Do HUD 232 Loans Require Mortgage Insurance (MIP)?
Yes, HUD 232 loans require borrowers to pay an MIP (Mortgage Insurance Premium), as both a one-time and an annual expense. MIP for these loans includes a 1% one time MIP assessment, payable at closing, and a 0.65% annual MIP charge, paid each year.
Do You Need Mortgage Insurance for a HUD 232 Loan?
Yes, HUD 232 loans require borrowers to pay a Mortgage Insurance Premium (MIP), as both a one-time and an annual expense. MIP for these loans includes a 1% one time MIP assessment, payable at closing, and a 0.65% (65 basis points) annual MIP charge, paid each year for market rate properties.
What is MIP?
For conventional mortgages, borrowers pay mortgage insurance when their down payment is less than 20% of the property cost. However, HUD requires borrowers to pay MIP. It is both a one-time payment and an annual cost. In addition to the 0.65% MIP for market rate properties, HUD allows the following adjustments:
0.45% (45 basis points) for Section 8 or new money LIHTC properties
0.70% (70 basis points) for Section 220 urban renewal projects (non-Section 8 and non-LIHTC projects)
What is a HUD 232 loan?
A HUD 232 loan is a loan insured by the U.S. Department of Housing and Urban Development (HUD) that is used to finance the construction and rehabilitation of facilities for elderly individuals requiring medical care or other long-term care, as well as the purchase and refinancing of senior-focused healthcare properties. HUD-held loans are loans that are held by HUD and are used in relation to FHA 232 financing. To learn more about HUD 232 loans, please fill out the form on our website to speak to a HUD/FHA loan expert.
What is mortgage insurance (MIP)?
Mortgage Insurance Premium (MIP) is an annual payment on a HUD mortgage, paid at closing, for each year of construction, and annually. For HUD 223(f) loans, MIP is 25 basis points for properties using a Green MIP Reduction, 65 basis points for market rate properties, 45 basis points for Section 8 or new money LIHTC properties, and 70 basis points for Section 220 urban renewal projects that are not Section 8 or LIHTC. For HUD 232 loans, MIP is 1% of the loan amount (due at closing) and 0.65% annually (escrowed monthly).
MIP is an important consideration when looking at HUD loans. It is a type of insurance that protects the lender from losses that occur when a borrower defaults. While upfront and annual MIPs are costs you must look at when exploring your loan options, there are ways to reduce them — and even without a reduction, HUD loans are still generally much less costly than other types of multifamily debt, even Fannie Mae and Freddie Mac loans.
Are HUD 232 loans required to have mortgage insurance (MIP)?
Yes, HUD 232 loans require borrowers to pay a Mortgage Insurance Premium (MIP), as both a one-time and an annual expense. MIP for these loans includes a 1% one time MIP assessment, payable at closing, and a 0.65% (65 basis points) annual MIP charge, paid each year for market rate properties. Additionally, HUD allows the following adjustments:
- 0.45% (45 basis points) for Section 8 or new money LIHTC properties
- 0.70% (70 basis points) for Section 220 urban renewal projects (non-Section 8 and non-LIHTC projects)
An FHA application fee of 0.30% of the entire loan amount is also required, as well as an FHA inspection fee of 0.50% of the loan amount (though this can be funded with the loan balance).
Source: https://www.hud232.loan/hud-232-faqs/mortgage-insurance-premium and https://www.commercialrealestate.loans/hud-232-loans
What are the benefits of a HUD 232 loan?
HUD 232 portfolio loans have a variety of benefits for large-scale owners of senior properties, including:
- HUD 232 refinancing of multiple properties can greatly increase cash flow, potentially giving developers the capital to purchase or construct new assets
- HUD fixed-rate financing allows large companies to stabilize expenses and make accurate financial projections well into the future
- Low, fixed interest rates
- Loans are fully assumable (with FHA/HUD approval)
- HUD 232 loans are non-recourse, limiting risks for developers
- For purchase and refinancing, HUD offers up to a 35-year loan term and amortization. Over the life of the loan, this saves the borrowers a good deal of money and frees up cash for other expenditures.
- For new construction of healthcare facilities, only HUD offers only a 40-year, fixed-rate, non-recourse loan program.
- Loans are low interest, fixed-rate, non-recourse, fully assumable with no balloon payments.
- This program has one of the highest LTVs (loan-to-value ratio) available.
- There are no financial capacity requirements, no geographic restrictions, and no minimum population requirements.
- This assisted living financing program allows for repair and improvement funds.
- HUD 232 allows supplemental financing.
What are the requirements for a HUD 232 loan?
In order 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.
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.
Below is an outline of insurance requirements for HUD 232 financing. HUD’s detailed requirements for insurance on Section 232 loans are found in Chapter 14 of the Healthcare Mortgage Insurance Program Handbook (4232.1).