Substantial Rehabilitation and HUD 232 Loans
In order to qualify for a HUD 232 loan for substantial rehabilitation, a project must meet one of two major requirements. Either the hard cost of any repairs and improvements must exceed 15% of the project's value after completion, or two or more major building components (ex. plumbing, electrical, roof) must be substantially replaced.
While additions are allowed in substantial rehabilitation projects, the costs cannot be included in the "hard cost" eligibility test.
According to HUD’s rehabilitation guidelines, a Substantial Rehabilitation consists of one of the following:
Two or more major building components must be replaced OR
Costs must be at least 15% of the project's value (fair market value) after completion OR $6,500 per dwelling unit.
Major Building Components
HUD defines Major Building Components as: “Roof structures; wall or floor structures; foundations; and plumbing, central heating and air conditioning, or electrical systems.” In addition, the term ‘Major’ signifies a component’s importance and the extent of its replacement.
For example, a Major Building Component significantly affects a facility’s performance and use. Because of this, it cannot be minor or cosmetic. Also, at least 50% of the component must be replaced. HUD leaves the determination up to architectural staff.