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 intent to build or purchase. In addition, a borrower must also usually be structured as a single asset, special purpose entity (SPE). Eligible borrowers may either be a for-profit or a non-profit entity.
In general, HUD 232/223(f) loans do not permit cash out refinancing. However, some borrowers choose to get a conventional (non-HUD) loan that permits cash out, and then quickly refinance their property with a HUD 232/223(f) loan.
Like many HUD multifamily loans, HUD 232 loans typically have prepayment penalties. Prepayment penalties are designed to protect lenders from the financial losses they will incur if and when a borrower decides to pay off their loan early. HUD 232 and HUD 223/223(f) loan prepayment penalties are negotiable, but usually have a two-year lock out period followed by a 8%- 1% step down premium (i.e. 8,7,6,5,4,3,2,1).
Just like other kinds of financing, HUD 232 loans have certain application fees, including a HUD application fee, an FHA inspection fee, and lender application fees. Keep reading to see the entire list of typical fees for HUD 232 loans.
An independent living facility is a housing facility designed for senior citizens that does not offer assistance with daily activities, such as dressing, bathing, eating, and taking medication. HUD 232 and 232/223(f) loans do not finance full independent living facilities, though up to 25% of the units in an assisted living or skilled nursing facility may be set aside for independent living.
In some cases, certain facilities, often known as continuum of care facilities, offer independent living, assisted living, and skilled nursing care, all in one location. In theory, an individual could first stay in an independent living unit, and then, as their needs changed over time, could be transferred to an assisted living unit, and finally, a skilled nursing care unit.
In addition to allowing for the financing of skilled nursing, assisted living, and memory care facilities, HUD 232 and HUD 232/223(f) loans also permit the funding of intermediate care facilities. But what is an intermediate care facility? The definition of intermediate care can vary significantly based on the context, but typically involves the care of elderly individuals who have significant medical conditions, but may not need full hospitalization.
The U.S. Department of Housing and Urban Development, more commonly known as HUD, is an department of the executive branch of the U.S. government tasked with improving the accessibility of housing for all Americans. As part of their mission, HUD insures a variety of loans, including FHA mortgages for single family homes, as well as multifamily loans for apartment buildings and healthcare facilities.
If a loan is non-recourse, it means that a lender cannot go after a borrower's personal assets if they default on the loan. Instead, they can only attempt to repossess the loan collateral-- which, in multifamily real estate loans, is typically a piece of property. Fortunately for borrowers, HUD 232 loans are fully non-recourse, which means that their personal property is usually safe-- even if they face a significant financial setback that leads them to default on the loan for their skilled nursing, assisted living, or memory care facility.
When a loan is amortizing, it means that each payment a borrower makes is going to pay off both a portion of the interest and the principal. If a loan is fully amortizing, it means that the entire principal will have been paid off by the end of the loan term. In general, all HUD 232 loans are fully amortizing.
In addition to LTV, or loan-to-value ratio, DSCR, or debt service coverage ratio, is one of the most important financial metrics that a lender will examine when deciding whether to approve a HUD 232 or HUD 232/223(f) loan. DSCR compares the annual cash flow from a property to it's annual debt service obligation, which includes principal, interest, and other related costs, including MIP.
Unfortunately, HUD's Green MIP Reduction program is not currently available for HUD 232 and HUD 232/223(f) loans. The program, which is currently available for HUD 223(f) loans acquisition and refinancing loans, HUD 221(d)(4) construction and substantial rehabilitation loans, and HUD 223(a)(7) refinancing, permits an annual MIP reduction to 0.25% for properties that have made significant energy efficient improvements.
Both HUD 232 loans for new construction and substantial rehabilitation and HUD 232/223f loans for purchase and refinancing require borrowers to have a certain replacement reserves; 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 232/223f loans).
HUD 232 new construction loans require a working capital escrow of 4% of the loan amount. 2% of this, or half the amount, is a construction contingency escrow intended to help fund cost overruns or approved change orders that might occur. If, by the end of the construction process, the construction contingency escrow has not been used, it will be refunded to the developer.
If you own a senior living facility with a loan insured under the HUD 232 or HUD 232/223f programs, you can refinance that loan under the 232/223(a)(7) refinancing program. Borrowers can refinancing more than one HUD-insured loan on the same property with one 232/223(a)(7) loan, though the entire loan amount cannot exceed the Maximum Insurable Loan Calculation (MILC).