FHA 232 Nursing Home Loans

FHA 232 Nursing Home Loans

FHA 232 nursing home loans are FHA insured loan products that insure housing for the frail elderly. That is, those in need of supportive services.  FHA 232 nursing home loans offer financing for residential healthcare facilities such as nursing homes, assisted living facilities, and board and care facilities.  Section 232 may be used to finance the purchase, refinance, new construction, or substantial rehabilitation of a project.  A combination of residential healthcare uses is acceptable – e.g. refinance of a nursing home coupled with new construction of an assisted living facility.  The benefit to the lender is that the loan is insured by FHA.  The benefit to the borrower is that the loan is at a fixed interest rate, often lower than conventional rates and it non-recourse.

FHA 232 Loan Program is used for new construction of Skilled Care, Assisted Living, Nursing, Memory Care and Bed & Board facilities. FHA 232 is the only 40-year fixed-rate, fully amortizing, 90% LTV, non-recourse health care facility finance program in existence.

Maximum Loan Term

40 years – not to exceed 75% of remaining economic life after the construction period

Independent Living

No more than 25% of the units can be for Independent Living

Personal Liability

Non-recourse for monetary default, “bad boy” carve-outs excepted

Eligible Borrowers

For-profit individuals and entities and not-for-profit  single asset entities

Prepayment

Typically closed for 3 years then pre-payable year 4 at 107% of par declining 1% per year.  Shorter lock-outs are obtainable at a higher note interest rate

Maximum Loan Refinancing

New Construction – The lesser amount of:

  1. 90% of stabilized value (95% for Not-For-Profits).
  2. 90% of mortgageable replacement cost (95% for Not-For-Profits)
  3. Amount debt serviced by 90% of the estimated NOI attributable to realty (95% for Not-For-Profits)
  4. 100% of mortgageable costs less grants, public loans and tax credits
  5. FHA Statutory mortgage limits (FHA statutory loan limits are subject to adjustment based on the location of the project.

Substantial Rehabilitation

  1. 90% of stabilized value (95% for Not-For-Profits)
  2. Amount debt serviced by 90% of estimated NOI attributable to realty (95% for Not-For-Profits)
  3. If owned – 100% of hard and soft costs plus the lesser of (a) existing debt or (b) 90% of existing value
  4. 100% of mortgageable costs less grants, public loans, and tax credits

Interest Rate

Market interest rates change daily. Call for quote.

FHA Application Fee and Inspection Fee

0.3% of the loan amount due at application and .5% of construction loan amount due at closing

Origination Fee

Negotiable

3rd Party Costs

$15,000 to $30,000 depending on size and complexity

MIP

.57% of declining loan amount per annum ( .85% for LIHTC transactions)

Repairs/Replacements

Repairs, deferred maintenance or capital improvements up to of 15% of value or $6,500 per unit plus one major system (adjusted for area) can be included in loan.

Risk-based Maximum Loan Amounts

FHA has established risk thresholds that cannot be exceeded except in exceptional cases –

  1. 75% loan-to-value for new construction assisted living
  2. 80% loan-to-value for new construction nursing homes
  3. 1.45 debt service coverage ratio for all projects
  4. Strong not-for-profits are eligible for a 5% LTV increase
  5. Maximum loan-to-cost remains 90% (95% for Not-For-Profits)

Additional Features>

  • Certificates of Occupancy dated three years prior to date of application for existing properties (subject to waiver)
  • Pre-review is required by HUD
  • Davis Bacon prevailing wage requirement  apply
  • A replacement reserve will be funded at closing
  • Escrows for property taxes, insurance, and replacement reserves are required
  • Annual audit of operations is required
  • Hard second mortgages are not allowed. Soft seconds  and stock pledge financing are allowed if properly structured.