HUD Middle Income housing, an underused 90% LTC

Up to 90% leverage, of cost on new construction and of value on a refinance, at a 1.11x DSCR, in exchange for restricting 50% of units to 60-120% AMI. A workforce sponsor sizing conventional is leaving real leverage on the table.

The Corlan desk · Published August 2026 · Reviewed 18 October 2026 · 5 min read · Source: HUD mortgagee letter 2025-02

Key takeaways

HUD Mortgagee Letter 2025-02 raised Middle Income housing to 90% leverage (of cost on new construction, of value on a refinance), up from 85%, while lowering the DSCR floor to 1.11x from 1.176x.
The trade: 50% of units carry a use restriction at 60-120% AMI, workforce-level affordability, not deep subsidy.
A workforce sponsor sizing at conventional 75% LTV is leaving roughly 15 points of leverage unused.
This program is genuinely underused relative to how well it fits a workforce-housing business plan most sponsors already have.

The leverage most workforce sponsors are leaving on the table

HUD’s Middle Income housing program, formalized under 221(d)(4) and updated by Mortgagee Letter 2025-02, now offers up to 90% leverage, up from 85% previously, at a 1.11x DSCR floor, down from 1.176x. That’s meaningfully more leverage and a lower coverage bar than conventional financing on the same asset.

What changed in ML 2025-02

LTV / LTC

85% to 90%

DSCR floor

1.176x to 1.11x

Source: HUD Mortgagee Letter 2025-02. Use restriction: 50% of units at 60-120% AMI.

The trade, and why it’s a good one for the right project

In exchange for that leverage, half the units carry a use restriction at 60 to 120% of area median income, workforce-level affordability, not deep-subsidy LIHTC territory. For a sponsor who was already planning rents in that range because that’s what the local market supports, the restriction costs little. HUD still takes 9 to 12 months, new construction carries Davis-Bacon wages, and the loan carries an annual MIP, so the extra leverage has a price.

"A workforce sponsor sizing at 75% conventional is leaving roughly 15 points of leverage on the table for a restriction that often matches the rents they were already planning to charge."

Robert Contreras

Managing Director, Capital Markets

Who should be looking at this

Any sponsor building or acquiring workforce housing where market rents already land in the 60-120% AMI band. The program is genuinely underused relative to fit, most sponsors default to conventional financing without checking whether HUD Middle Income would have gotten them meaningfully more proceeds for a restriction they weren’t going to violate anyway.