Credit Underwriting F.A.Q.

Credit underwriting is an independent review process that evaluates the financial feasibility, structural integrity, and regulatory compliance of a proposed affordable housing development. From the servicer’s perspective, underwriting ensures that:

  1. The project is financially viable
  2. Development assumptions are reasonable and supportable
  3. The transaction complies with applicable client, program, federal LIHTC requirements, and other funding requirements.
  4. The project can sustain long-term operations

Seltzer Management Group (‘Seltzer’ or ‘SMG’ or ‘Servicer’) is an independent credit underwriting firm and Servicer. For FHFC awards, Seltzer is one of three companies under contract with FHFC as a Servicer. Seltzer is also engaged by local county HFAs and other clients to perform credit underwriting, generally following FHFC underwriting standards unless the applicable client or program requires otherwise.

Seltzer acts as a neutral third party responsible for reviewing the proposed transaction and providing recommendations to the client. Credit underwriters are assigned internally by Seltzer in accordance with its standard protocols.

The process typically begins after an applicant receives an invitation to credit underwriting, funding award, a preliminary allocation, or other authorization from the applicable client. At that point:

  1. The transaction is assigned to a servicer/ credit underwriter
  2. Required fees are remitted to the Servicer
  3. An initial data request and underwriting checklist are issued
  4. A submission timeline is established, and a kick-off call is held to discuss the Development and transaction-specific requirements
  1. Initial Data Request
    A comprehensive checklist of required documents is provided.
  2. Financial & Technical Analysis
    Review of sources and uses, operating pro forma assumptions, Development costs, market study conclusions, and other transaction assumptions
  3. Third-Party Report Review
    Review of applicable third-party reports, which may include the appraisal, market study, environmental assessment, plan and cost review, and other consultant report
  4. Credit Underwriting Report (“CUR”)
    Seltzer prepares a formal report summarizing findings, risks, conditions, and recommendations
  5. Client Approval & Closing Preparation
    The applicant addresses required conditions before the transaction proceeds to closing

Applicants should be prepared to provide documentation requested through Seltzer’s underwriting checklist and entity template. Incomplete or inconsistent submissions may delay review. Commonly requested items include:

  • SMG Underwriting Checklist
  • UW Template for Entities

Be advised that incomplete or inconsistent submissions may cause delays.

  1. Development budget and cost breakdown
  2. b. Sources and uses statement
  3. Operating pro forma (15–30 years)
  4. Market study (FHFC-compliant)
  5. Appraisal
  6. Plans and specifications
  7. Contractor bids or GMP contract
  8. Developer financial statements
  9. Organizational documents
  10. Environmental reports
  11. Evidence of zoning and site control

The Servicer reviews whether costs are reasonable compared with comparable Developments, supported by contracts or documentation, and eligible under LIHTC and applicable client or program guidelines. Seltzer also engages third-party consultants, as appropriate, to opine on the reasonableness of costs presented. Evaluation may include:

  1. Benchmarking against comparable developments
  2. Third-party plan and cost reviews
  3. Requests for additional justification or revisions

The CUR is the primary deliverable of the underwriting process. The client uses the CUR and Seltzer recommendations to make funding, approval, allocation, and closing decisions, as applicable. The CUR generally includes:

  1. Report Summary or Development overview outlining set-asides, sources, uses of funds, and any changes from application.
  2. Loan Conditions and HC Allocation Recommendation and Contingencies
  3. Supporting Information and Schedules, including Third Party Supplemental Information
  4. Relevant Exhibits

Yes. Communication is encouraged and essential for an efficient underwriting process. Applicants should respond promptly to requests, provide clear and organized submissions, and communicate any material changes proactively.

Typical underwriting timelines range from approximately 6 months for permit-ready submissions to approximately 12 months from invitation, but timing varies depending on:

  1. Development complexity
  2. Timeliness and completeness of applicant responses
  3. Changes to funding sources, construction scope, or transaction structure
  4. Availability and completion of Third-party reports
  • After client approval:
    1. All underwriting conditions must be satisfied
    2. Legal documentation is finalized
    3. The transaction proceeds to closing
  • Post-closing, SMG may remain involved in Construction draw reviews, progress monitoring, and compliance oversight, as requested.

