplication is desired, the applicant may reapply subject to concurrence of the lender.