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HUD 232 FAQs
Last updated on Feb 19, 2023
2 min read

LTV: Loan-to-Value Ratio in Relation to HUD 232 Loans

Loan-to-value ratio, or LTV, is one of the most important financial metrics that lenders look at when deciding to approve a borrower for a loan. LTVs for HUD 232 and HUD 232/223(f) loans typically vary between 75% and 85%, depending on the specific property type and borrower.

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In this article:
  1. HUD 232 Loans and Loan-to-Value Ratio 
  2. What's the Maximum LTV for Each Kind of HUD 232 Loan? 
  3. Related Questions
  4. Get Financing

HUD 232 Loans and Loan-to-Value Ratio 

Loan-to-value ratio, or LTV, is one of the most important financial metrics that lenders look at when approving a borrower for a loan. LTVs for HUD 232 and HUD 232/223(f) loans typically vary between 75% and 85%, depending on the specific property type and borrower.

In general, lenders prefer lower LTVs, as they generally reduce the risk of a borrower defaulting. In addition, if the borrower does default, there will be a lot more equity in the property should the lender have to sell it. This makes it easier for the lender to recoup their funds. However, borrowers usually prefer higher LTVs, since they won't have to invest as much equity in a property, freeing up their cash to make other potentially profitable investments. 

What's the Maximum LTV for Each Kind of HUD 232 Loan? 

LTVs for HUD 232 and HUD 232/223(f) loans vary both by property type and by borrower. In general, non-profit borrowers get a slightly increased LTV limit when compared to for-profit borrowers. Maximum LTVs for different kinds of HUD 232 loans include:

  • Skilled Nursing Facilities/Independent Living Units: 80% LTV (for profit), 85% LTV (non-profit)

  • Assisted Living Facilities:

    • New Construction: 75% LTV (for profit), 80% (non-profit)

    • Purchase: 80% LTV (for profit), 85% LTV (non-profit)

    • Substantial Rehabilitation: 80% LTV (for profit), 85% LTV (non-profit)

For the substantial rehabilitation of HUD 232 properties, borrowers are subject to the same parameters as above (80% LTV for for-profits, 85% LTV for non-profits), or 90% of HUD eligible replacement costs (whichever is less). 

For borrowers that currently own properties and are getting a HUD 232 Loan to rehabilitate them, they are limited by 100% of the existing mortgage debt or 90% of the “as is” market value of the property before rehabilitation (95% for non-profits). In comparison, borrowers who are buying properties to substantially rehabilitate them are limited by 85% of the purchase price of the property or 90% of the property's current market value before rehabilitation (95% for non profits).  

Related Questions

What is the maximum loan-to-value ratio for HUD 232 loans?

The maximum loan-to-value ratio for HUD 232 loans varies between 75% and 85%, depending on the exact type of HUD 232 loan in question. For example, for Skilled Nursing Facilities/Independent Living Units, the maximum LTV is 80% for for-profit borrowers and 85% for non-profit borrowers. For Assisted Living Facilities, the maximum LTV is 75% for for-profit borrowers and 80% for non-profit borrowers for new construction, 80% for for-profit borrowers and 85% for non-profit borrowers for purchase, and 80% for for-profit borrowers and 85% for non-profit borrowers for substantial rehabilitation. For borrowers that currently own properties and are getting a HUD 232 Loan to rehabilitate them, they are limited by 100% of the existing mortgage debt or 90% of the “as is” market value of the property before rehabilitation (95% for non-profits). In comparison, borrowers who are buying properties to substantially rehabilitate them are limited by 85% of the purchase price of the property or 90% of the property's current market value before rehabilitation (95% for non profits).

For more information, please see the following sources:

  • LTV: Loan-to-Value Ratio in Relation to HUD 232 Loans
  • HUD 232 Loans
  • What is Loan-to-Value Ratio (LTV)?

What is the minimum loan-to-value ratio for HUD 232 loans?

The minimum loan-to-value ratio for HUD 232 loans is 75% for for-profit borrowers and 80% for non-profit borrowers. This applies to new construction, purchase, and substantial rehabilitation loans.

For more information, please see the following sources:

  • HUD 232 Loans
  • LTV: Loan-to-Value Ratio in Relation to HUD 232 Loans

How does the loan-to-value ratio affect the interest rate of a HUD 232 loan?

The loan-to-value ratio (LTV) affects the interest rate of a HUD 232 loan in that lenders prefer lower LTVs, as they generally reduce the risk of a borrower defaulting. Lower LTVs also make it easier for the lender to recoup their funds if the borrower does default, as there will be more equity in the property should the lender have to sell it. Borrowers usually prefer higher LTVs, since they won't have to invest as much equity in a property, freeing up their cash to make other potentially profitable investments.

In general, the maximum LTV allowed for HUD 232 loans varies between 75% and 85%, depending on the exact type of HUD 232 loan in question. Fixed-rate loans are usually preferred for large multifamily projects, like those financed through the HUD 232 program, as the interest rate doesn't change and payments are predictable. Variable-rate loans may benefit borrowers in a higher interest environment in which rates are trending down, as data from some studies on interest rates and mortgages show that borrowers pay less interest overall throughout the life of a variable-rate loan.

What are the benefits of a low loan-to-value ratio for HUD 232 loans?

The benefits of a low loan-to-value ratio for HUD 232 loans are that lenders prefer lower LTVs, as they generally reduce the risk of a borrower defaulting. In addition, if the borrower does default, there will be a lot more equity in the property should the lender have to sell it. This makes it easier for the lender to recoup their funds.

Source: www.hud232.loan/hud-232-faqs/ltv-loan-to-value-ratio

What are the risks of a high loan-to-value ratio for HUD 232 loans?

The risks of a high loan-to-value ratio for HUD 232 loans are that lenders prefer lower LTVs, as they generally reduce the risk of a borrower defaulting. In addition, if the borrower does default, there will be a lot less equity in the property should the lender have to sell it. This makes it harder for the lender to recoup their funds. Source

In this article:
  1. HUD 232 Loans and Loan-to-Value Ratio 
  2. What's the Maximum LTV for Each Kind of HUD 232 Loan? 
  3. Related questions
  4. Get Financing
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