Successful applicants typically submit complete and well-organized documentation, ensure consistency across all materials, respond quickly to information requests, maintain transparency regarding changes, and engage experienced professionals including legal, cost, market, and other consultants as appropriate.

Seltzer does not require a single designated platform for document submissions. Unless otherwise directed, applicants may use their preferred secure submission method, such as Dropbox, zipped files, lender portals, or another agreed method.

Closing generally must occur within 6 months after the CUR is finalized, subject to applicable client, funding source, and program requirements.

Seltzer generally orders its own third-party reports, such as appraisals, market studies, capital needs assessments, and plan and cost reviews, at the applicant’s expense. Seltzer can coordinate with a lender or syndicator to use the same provider when appropriate, but separate reports, reliance letters, or client-specific reliance language may be required.

Positive arbitrage generally refers to a situation where borrowed funds earn a higher return when invested than the interest cost being paid on those borrowed funds. In affordable housing and bond-financed transactions, this most commonly occurs when loan proceeds, bond proceeds, reserve funds, or escrowed funds are temporarily invested at an interest rate higher than the financing rate. Due to U.S. Treasury arbitrage rebate requirements, uncertainty regarding future interest rates and investment earnings, and related compliance considerations, projected positive arbitrage is generally not permitted to be relied upon as a funding source in tax-exempt bond underwriting.

  • Seltzer generally orders its own appraisal at the applicant’s expense. Multiple appraisals may be required depending on the specific transaction.
  • Appraisal may affect developer fee if acquisition price is more than the appraised value.
  • The scope of the appraisal should include an opinion of the estimated “market value” of the property in a sufficiently descriptive manner to enable the reader to understand the estimate and rationale for the estimate.
  • Seltzer typically requests 5 main valuations:
    1. The “as is” value of the proposed development site with a separate value for the land, if applicable.
    2. The value of the development as completed using the income, rent, demographic, and occupancy restrictions required under the LIHTC program utilizing a capitalization rate reflecting the value of the favorable financing, if any. Note: the value of the Housing Credits should be calculated separately, and should not be added to this value of the property.
    3. The value of the development as stabilized using the income, rent demographic and occupancy restrictions required.
    4. The value as completed using market rents for all units, as if there were no income, rent or occupancy restrictions on the development, using a market capitalization rate.
    5. The value as stabilized using market rents for all units, as if there were no income, rent, or occupancy restrictions on the development, using a market capitalization rate.

The minimum standard annual deposit is generally $300 per unit, per year. However, if a Capital Needs Assessment (CNA) supports a higher amount to cover scheduled replacements, that higher amount will be required. The replacement reserve, not to exceed the required replacement reserves for three years, must be established and funded at loan closing. For new construction Developments, reserve funds generally cannot be withdrawn during the first five years. For rehabilitation Developments, reserve funds cannot be drawn down until the start of the scheduled activities outlined in the CNA and usually not sooner than the third year.

Permits are needed to complete underwriting and proceed to closing. Permit-ready drawings are required; however, a permit-ready letter may be accepted in lieu of actual building permits for initial closing, subject to applicable client and program requirements.

Fees vary by client, funding source, and program. Loan servicing fees, compliance fees, and credit underwriting fees are described in Seltzer’s current fee schedule, including the 2026 Fee Schedule effective January 9, 2026, as applicable.

Audited financial statements and current income and expense statements, signed or certified, are generally required. If entities are formed solely for the transaction, such as special purpose entities, Seltzer will evaluate the financial statements of the principals in lieu of the newly formed entities.

Depending on the financial strength of the participants, guarantors may be required to demonstrate adequate liquidity to meet financial obligations if the borrower defaults. Credit reports are generally obtained for all principals to confirm creditworthiness, including a credit score of 700 or higher and no disqualifying bankruptcy history under applicable underwriting standards. Business credit history is reviewed through Dun & Bradstreet. Credit reports should generally be no more than 120 days old.

The last two years of tax returns are generally required from principals and should be consistent with the financial statements provided. If the current-year tax return is on extension, Seltzer generally requests the prior 2 filed tax returns plus evidence of the extension for the current-year return.

Credit underwriters review public records for bankruptcies, judgments, and other matters relevant to financial capacity and transaction risk, as applicable.

