Eligible Properties

HUD's FHA 232/223(f) loans are only for healthcare properties, specifically skilled nursing care facilities. Eligible properties must be already established and not projects in the planning or construction stages. HUD requires that properties are:

• Skilled nursing or assisted living facilities

• Licensed and regulated by municipality or state authorities

• Offering care for people needing long-term care or medical attention

• A minimum of three years old (recent expansions are acceptable as long as they aren’t larger than the original facility)

Additionally, HUD has strict guidance on the usage of the properties. For example, assets must meet the following requirements:

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

• Independent living units may not exceed 25% of the facility

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

Properties with entrance fees are ineligible, as are hospitals, clinics, halfway houses, and similar facilities. Similarly, properties that do not provide continuous care — such as retirement homes or boarding houses — are also ineligible.

Eligible Borrowers

• For-profit, nonprofit, and public borrowers are eligible. This group may include investors, developers, builders, and nonprofit entities.

• FHA & HUD require borrowers to be experienced owner-operators of similar facilities.

• Credit and financial capacity requirements must also be met.

Use of Proceeds

In addition to strict guidelines on borrowers and eligible properties, HUD imposes limitations on how funds can be utilized. Specifically, HUD allows for the financing of reserve funds for replacement over a 15-year period, but those rehabilitation costs cannot exceed 15% of the project's overall value once repairs are complete.

Loan Amount, Leverage, and DSCR

The maximum loan amount depends on the nature of the borrower, as the FHA sets different rates depending on whether the debtor is for-profit or nonprofit.

Nonprofit Borrowers

• For acquisitions, the lesser of 90% of acquisition price or appraised value

• For refinance, the lesser of 100% of the cost to refinance or 90% of appraised value

For-Profit Borrowers

• For acquisitions, the lesser of 85% of acquisition price or appraised value

• For refinance, the lesser of 100% of the cost to refinance or 85% of appraised value

For larger loans within these guidelines, the HUD/FHA application process may require greater credit scrutiny.

The debt service coverage ratio, or DSCR, must be greater than or equal to 1.45x.

Synopsis of Costs

The costs associated with a HUD 232/223(f) loan are dependent on specific loan circumstances. In general, borrowers are responsible for:

• Nonrefundable HUD application fee of 0.3% of the loan principal

• FHA inspection fee of 0.5% paid from loan proceeds

• Lender application fees applied to due diligence activities and third-party reports, including credit reports, appraisals, plan reviews, and market studies

• Good faith deposit (rate lock and commitment): between 0.5% and 1% of loan amount paid at commitment and refunded at closing

• Initial replacement reserves

• Standard borrower closing costs

Escrows

Escrows are required for taxes, mortgage insurance premiums, property insurance and depreciable item replacement reserves. If repairs are needed, a 120% refundable escrow is required, 100% of which is funded from loan proceeds and the remainder funded by the borrower.

Mortgage Insurance Premium

The annual mortgage insurance premium is 1% payable at closing. The MIP is 0.65% annually thereafter.

Term and Amortization

Loans must last a minimum of 10 years. The maximum term on a HUD 232/223(f) loan is 35 years or 75% of the remaining life of the facility, fully amortizing.

Interest Rate

HUD's FHA 232/223(f) loans are at a fixed interest rate, subject to market conditions. Your HUD lender can provide more information about interest rates if you explore the option of applying for an HUD 232/223(f) loan.

Recourse

HUD loans are non-recourse to principals with standard carve-outs.

Assumability

The loan is assumable with FHA/HUD approval. The assumption fee is 0.05%, payable to HUD.

Prepayment Penalties

Prepayment is generally an option with approved HUD 232/223(f) mortgages. The standard structure includes a two-year lock-out where prepayment is not an option followed by a step-down with declining penalties.

Application Process

FHA 232/223(f) are subject to the LEAN application process. This streamlined procedure eliminates paperwork reduplication and implements a checklist for lenders and borrowers to follow in order to promote efficiency within the application process. It generally progresses in five steps:

1. Submission of application

2. Preliminary underwriting

3. Initiation of third-party verification and due diligence measures

4. Receipt of HUD firm commitment letter

5. Finalization of loan documentation and closing

Refinanced Properties

Any current mortgages or other loans incurred on the property within two years of application must meet specific program eligibility guidelines and may have seasoning requirements. Equity take-out loans may be eligible for immediate refinancing, depending on the loan amount and HUD-insured loan-to-value ratio.

Timing

LEAN transactions for HUD's FHA 232/223(f) loans typically take six to eight months from application to closing. The actual time frame varies depending on the complexity of the application and the receipt of applicant information.

Post-Closing Reporting

FHA 232/223(f) loans require the owner of the property to submit audited financial statements annually within 90 days of the close of the fiscal year. These statements must be prepared in accordance with 24 CFR 5.801 and 200.36 guidelines. Additionally, the operators of the property must submit quarterly financial statements.

Multifamily Insurance Requirements

All HUD loans come with specific insurance requirements that the properties must meet. With a HUD 232/223(f) loan, there are some factors that depend on your specific property. Review the full insurance requirements, or get in touch with Janover Insurance Group for a free quote from our comprehensive network of top-rated insurers.

Get Qualified

To get a free quote on a HUD 232/223(f) loan, fill in the form below.

If a HUD 232/223(f) loan isn't right for your residential care facility project, visit Multifamily Loans for more options that include bank financing, life company financing, Fannie Mae, Freddie Mac, and many others.

In this article:

1. HUD 232/223(f): Purchase or Refinance a Healthcare Property
2. Terms, Qualification, and Facts
3. Eligible Properties
4. Eligible Borrowers
5. Use of Proceeds
6. Loan Amount, Leverage, and DSCR
7. Nonprofit Borrowers
8. For-Profit Borrowers
9. Synopsis of Costs
10. Escrows
11. Mortgage Insurance Premium
12. Term and Amortization
13. Interest Rate
14. Recourse
15. Assumability
16. Prepayment Penalties
17. Application Process
18. Refinanced Properties
19. Timing
20. Post-Closing Reporting
21. Multifamily Insurance Requirements
22. Get Qualified
23. Get Financing