What is the Department of Housing and Urban Development (HUD's) Role in Healthcare Financing?
The U.S. Department of Housing and Urban Development, more commonly known as HUD , is an department of the executive branch of the U.S. government tasked with improving the accessibility of housing for all Americans. As part of their mission, HUD insures a variety of loans, including FHA mortgagesStart Your Application and Unlock the Power of Choice$5.6M offered by a Bank at 6.1%$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1.4M offered by a Credit Union at 6.1%Click Here to Get Quotes!
HUD’s 232 and 242 Loan Programs Offer Financing to Healthcare Facilities
The U.S. Department of Housing and Urban Development, more commonly known as HUD, is a department of the executive branch of the U.S. government tasked with improving the accessibility of housing for all Americans. As part of their mission, HUD insures a variety of loans, including FHA mortgages for single family homes, as well as multifamily loans for apartment buildings and healthcare facilities.
HUD’s role in healthcare financing includes insuring mortgages under the HUD 232 loan program. This allows for the construction and significant rehabilitation of assisted living, skilled nursing, and memory care properties for senior citizens. HUD also insures mortgages under the HUD 232/223(f) program, which allows for the acquisition and refinancing of those same property types.
In comparison, the HUD 242 loan program is designed for financing hospitals, including acute care facilities, critical access hospitals, large urban teaching hospitals, and both non-profit, for-profit, and government-owned hospital facilities.
What is the purpose of HUD's 232 program?
The HUD 232 program insures lenders against mortgage defaults. In general, section 232 covers:
- Construction and rehabilitation of facilities for elderly individuals requiring medical care or other long-term care.
- Purchasing and refinancing senior-focused healthcare properties.
For a more detailed discussion of HUD 232 Loan Types, read Chapter 2 of the HUD Healthcare Mortgage Insurance Program Handbook (4232.1).
How does HUD's 232 program help healthcare providers finance their projects?
HUD's 232 program helps healthcare providers finance their projects by providing low, fixed interest rates, loans that are fully assumable (with FHA/HUD approval), and non-recourse loans that limit risks for developers. Through the end of March, $909.5 million in HUD 232 loans received firm commitments. Loan volume has kept relatively steady in this health care financing program, with an annual average of $4.2 billion between 2017 and 2021. These mortgages appeal to a broad range of borrowers, thanks to fixed interest rates and a maximum, fully amortizing term of 35 years.
What types of healthcare facilities are eligible for HUD's 232 program?
HUD 232 loans are designed solely for healthcare properties, such as facilities that offer ongoing, continuous care and oversight for individuals requiring long-term care or medical attention. These facilities must be licensed by an appropriate municipality or state body, have been completed at least three years prior (for acquisition or rehabilitation financing), and accommodate 20 or more patients requiring continuous or skilled nursing care. Non-resident day care must not exceed 20% of the property’s gross area and 20% of the gross income, and independent living units cannot make up more than 25% percent of all units. Commercial space must not exceed 20% of floor area or income.
What are the requirements for healthcare providers to qualify for HUD's 232 program?
In order to be eligible for HUD 232 financing, a project must:
- House 20 or more long-term patients
- Provide constant/ongoing medical attention for individuals in need of care
- Be licensed by the appropriate city or state organization
- Have had construction be complete for at least three years, though newer property additions are allowed, as long as they are smaller than the original building (for HUD 232 substantial rehabilitation loans)
- Have no more than 20% of the project's gross area or gross income devoted to/derived from non-resident day care
- Have no more than 25% of all units can be independent living units
- Have no more than 10% of the gross floor space filled and no more than 15% of the property's income derived from commercial tenants
Since HUD 232 projects involve federal insurance and construction over $2000, they are subject to the Davis-Bacon act, which requires that all workers be paid the "prevailing wage" in their area. In order to determine the prevailing wage in your area, you can use this free Davis-Bacon wage calculator, provided by wdol.gov.
What are the benefits of HUD's 232 program for healthcare providers?
The HUD 232 program offers healthcare providers a variety of benefits, including low, fixed interest rates, fully assumable loans (with FHA/HUD approval), and non-recourse loans that limit risks for developers. Additionally, HUD 232 loans may be used to purchase, refinance, or develop a property, and have a maximum, fully amortizing term of 35 years.