HUD 232 Loan Types

FHA mortgage insurance programs allow two main types of loans under HUD section 232. The purpose of these two types of loans is financing senior housing communities (senior living, assisted living, memory care, skilled nursing, and other related care facilities):

HUD 232 Senior and Assisted Living Construction Loans

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FHA-insured funding can be used for new construction or the substantial rehabilitation of assisted living facilities. To qualify as ‘new construction’, no work can be done prior to the HUD Firm Commitment. To qualify as ‘substantial rehabilitation’, repair and improvements costs will exceed 15% of the project’s value after all work is completed OR two or more major building components must be replaced.

Below are the highlights of FHA 232 assisted living construction and substantial rehab loans:

  • Loan Size: Loans typically start at $2 million with no maximum (except as limited by loan guidelines) for facilities with 20 residents.

  • Loan Terms: Minimum 10-year loan term, maximum 40-year loan term (or 75% of the remaining life for the property, whichever is less). These loans are fixed rate and fully amortizing. 

    • Leverage/LTV requirements for new construction:

      • Skilled Nursing Facility or Independent Living Unit: 80% LTV (for profit), 85% LTV (non-profit)

      • Assisted Living Facility: 75% LTV (for profit), 80% (non-profit)

      • Or, 90% of HUD eligible replacement costs (whichever is less)

    • Leverage/LTV requirements for substantial rehabilitation:

      • Skilled Nursing Facility or Independent Living Unit: 80% LTV (for profit), 85% LTV (non-profit)

      • Assisted Living Facility: 80% (for profit), 85% (non profit)

      • Or, 90% of HUD eligible replacement costs (whichever is less)

      • For borrower-owned properties, 100% of the existing mortgage debt or 90% of the “as is” market value of the property before rehabilitation (95% for non-profits) (whichever is less)

      • For properties that will be bought and substantially rehabilitated, 85% of the purchase price of the property or 90% of the current market value of the property before rehabilitation (95% for non profits) (whichever is less)

    • Minimum DSCR: 1.45x (for both new construction and substantial rehabilitation)

  • Interest rate is fixed prior to initial construction loan closing

  • Interest only during construction

  • Fully assumable (subject to HUD approval)

HUD 232 Senior and Assisted Living Refinance or Purchase Loans: FHA 232/223(f)

HUD 232/223(f) allows the refinancing or purchase of assisted living facilities, senior housing, skilled nursing facilities, and other senior care/ healthcare properties. Below are the highlights of FHA 232/223(f) assisted living financing:

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  • Loan size: Loans usually start at $2 million with no maximum (except as limited by loan guidelines).

  • Loan Term: Up to 35 years, fixed rate, fully amortizing

    • Leverage for purchase transactions:

      • Lesser of 85 percent of the acquisition price or appraised value (for-profits)

      • Lesser of 90 percent of the acquisition price or appraised value (non-profits)

    • Leverage for refinance transactions:

      • Lesser of 100 percent of the cost to refinance or 85 percent of appraised value (for-profits)

      • Lesser of 100 percent of the cost to refinance or 90 percent of appraised value (non-profits)

    • Minimum DSCR: 1.45x

  • Fully assumable (subject to HUD approval)

Other HUD 232 Loans

Although the HUD LEAN 232 program is primarily intended for borrowers seeking new financing or refinancing, FHA 232 loans can be used for the following purposes:

  • Section 232/223(a)(7) Refinance: This streamlined refinancing process lets borrowers with existing FHA-insured loans reduce interest rates and increase cash flow for existing projects.

  • Section 232/241(a) Supplemental Loans: Utilized for existing FHA-insured loans for a variety of projects (additions, replacements, repairs, energy conservation, etc.). These loans help properties stay competitive by extending their economic life.

  • Section 223(d) Operating Loss Loan (OLL): A supplemental loan program for owners of FHA-insured projects. During a project’s early years, this loan allows them to recoup certain unforeseen out-of-pocket expenses.

  • Section 232(i) Fire Safety Equipment Loan Program: Utilized to finance the purchase and installation of fire safety equipment, mainly sprinkler systems. These loans require a reduced 1.11x DSCR and borrowers are eligible for to take out a loan for 100% of the cost of the fire safety equipment. 

For a more detailed discussion of HUD 232 Loan Types, read Chapter 2 of the HUD Healthcare Mortgage Insurance Program Handbook (4232.1).