HUD 232 Terms, Qualification & Guidelines

Keep reading below to learn more, or simply click here to download our easy-to-read HUD 232/223(f) loan term sheet, or here to download our easy-to-read HUD 232 loan term sheet.

HUD 232 Purpose

The HUD 232 loan program insures lenders against mortgage defaults. In general, section 232 covers:

  • Construction and rehabilitation of facilities for elderly individuals requiring medical care or other long-term care.

  • Purchasing and refinancing senior-focused healthcare properties.

Eligible Properties


Under the FHA 232 program, properties must fall into the category of skilled nursing care facilities. Due to the scope of services provided, HUD places strict guidelines on eligible properties.

Eligible properties must be skilled nursing or assisted living facilities including licensed nursing homes, assisted living facilities, intermediate care facilities, and board and care facilities. To be eligible, these properties must meet the following criteria:

  • Facilities must offer ongoing, continuous care and oversight for individuals requiring long-term care or medical attention

  • Facilities must be licensed by an appropriate municipal or state body

  • Properties must have been completed at least three years prior

  • Additions less than three-years-old are acceptable, but cannot be larger than the original facility

  • Facilities must accommodate 20 or more patients requiring continuous or skilled nursing care

  • Non-resident day care must not exceed 20% of the property’s gross area and 20% of the gross income

  • Independent living units cannot make up more than 25% percent of all units

  • Commercial space must not exceed 20% of floor area or income

Ineligible Properties

Ineligible properties include those with entrance fees, hospitals, clinics, halfway houses, and similar facilities. Facilities that only provide room and board and do not provide continuous care (retirement homes, boarding houses, etc.) are ineligible. Also, new construction projects in the planning stages are not eligible.

Eligible Borrowers

Nonprofit, for-profit, and public borrowers which can include developers, builders, investors, public entities, and nonprofit entities. Per FHA and HUD requirements, borrowers must have experience as owner-operators of similar facilities. Additional financial capacity and credit requirements must be met as well. If required by a designated State agency, a Certificate of Need must be submitted.

Eligible Customers

Individuals needing skilled nursing care, custodial care, and assistance with daily activities are eligible to live in HUD 232-insured facilities.


Typically, the firm application is submitted within 60 days of initial engagement with HUD. LEAN transactions for FHA 232 loans usually take four to six months from application to closing. The processing time varies depending on a number of factors including the application’s complexity and the receipt of required information.


FHA 232 loans are subject to HUD’s LEAN application process. This simplified, streamlined application process eliminates a number of redundancies and reduces the time for borrowers to obtain funding for assisted living projects. The LEAN process typically follows these five steps:

  1. Application submission

  2. Preliminary underwriting

  3. Due diligence measures and third-party verification

  4. Receipt of HUD firm commitment letter

  5. Finalization of loan documentation and closing

Loan Amount (Leverage & DSCR)

The FHA sets different maximum loan amounts depending on the nature of the project, specifically whether the borrower is nonprofit or for-profit. The DSCR (Debt Service Coverage Ratio) must be at least 1.45. If a borrower requests larger amounts, HUD may exercise greater credit scrutiny.

  • 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)

  • Purchase:

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

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

  • 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)

    • 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)

Synopsis of Costs

Specific associated costs depend on individual loan circumstances. However, borrowers are generally responsible for:

  • HUD fees:

    • Non-refundable HUD Application fee: 0.30% of loan amount

    • FHA inspection fee: 0.50%

  • Lender fees to cover:

  • Good faith deposit (rate lock and commitment): 0.50% to 1% of loan amount; paid at commitment and refunded at closing

  • FHA MIP: (Mortgage Insurance Premium)

  • Initial replacement reserves

  • Other standard closing costs

Mortgage Insurance Premium (MIP)

For HUD 232 loans, MIP is 1% Upfront (payable at closing) and 0.65% annually.


Escrows are required for taxes, insurance, replacement reserves, and MIP (mortgage insurance premium). If the property requires repairs, a 120% refundable escrow is also required. 100% of this reserve is funded from loan proceeds; The borrowers funds the remaining 20%.

Refinanced Properties


Mortgages taken out on a property within two years of the HUD 232 application must meet specific eligibility guidelines. These loans may also have additional seasoning requirements. Depending on the mortgage amount and HUD-insured LTV (loan-to-value ratio), equity take-out loans could be eligible for immediate refinancing.

Terms & Amortization

HUD senior housing financing is fully amortizing. HUD dictates a minimum 10-year loan term. For existing facilities, the maximum term is 35 years or 75% of the facility’s remaining life. For new construction and rehabilitated properties, the program allows fixed rate financing for up to 40 years.

Interest Rate

HUD Lean 232 insures fixed-rate loans that are subject to market conditions. HUD-approved lenders can provide additional information on interest rates.


These loans are are non-recourse for principals (with standard carve-outs).


HUD 232 loans are fully assumable, subject to FHA/HUD approval. Also, a 0.05% assumability fee must be paid to HUD.


Prepayment is usually allowed pending HUD approval. There is typically a two-year lock-out during which prepayment is not allowed. There is also a penalty that declines as the loan matures.

Davis-Bacon Wages

New construction and substantial rehabilitation projects must follow prevailing wage standards as outlined by the Davis-Bacon Act.

Use of Proceeds

HUD places limits on how funds can be used. Specifically, HUD allows borrowers to finance reserve funds over a 15-year period for replacement. However, the rehabilitation costs must not exceed 15% of the total project value (once repairs have been completed).

Post-Closing Reporting

Typically, FHA 232 loans require the submission of annual audited financial statements by property owners. Statements must be received within 90 days of the fiscal year close and must be prepared according to 24 CFR 5.801 and 200.36 guidelines. In addition, property operators must submit quarterly financial statements.