The U.S. Department of Housing and Urban Development is expanding access to loans for developers building communities of rental houses, seeking to support more rental housing construction by allowing those loans to carry federal mortgage insurance. Qualifying projects in the U.S. Virgin Islands can participate.
A private, HUD-approved lender supplies the money, and the developer or property owner must repay it. The Federal Housing Administration protects the lender against losses if that borrower defaults on the mortgage. By reducing the lender’s risk, the insurance helps make financing available for qualifying developments.
The policy supports the financing of rental properties rather than providing insurance to their tenants or guaranteeing tenants’ rent payments to landlords. Both market-rate and affordable developments can qualify, with tenant income restrictions depending on any separate affordable-housing requirements attached to a project.
Effective immediately under Mortgagee Letter 2026-12, the change covers “build-to-rent” communities: detached houses, duplexes or triplexes developed and operated together as long-term rental housing. HUD had traditionally limited its multifamily mortgage insurance to developments with buildings containing four or more units, excluding build-to-rent communities because their single-family designs and subdivision-style layouts raised accessibility, valuation and underwriting questions.
Developers seeking to build a new community can apply through HUD’s Section 221(d)(4) program. Owners seeking to buy or refinance a recently completed development can use Section 223(f), provided its certificate of occupancy was issued less than three years before the application.
Each community must contain at least five rental units on one connected site and operate as a single rental property. Adjoining tax parcels are acceptable, but privately owned homes or parcels cannot be interspersed within the development. Owners cannot sell individual buildings or parcels, or release part of the property from the mortgage, during the insured loan’s term.
Communities combining rental houses with traditional apartment buildings are also eligible. Manufactured and modular construction are generally permitted, although lenders and developers must address associated construction-financing issues with HUD early in the review process.
Professional management is required, with staffing, amenities and services consistent with comparable properties. Management and maintenance operations must have an adequate local presence when they are not based on-site. Any homeowners association or other governing body overseeing a larger community must preserve the borrower’s management control and HUD’s ability to enforce program requirements.
Borrowers, contractors and managers must demonstrate experience with similar developments. Lenders must account for potentially slower leasing, grounds and road maintenance, and reserves for replacing roofs and other building components. The initial operating-deficit reserve must equal at least 3 percent of the loan or four months of debt payments, whichever is greater.
Accessibility and building-code requirements remain applicable. Detached houses, duplexes and triplexes are exempt from certain federal accessibility design requirements that apply to buildings with four or more dwellings, while common-use areas and amenities remain subject to accessibility requirements. Other applicable requirements depend on the buildings, funding and laws involved.
The Virgin Islands is already included in HUD’s multifamily mortgage-insurance framework. Separate guidance issued this year identifies the territory as a Special Limit Area for calculating mortgage limits, alongside Guam, Alaska and Hawaii. The new policy does not announce approval or financing for a particular Virgin Islands development.
