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HUD SECTION 232/223(a)(7) – Lean Processing

Loans to refinance skilled nursing, assisted living or memory care facilities subject to existing HUD-insured loans

Program Features

  • Expedited processing protocol requires no appraisal and a limited environmental review for projects involving capital improvements.
  • Requires a 1.11 X (1.05 for non-profits) debt service coverage ratio (DSC) based on net operating income (NOI) for the trailing 12 months prior to the submission of the application. 
  • Maximum loan can’t exceed the original amount of the existing HUD-insured loan.  
  • Payback of transaction costs via debt service savings must not take longer than 10 years; HUD prefers a shorter payback period.
  • The mortgage term may be extended 12 years beyond the term of the current HUD-insured loan, with HUD’s approval, to a maximum of 40 years.  However, extensions may be considered only with appropriate mitigation measures necessary to offset the risk of the longer term. 
  • If a term extension is requested, a project capital needs assessment (PCNA) is required.  The PCNA will look at the capital needs of the project over a single, 15 year period.  The minimum reserve for replacement deposit is $1,000 per unit per year or such higher amount as is indicated by the PCNA, even with an initial deposit to the reserve for replacement escrow.  

fees

0.30%
Application Fee to HUD (1/2 refunded after closing)
0.50%
Up Front Mortgage Insurance Premium to HUD (Reduced to .25% for Green Energy Efficient Projects)
2.00%
Maximum Financing and Placement Fees
2.00%
Costs of Issuance for Tax-Exempt Bond Transactions

An annual 0.55% 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

  • Full escrows required for property insurance, real estate taxes, and HUD mortgage insurance premiums.  These should be similar to what is currently being paid.
  •  Replacement reserve escrow for on-going replacement of depreciable items is required for the term of the loan.  Projects must obtain a new PCNA every 10 years, with the reserve for replacement deposit adjusted based on the results of the PCNA.