FHFC is a public corporation subject to Florida Statutes  (F.S.) Chapter 119, known as the Public Records Act, which ensures public access to government records. While Personally Identifiable Information (PII) such as SSN, bank accounts, etc. are not made public, examples of materials that are often treated as public or potentially obtainable through a records request include:

  • Applications
  • Board materials
  • Financing structures
  • Credit underwriting reports
  • Audited financial statements submitted to FHFC
  • Development budgets and sources/ uses
  • Loan documents
  • Agreements
  • Correspondence relating to official agency business

FHFC and underwriters often treat developer financial statements, guarantor financials, tax returns, and similar sensitive materials as confidential to the extent an exemption applies, but there is not a blanket exemption for all financial information.

The General Contractor Fee, consisting of General Conditions/Requirements, Overhead, and Profit, shall not exceed 14% of actual construction costs. For purposes of this limitation, actual construction costs exclude permit fees, payment and performance bond costs, insurance, and the General Contractor Fee itself.

The Corporation and/or County’s assigned Credit Underwriter shall require a guaranteed maximum price construction contract, acceptable to the Corporation, which may include change orders for changes in cost or changes in the scope of work, or both, if all parties agree, and shall order, at the Applicant’s sole expense, and review a pre-construction analysis for all new construction units or a CNA for rehabilitation units and review the Development’s costs.

For Developments with a Development category of Rehabilitation or Substantial Rehabilitation, unless otherwise approved by the County for a specific Development, ensure that no more than 20% of the construction cost, not to include the General Contractor fee or pass-through fees paid by the General Contractor, is subcontracted to any one entity or any group of entities that have common ownership or are Affiliates of any other subcontractor, with the exception of a subcontractor (or any group of entities that have common ownership or are Affiliates of any other subcontractor) contracted to perform work on both the HVAC and electrical components of a building of at least seven (7) stories which may not have more than 31% of the construction cost in a subcontract, unless otherwise approved by the County for a specific Development. With regard to said approval, the County shall require an analysis from the Credit Underwriter and consider the facts and circumstances of each Applicant’s request, inclusive of construction costs and the General Contractor’s fees.

Ultimately, SMG looks for the long-term operational sustainability of a Development. Key considerations include:

  1. Rent assumptions (must align with program limits)
  2. Vacancy and collection loss
  3. Operating expense projections
  4. Debt service coverage ratio (DSCR)
  5. Replacement reserve levels
  6. Income and expense trend assumptions over the compliance period

All funding sources must be reasonably certain, compatible with LIHTC and applicable client or program requirements, and timed appropriately with the Development schedule. Common sources may include Housing Credit equity, client or funding-agency loans, conventional or tax-exempt financing, local government funding, and other approved sources.

Delays most often result from missing or incomplete documentation, inconsistencies between application and underwriting materials, unexplained changes to budget or financing, delays in third-party reports, unresolved funding gaps, or late changes to Development scope or transaction structure.

Underwriting assumptions are generally conservative to ensure durability under stress scenarios. Loan sizing is based on anticipated cash flow, debt service coverage requirements, applicable client or program constraints, and risk considerations. Common assumptions and requirements include:

  1. Seltzer has a minimum replacement reserve requirement of $300 per unit, per year, unless a higher amount is required.
  2. Debt service coverage requirements that vary by program type. Generally, all mortgage loans and fees must be supported by operations at a minimum DSCR of 1.15x, where DSCR equals net operating income divided by annual debt service on must-pay debt. If there is no must-pay debt, an income-to-expense ratio of 1.10 is generally required.
  3. A 15-year operating pro forma, consistent with the minimum compliance period for many funding sources.
  4. Income assumptions that generally increase by 2% per year and expense assumptions that generally increase by 3% per year.
  5. Applicable combined income and rent limits, including FHFC Combined Income and Rent Limits where applicable.
    FHFC Rent Limits

Construction Period Developer Fee is limited to the lesser of: (i) 50% of the Total Developer Fee, or (ii) the Total Developer Fee minus the Deferred Developer Fee identified in the Sources and Uses during the construction period, as determined by the Servicer.  At closing, no more than 35% of the allowable Construction Period Developer Fee may be disbursed.  The remaining balance may be paid during construction or rehabilitation on a pro rata basis, corresponding to the percentage of project completion, subject to review and approval by both FHFC and the Servicer.

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