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HUD SECTION 242/223(f) – Office of Hospital Facilities (OHF) Processing

Section 242/223(f) – Loans for acquiring or refinancing existing hospitals that may require moderate repair or capital needs not exceeding 20% of the loan amount. 

Program Features

  • Borrowers can be non-profit, for-profit or publicly owned facilities.
  • At least 50% of patient days must be attributable to acute care; non-acute patient days include skilled nursing, rehabilitation, psychiatric and other related services.  HUD will allow adjustment of the patient day calculation based on revenues.
  • Loans are generally considered permanent loans in that they are disbursed in full at closing, although loans with proceeds for capital improvements can have post-closing distributions.
  • Repairs and capital improvements are not subject to Davis-Bacon Prevailing Wage requirements.
  • Repairs and capital improvements can’t exceed 20% of the loan.  Hospitals seeking to refinance existing capital debt with a 20% or greater capital component can qualify under Section 242. 
  • Hospitals must have an average operating margin of at least 0.00% and an average debt service coverage ratio of at least 1.40 X for the past three years and meet at least three of the following criteria: 
    • Total operating expenses will decrease as a result of the financing by at least .25%
    • The new interest rate will be at least .50% lower than the current rate.
    • The current interest rate increased by at least 1% since January 1, 2008 or will likely increase by that amount within a year of filing the application.
    • Annual total debt service for the most recent audited year is at least 3.4% of total operating revenue.
    • Credit enhancement on the existing debt has been or will be imminently withdrawn, expire or the provider has been or will be downgraded.   
    • The existing financing has overly restrictive or onerous bond covenants.
    • Other circumstances exist that demonstrate that the hospital’s financial health depends upon the refinancing of its existing debt. 
  • If the three-year average operating margin and debt service coverage test can’t be met, HUD will allow the tests to be recast for the prior three-year period by applying an estimate of the projected interest rate on the HUD-insured loan in lieu of the historical interest rate.  Moreover, if exceptional, one-time events affected the hospital in one of the prior three years, resulting in substantially altered financial performance, HUD will allow a fourth year to be used in determining whether the operating margin and debt service coverage test are met. 
  • Maximum loan to value (LTV) is 90%, with the value being determined as the total estimated replacement cost + net property, plant, and equipment.
  • Loans are pre-payable, assumable, and non-recourse; the maximum term is 25 years with full amortization.


Application Fee to HUD
Mortgage Insurance Premium to HUD
0.10% - 0.50%
Inspection Fee to HUD
Maximum Financing (Origination) Fee
Maximum Placement Fee
Costs of Issuance for Tax-Exempt Bond Transactions

An annual 0.65% Mortgage Insurance Premium is paid to HUD as part of the monthly mortgage payment.  The Inspection Fee is based on a sliding scale of the hard cost of construction or renovation to a maximum of .50% if the costs are 20% of the loan. 


  • Full escrows required for property insurance, real estate taxes, and HUD mortgage insurance premium.
  • A Mortgage Reserve Fund required equal to one year’s debt service after 5 years and two years debt service after 10 years is required.  The Reserve is funded from the hospital’s operations.