HUD 232 Replacement Reserve Requirements
Both HUD 232 loans for new construction and substantial rehabilitation and HUD 232/223(f) loans for purchase and refinancing require borrowers to have a certain replacement reserves. This is money which can fund the repair and replacement of outdated or broken building systems without putting a financial strain on the project itself.
Borrowers for these loans must provide a 15-year replacement reserve analysis along with their loan application. Plus, replacement reserves for both of these types of loans must have a minimum balance of $1,000 per unit in years 2 through 15 (HUD 232 loans), and in years 1 through 15 (HUD 232/223(f) loans).
Every 10 years, the lender must order a Project Capital Needs Assessment (PCNA) in order to analyze the needs of the project and determine if anything has substantially changed.