In order to be eligible for HUD 232 financing, properties need to meet a variety of eligibility requirements, including offering continuous care, being appropriately licensed, and having at least 20 patients. To take out a HUD 232 or HUD 232/223(f) loan, a borrower must typically have experience successfully operating one or more facilities of the same kind that they intend to build or purchase. In addition, a borrower must also be structured as a single asset, special purpose entity (SPE). Eligible borrowers may either be a for-profit or a non-profit entity.

For more information about FHA 232 loans, you can fill out the form on our website to speak to a HUD/FHA loan expert and get a free HUD/FHA multifamily loan quote.

HUD 232 and 232/223(f) loans do not finance full independent living facilities. However, up to 25% of the units in an assisted living or skilled nursing facility may be set aside for independent living. Depending on the state, ‘Independent Living Facility’ can mean different things. The primary distinction between independent living and other senior housing (like assisted living) is the amount of care that residents receive. In general, independent living facilities are designed for and friendly towards older adults. In addition, residents typically live in private units. Some examples of independent living facilities that can be financed with HUD 232 loans are retirement homes, retirement communities, senior housing, and senior apartments. These facilities do not offer assistance with daily activities, such as dressing, bathing, eating, and taking medication. However, they do provide services such as transportation, social programs, and activities. At the same time, fully independent living facilities do not offer in-house nursing care. Although, in some facilities, third-party home health services may be available.

HUD 232 loans provide insurance for mortgages for the construction or substantial rehabilitation of senior housing communities — including independent living facilities. Benefits of financing an independent living facility with a HUD 232 loan include:

• Fixed-rate terms of up to 35 years
• Fully amortizing loans
• Loans start at $2 million
• Available for facilities with as few as 20 residents

According to HUD regulations, continuum of care facilities can be financed with HUD 232 and HUD 232/223(f) loans. In brief, to benefit from these HUD mortgage programs, the amount of independent living units must remain under 25%.

HUD 232 loans have terms including:

• Loan Size: $2 million ($7.6 million average loan size)
• Loan Term: 40 years
• Leverage:
  • New Construction:
    • Skilled Nursing:/Independent Living:
      • For profit: 75% LTV
      • Non-profit: 80% LTV
    • Assisted Living:
      • For profit: 75% LTV
      • Non-profit: 80% LTV
  • Purchase:
    • For profit: 75% LTV
    • Non-profit: 80% LTV
  • Substantial Rehabilitation*:
    • For profit: 75% LTV
    • Non-profit: 80% LTV
    • Borrower owned properties: 100% of existing mortgage debt or 90% pre-rehab market value (95% for non-profits)
    • Purchase/substantial rehabilitation properties: 85% of purchase price or 90% pre-rehab market value (95% for non-profits)
• DSCR: 1.45x minimum DSCR

*For substantial rehabilitation, the hard cost of the rehabilitation needs to be more than 15% of the project's post-rehab value, or, alternatively, two or more major building systems (i.e. plumbing or roofing) must be replaced.

The HUD 232 loan 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.

HUD 232 Loans: What are the terms for HUD 232 loans?

• Loan Term:
  • 10-year minimum, full amortizing
  • Up to 40-year fixed-rate term for new and rehabilitated properties
  • Up to 35-year fixed-rate terms for non-rehab acquisitions

HUD 232 loans offer several advantages for financing independent living facilities. These include low, fixed interest rates, fully assumable loans (with FHA/HUD approval), and non-recourse loans, which limit risks for developers. Source and Source