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HUD SECTION 232/223(f) – Lean Processing

Loans for the refinancing or acquisition of existing skilled nursing, assisted living and memory care facilities.

Program Features

  • All project types generally are underwritten at an 80% loan-to-value ratio (LTV) and a 1.45 X debt service coverage (DSC).
  • Loan is pre-payable, assumable and non-recourse; maximum term is 35 years with full amortization.
  • Loan can include the cost of repairs, improvements, and an initial deposit to a reserve for replacement fund based on a fifteen year projection; however, the cost of repairs and improvements may not exceed 25% of the project’s value after repairs are completed. Projects whose costs exceed these levels may qualify under Section 232.
  • Projects must be at least three years old prior to filing an application and must not have been substantially rehabilitated within that period.
  • Project debt incurred within two years of the filing of an application must be analyzed to determine program eligibility; project debt that is more than two years old does not require additional analysis.
  • Prior loans whose proceeds included equity cash-outs could be immediately eligible for refinancing, depending upon the amount of the loan used for equity and the HUD-insured loan-to-value.
    • If less than 50% of the prior loan was used for equity, and the HUD-insured loan does not exceed 70% of value, then no seasoning is necessary.
    • If 50% or more of the prior loan was used for equity, and the HUD-insured loan does not exceed 60% of value, then no seasoning is necessary.
    • If 50% or more of the prior loan was used for equity and the HUD-insured loan is 61% or more of value, then two years of seasoning is necessary.
    • The seasoning period for prior loans – regardless of the use of proceeds – will remain two years if the HUD-insured loan is at least 71% or more of value.
  • Debt associated with related-party purchases can be refinanced with a HUD-insured loan immediately instead of after a two-year seasoning period provided three conditions related to the sale are met:
    • The seller has no residual rights to control the project;
    • The seller has no residual rights to reacquire the project until not less than five years after the HUD-insured loan closing; and, 
    • The purchase must have occurred prior to the date the application for HUD mortgage insurance was filed.
  • Facilities must comply with the State’s eligibility requirements concerning licensure.

Fees

0.30%
Application Fee to HUD
1.00%
Up Front Mortgage Insurance Premium to HUD - .45% for Tax Credit deals
$30 per unit
Inspection Fee to HUD
2.00%
Maximum Financing Fee
1.50%
Maximum Placement Fee
2.00%
Costs of Issuance for Tax-Exempt Bond Transactions

An annual 0.65% Mortgage Insurance Premium (.45% for Tax Credit deals) is paid to HUD as part of the monthly mortgage payment.

Escrow

  • Escrows required for property insurance, real estate taxes, and HUD mortgage insurance premiums.
  • 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 capital needs assessment.
  • An escrow equal to 120% of the cost of repairs is required. Approximately 100% is funded from loan proceeds; the Borrower funds the remaining 20%, which is released upon completion of repairs.
  • A debt service reserve may be required if the Project has not reached its targeted underwriting occupancy at time of loan approval.