Pros and Cons of HUD 232 Loans
HUD 232 loans have a variety of advantages and disadvantages. Major advantages include the fact that these loans are fixed-rate, non-recourse, and offer incredibly high leverage, while major disadvantages include the high upfront costs, long waiting times, and annual audits that these loan
What are the Pros and Cons of HUD 232 Loans?
HUD 232 loans have a variety of advantages and disadvantages. Major advantages include the fact that these loans are fixed-rate, non-recourse, and offer incredibly high leverage. Some major disadvantages include the high upfront costs, long waiting times, and annual audits that these loans require. Keep reading to learn more of the advantages and disadvantages of HUD 232 FHA-insured mortgages and the HUD LEAN loan process.
Benefits of HUD 232 Financing
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.
HUD 232 loans come with significant upfront costs.
FHA senior housing financing has higher fees than conventional loans which are added to the total loan cost.
Compared to the process for conventional loans, the application process for FHA senior housing financing is longer, usually a minimum of 120 days.
Borrowers must pay MIP (Mortgage Insurance Premiums), both initially and as an annual premium.
HUD property inspections are required.
Annual audited operating statements are required.
HUD 232 requires replacement reserve escrows.
This program restricts owner distribution and also has cash out restrictions.
What are the advantages of a HUD 232 loan?
HUD 232 loans have a variety of advantages, including low, fixed interest rates, loans that are fully assumable (with FHA/HUD approval), and non-recourse loans that limit risks for developers. Additionally, HUD 232 loans offer incredibly high leverage, fixed-rate financing, and the ability to refinance multiple properties to increase cash flow.
What are the disadvantages of a HUD 232 loan?
The disadvantages of a HUD 232 loan include:
- Requires that borrower/owner makes regular contributions to a replacement reserve fund
- An FHA application fee of 0.30% of the loan amount and an FHA inspection fee of 0.50% of the loan amount are both required
- Requires both an initial, one-time MIP (mortgage insurance premium) at closing, as well as monthly MIPs throughout the life of the loan
- Requires annual audited financial statements from owners
For more information, please visit www.hud232.loan/hud-232-faqs/pros-and-cons and www.multifamily.loans/hud-232-loans.
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 are the interest rates 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.
HUD 232 loans have fixed interest rates. For HUD 232 construction loans, fixed interest rates are locked before construction begins, however, the construction period of the loan is interest-only.