HUD SECTION 232 – Lean Processing
Loans for new construction or substantial rehabilitation of skilled nursing, assisted living and memory care facilities
Program Features
- Combines construction and permanent financing into a single transaction approved at the same time.
- Skilled nursing facilities generally are underwritten at an 80% loan-to-value ratio (LTV) and a 1.45 X debt service coverage (DSC); assisted living transactions generally use a 75% LTV (80% for not-for-profit borrowers) and a 1.45 X DSC. Loans can’t exceed 90% of replacement cost.
- Loan is pre-payable, assumable, and non-recourse; maximum term is 40 years with full amortization.
- Projects must comply with the State’s eligibility requirements for licensure and operating standards.
- Construction and rehabilitation costs are subject to Davis-Bacon Prevailing Wage Requirements.
- Up to 25% of a Project’s total bed count can be for unlicensed, independent living.
fees
0.30% | Application Fee to HUD |
1.00% | Up Front Mortgage Insurance Premium to HUD (Reduced to .25% for Green Energy Efficient Projects) |
0.50% | Inspection Fee to HUD |
2.00% | Maximum Financing (Origination) Fee |
1.50% | Maximum Placement Fee |
2.00% | Costs of Issuance for Tax-Exempt Bond Transactions |
An annual 0.77% Mortgage Insurance Premium (.45% for Tax Credit Projects and .25% for Green Projects) is paid to HUD as part of the monthly mortgage payment.
Escrows
- Escrows required for property insurance, real estate taxes, and FHA mortgage insurance premium.
- Replacement reserve escrow for on-going replacement of depreciable items is required for the term of the loan. The amount of the annual deposit will be revised after 10 years based on a project capital needs assessment (PCNA).
- An operating deficit escrow, and in some cases, a debt service reserve escrow will be required by HUD. This escrow must be funded by the borrower at closing with cash or a letter of credit.
- A Working Capital deposit equal to 4% of the mortgage and escrow for Minor Movable Equipment is required at closing. These deposits must be funded by the borrower at closing with cash or letters of credit.