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 intend to build or purchase. In addition, a borrower must also be structured as a single asset, special purpose entity (SPE). Eligible borrowers may either be a for-profit or a non-profit entity.

In order to be eligible for HUD 232 financing, properties need to meet a variety of eligibility requirements, including offering continuous care, being appropriately licensed, and having at least 20 patients.

HUD’s detailed requirements for insurance on Section 232 loans are found in Chapter 14 of the Healthcare Mortgage Insurance Program Handbook (4232.1).

HUD 232 loans allow for a small amount of commercial development, the exact amount of which varies by loan type. For HUD 232 new construction and substantial rehabilitation loans, commercial space is limited to "10% of the gross floor area of the project and 15% of the gross project income." If a space is only intended to serve the project's residents, it won't be counted towards the 10% area limit and 15% income limit.

In comparison, for HUD 232/223(f) acquisitions or refinances, commercial space is limited to a "maximum of 20% of the gross floor area of the project and 20% of the gross project income." For both HUD 232 new construction/substantial rehabilitation loans and HUD 232/223(f) acquisition or refinance loans, borrowers need to use at least 20% project occupancy when calculating the income limits.

In addition to abiding by the floor area and income limitations mentioned above, borrowers need to provide any proposed commercial leases to the Office of Residential Care Facilities (OCRF) for approval. The OCRF, in turn, may require more documentation before granting a final approval.

In order to be eligible for HUD 232 financing, properties need to meet a variety of eligibility requirements, including offering continuous care, being appropriately licensed, and having at least 20 patients.

HUD 232 portfolio loans have a variety of benefits for large-scale owners of senior properties, including:

• HUD 232 refinancing of multiple properties can greatly increase cash flow, potentially giving developers the capital to purchase or construct new assets
• HUD fixed-rate financing allows large companies to stabilize expenses and make accurate financial projections well into the future
• Low, fixed interest rates
• Loans are fully assumable (with FHA/HUD approval)
• HUD 232 loans are non-recourse, limiting risks for developers
• For purchase and refinancing, HUD offers up to a 35-year loan term and amortization. Over the life of the loan, this saves the borrowers a good deal of money and frees up cash for other expenditures.
• For new construction of healthcare facilities, only HUD offers only a 40-year, fixed-rate, non-recourse loan program.
• Loans are low interest, fixed-rate, non-recourse, fully assumable with no balloon payments.
• This program has one of the highest LTVs (loan-to-value ratio) available.
• There are no financial capacity requirements, no geographic restrictions, and no minimum population requirements.
• This assisted living financing program allows for repair and improvement funds.
• HUD 232 allows supplemental financing.

Drawbacks of HUD 232 Financing include:

• Significant upfront costs
• Higher fees than conventional loans which are added to the total loan cost
• Longer application process than conventional loans, usually a minimum of 120 days
• Mortgage Insurance Premiums (MIP) both initially and as an annual premium
• HUD property inspections are required
• Annual audited operating statements are required
• Replacement reserve escrows are required
• This program restricts owner distribution and also has cash out restrictions

It typically takes four to six months from application to closing for a HUD 232 loan. HUD has an estimated 45-day review period for multifamily properties and an estimated 60 days for healthcare properties. However, each case is different and in some instances, it could take as long as 3 months to close. A typical timeline might be as follows:

• Firm application is typically submitted to HUD within 30 days.
• After HUD issues the firm commitment and rate lock, most HUD 232 loans close in 45 to 60 days.