Are HUD 232 Loans Fixed-Rate?
Fortunately for borrowers, HUD 232 and HUD 232/223(f) loans are both have fixed interest rates. This can be very beneficial, since, unlike with variable-rate loans, borrowers do not have to worry about interest rates rising, and can therefore make much more accurate financial projections.
Fixed and Variable-Rate Loans and the HUD 232 Program
Fortunately for borrowers, HUD 232 and HUD 232/223(f) loans both have fixed interest rates. This can be very beneficial, since, unlike variable-rate loans, borrowers do not have to worry about interest rates rising. Because of this, they can make much more accurate financial projections.
For HUD 232 construction loans, fixed interest rates are locked before construction begins, however, the construction period of the loan is interest-only.
Which is Better?
Although it is hard to say which type of loan is better, here are some benefits of each type:
Fixed-rate Loans: Because the interest rate doesn’t change, payments are predictable. This makes it much easier for borrowers to create a realistic budget. This is especially true for large multifamily projects, like those financed through the HUD 232 program.
Variable-rate Loans: Data from some studies on interest rates and mortgages show that borrowers pay less interest overall throughout the life of a variable-rate loan. At the same time, these loans mainly benefit borrowers in a higher interest environment in which rates are trending down.
HUD 223(a)(7) Refinancing Can help borrowers reduce interest rates
While interest rates are currently on the rise, if interest rates were to fall, borrowers could benefit from refinancing their HUD 232 loan with a HUD 232/223(a)(7) refinance loan. The HUD 232/223(a)(7) refinance is one of the easiest HUD multifamily loans to apply for, as it only requires one third-party report, a project capital needs assessment (PCNA). In addition, borrowers can roll the the costs of any prepayment penalties into the loan itself. Like all other HUD multifamily loans, HUD 232/223(a)(7) refinance loans are non-recourse, fixed-rate, and fully assumable.
Related Questions
What are the benefits of a HUD 232 loan?
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.
What types of properties are eligible for a HUD 232 loan?
Properties eligible for HUD 232 loans must offer continuous care and oversight for individuals requiring long-term care or medical attention, be licensed by an appropriate municipality or state body, have been completed at least three years prior (for acquisition or rehabilitation financing), accommodate 20 or more patients requiring continuous or skilled nursing care, have non-resident day care not exceeding 20% of the property’s gross area and 20% of the gross income, have independent living units not making up more than 25% of all units, and have commercial space not exceeding 20% of floor area or income.
For more information, please visit www.hud232.loan/hud-232-faqs/eligibility-requirements and www.commercialrealestate.loans/hud-232-loans.
What are the requirements for a HUD 232 loan?
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.
Below is an outline of insurance requirements for HUD 232 financing. HUD’s detailed requirements for insurance on Section 232 loans are found in Chapter 14 of the Healthcare Mortgage Insurance Program Handbook (4232.1).
What is the maximum loan amount for a HUD 232 loan?
There is no maximum dollar amount for HUD 232 loans. However, the mortgage amount is limited by loan guidelines. For example, the loan term for HUD 232 loans is 40 years, and the LTV/Leverage for new construction is 75% (for profit) and 80% (non-profit). The LTV/Leverage for substantial renovation is 75% (for profit) and 80% (non-profit), or borrower-owned properties can be up to 100% of current mortgage debt or 90% pre-rehabilitation market value (95% for non-profits). The minimum DSCR is 1.45x. The typical loan size is $7.6 million.
What is the interest rate for a HUD 232 loan?
The HUD 232 program offers fixed interest rates. Actual rates depend on prevailing market conditions. For new construction or substantial rehabilitation, the interest rate is fixed prior to closing the initial construction loan and is interest only during construction.
Fortunately for borrowers, HUD 232 and HUD 232/223(f) loans both have fixed interest rates. This can be very beneficial, since, unlike variable-rate loans, borrowers do not have to worry about interest rates rising.
For HUD 232 construction loans, fixed interest rates are locked before construction begins, however, the construction period of the loan is interest-only.
The interest rate for a HUD 232 loan is fixed and depends on prevailing market conditions.