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HUD FHA Section 232 Healthcare Loan Program

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HUD FHA Section 232 - Commercial Loans for the Refinance or Acquisition of Healthcare Properties

HUD provides commercial loans for assisted living, skilled nursing, intermediate care, memory care and other residential care facilities through Section 232. FHA insured mortgages are available for the purchase or refinancing of residential care facilities with a stabilized operating history. Facilities currently financed with an FHA insured healthcare mortgage are eligible for streamlined refinancing through the FHA 223(a)(7) LEAN program.
  • Up to 80% leverage
  • Up to 100% of transaction costs for refinance
  • Non-recourse and assumable
  • Up to 35 year fixed rate term
  • Property types include assisted living, memory care, skilled nursing, intermediate care
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HUD FHA Section 232 Healthcare Loan Program Guidelines

Eligible Properties Section 232 provides commercial mortgages for assisted living facilities, skilled nursing, skilled nursing and intermediate and memory care properties meeting the following requirements:
  • Must provide continuous care.
  • Must offer three meals per day.
  • Facility must be licensed by appropriate government entity.
  • May include up to 25% non-licensed independent living units.
  • 20 bed minimum.
  • Operating leases to qualified facility operators are permissible, subject to HUD approval.
  • The facility must have been completed or substantially rehabilitated for at least three years prior to the date of the application. Projects with additions completed less than three years previous are eligible as long as the addition was not larger than the original project size and number of beds.
Commercial Space Commercial space is limited to 20% of gross floor area and commercial income is limited to 20% of gross income.
Cash Out Prohibited under regulations of Section 232.
Maximum Loan Amount (LTV) Maximum loan amount will be the lesser of:

1. 80% of appraised value (85% for non-profits);
2. 100% of the transaction cost for a refinance, and 85% of the transaction cost for a purchase transaction. Recognizable transaction costs include repairs, initial replacement reserves, third party reports, closing costs, along with eligible existing indebtedness or purchase price.;
3. Minimum Debt Service Coverage of 1.45x.

Eligible Locations All 50 states, Puerto Rico, U.S. Virgin Islands, and Guam.
Fixed Rate Term 35 years not to exceed 75% of remaining economical useful life or improvements.
Minimum DSCR 1.45.
Prepayment Penalty Negotiable - typically a two-year lock out followed by a step down premium (e.g. 8,7,6,5,4,3,2,1).
Guarantee Non-recourse for most loans subject to standard carve-outs.
Assumable Yes, subject to lender approval.
Escrows
  • Tax and Insurance Impounds: Required.
  • Replacement Reserves: Required - Monthly deposit required and amount depends on property condition.
  • Initial Deposit to Reserve Fund: Required - One time deposit may be required depending on property condition.
  • Critical and Non-Critical Repair Escrow: May be required for properties with life, safety, health or code related repair and/or maintenance concerns.
Mortgage Insurance Premium Payable at Closing in an amount equal to 0.65% of the loan amount for each year of construction.
Fees and Expenses 1. HUD Fees - Application Fee and Inspection Fee;
2. FHA Mortgage Insurance Premium due at closing;
3. Lender Financing and Placement fee up to 3.5% payable at closing;
4. Actual cost of Third Party Reports.
Third Party Reports Appraisal, Market Study, Phase I Environmental, Engineering Report and Seismic where applicable.
Sponsor Requirements
  • Experienced owner operators.
  • Minimum credit and financial capacity requirements.
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What You Need to Know About Section 232

Program descriptions, highlights and underwriting guidelines are helpful when considering if a HUD Healthcare commercial mortgage is right for you and your property. However, they don't always tell the whole story. Below is what you need to know about Section 232 Healthcare Construction Loan program that program guidelines and highlights don't tell you.
  • The property will be required to submit an annual audit of operations to HUD and lender.
  • Surplus cash may be distributed two times per year.
  • Full or partial compliance with ADA and UFAS requirements may be required.
  • HUD requires that healthcare facilities maintain adequate liability insurance.
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