HUD 232 Loan

Securing a healthcare property loan without expert guidance can be complex. You need a strong advocate who will be there to help during the entire process. You can count on the professionals at LSG Lending Advisors to put our years of knowledge and experience to work for you. Whether you are seeking financing for a purchase, acquisition, new construction, refinance or rehabilitation, you can be assured that your   transaction will be a smooth one.  Over the years, we have learned that every client has their own unique business challenges and we take pride in creating custom made solutions, designed to meet their specific business needs.   

  • Over 7 years multifamily property loan underwriting experience.
  • Expert knowledge of financial terms and principles.
  • Highly experienced at guiding clients through complex transactions.
  • In depth analysis of current operating statements and projected financials.
  • Specialists in evaluating third party reports, including appraisals, environmental documents, market studies and project capital needs assessments.
  • Loan review documentation.
  • Tailor fit financing solutions for every client.

We have an unmatched expertise as it relates to helping our clients adhere to FHA/HUD LEAN lending guidelines, as well as strong partnerships with some of the best FHA/HUD LEAN approved lenders that that the industry has to offer. Contact us today to learn about how we have transformed the sometimes complicated process of securing a healthcare property loan into worry free transactions for our valued clients.

New Construction or Substantial Rehabilitation Loan Program for Healthcare Properties

 
The HUD 232 program provides mortgage insurance for the construction or substantial rehabilitation of nursing homes, assisted living facilities, intermediate care facilities, and board and care homes. This attractive program offers a low fixed interest only rate during the construction period that converts to a permanent rate with a maximum term of 40 years and is fully amortized. The loan is non-recourse, and assumable subject to HUD approval.
 

Standard Loan Amount for New Construction will be the Lesser of:

  • 80% of stabilized value (85% for non-profits) for skilled nursing and independent living units, 
  • 75% of stabilized value (80% for non-profits) for assisted living units,
  • 90% of FHA’s allowable replacement cost (95% for non-profits),
  • Amount that results in a debt service coverage ratio of 1.45x based on the underwritten net operating income, or
  • 100% of FHA’s allowable costs less grants, public loans, and tax credits.

Standard Loan Amount for Substantial Rehabilitation will be the Lesser of:

  • 80% of stabilized value (85% for non-profits) for skilled nursing and independent living units, 
  • 75% of stabilized value (80% for non-profits) for assisted living units,
  • 90% of FHA’s allowable replacement cost (95% for non-profits), 
  • Amount that results in a debt service coverage ratio of 1.45x based on the underwritten net operating income, 
  • If owned - 100% of hard and soft costs plus the lesser of existing debt or 90% of existing value (95% for non-profits). To be acquired - 90% of hard and soft costs (95% for non-profits) plus 90% of the lesser of the purchase price or existing value (95% for non-profits), or
  • 100% of FHA’s allowable costs less grants, public loans, and tax credits.

HUD Requires a Minimum 1.45 DSCR and Recommended these LTV Parameters:

  • Non-Profit Assisted Living 80% Loan to Value.
  • Non-Profit Skilled Nursing, Independent Living, and Board and Care Facilities 85% Loan to Value.
  • For-Profit Assisted Living 75% Loan to Value.
  • For-Profit Skilled Nursing, Independent Living, and Board and Care Facilities 80% Loan to Value.

Overview & Key Requirements of HUD 232 Loan

Eligible Borrowers

  • Experienced for-profit and non-profit owners are eligible.

Eligible Facilities

  • Nursing homes, assisted living facilities, intermediate care facilities, and board and care homes.

Loan Term

  • Interest only during construction period that converts to a fully amortizing fixed rate loan that allows up to a 40-year term. 

Interest Rate

  • Fixed, subject to market conditions.

Commercial Space 

  • 10% of net rental area and 15% of effective gross income.

Rate Lock Deposit

  • 0.50% of mortgage amount collected at the time of client’s acceptance of the Firm Commitment. The rate lock deposit will be fully refunded at the transaction closing.

Non-Recourse

  • The HUD mortgage note will contain a non-recourse provision as to the mortgagor entity. Notwithstanding this provision, certain parties may be held personally liable to the extent of losses arising from certain “bad acts” and malfeasance, as set forth in the Regulatory Agreement. Such parties will be identified in the Firm Commitment.

Prepayment

  • 2-year lockout followed by 8 years of declining pre-pay of 8%, 7%, 6%, 5%, 4%, 3%, 2%, and 1% (other terms may be negotiated).

Assumable Mortgage

  • Fully assumable, subject to HUD approval. This feature makes the facility very appealing for a buyer to assume a low rate in increasing rate environments.

Working Capital Escrow

  • Working capital escrow equal to 4% of the mortgage escrowed at closing, of which 2% of this escrow is used for construction contingencies. The other 2% is used for working capital. Half of the working capital escrow (1%) will be refunded at close, while the remaining (1%) will be refunded when the facility reaches break-even occupancy for 6 months.

Initial Operating Deficit Escrow

  • Can be in the form of cash or letter of credit.
  • Amount requested will be approximately 12-18 months of debt service coverage.
  • Will be refunded once a 1.45% debt service coverage is maintained for 3 consecutive months.

Davis-Bacon Wage Rates 

  • The general contractor and all subcontractors are required to comply with federal wage and reporting requirements. 

HUD Fees for 232 Loan

The borrower is responsible for HUD Fees.
 

HUD Fees for 232 Loan

Lender Ordered Third-Party Reports for HUD 232 Loan

The third-party reports listed are required prior to Firm Application submitted to HUD. They are all mortgageable, and can be reimbursed from loan proceeds at closing. The amount of the reports varies depending on the size and complexity of the project.
 
  • Market Study 
  • Appraisal
  • Phase I Environmental Assessment
  • Phase II Environmental
  • Architectural Plans and Costs Review 

Lender Fees for HUD 232 Loan

After the loan sizing, the processing fee (approximately $5,000 to $10,000) along with the required third-party reports are usually collected at the time of engagement with the lender.
 
Financing and Permanent Placement Fees
  • Up to 3.5% of the final loan amount, and payable from mortgage proceeds at closing.
The borrower is responsible for the lender financing, placement, and legal fees. These amounts vary based on the size and complexity of the transaction. These fees are paid out of the loan proceeds at closing.
 
LSG_LOGO_Color

Estimated Timeline for HUD 232 Loan

The lender will need approximately 8 to 10 weeks to underwrite and review third-party reports and submit to HUD for Firm Commitment. The timing to receive a Firm Commitment will depend on the LEAN underwriting queue, and how many deals that are currently being processed at the time.

Basic Checklist for HUD 232 Loan Sizing

The information listed is required for the most accurate estimate for both the loan eligibility amount and costs for the loan. 
 
 
Checklist for HUD 232 Loan Sizing

newsletter signup

Close