What Qualifies as Substantial Rehabilitation for HUD 232 Loans?
In order to qualify for a HUD 232 loan for substantial rehabilitation, a project must meet one of two major requirements. Either the hard cost of any repairs and improvements must exceed 15% of the project's value after completion, or two or more major building components (ex. plumbing, electrical
Substantial Rehabilitation and HUD 232 Loans
In order to qualify for a HUD 232 loan for substantial rehabilitation, a project must meet one of two major requirements. Either the hard cost of any repairs and improvements must exceed 15% of the project's value after completion, or two or more major building components (ex. plumbing, electrical, roof) must be substantially replaced.
While additions are allowed in substantial rehabilitation projects, the costs cannot be included in the "hard cost" eligibility test.
Substantial Rehabilitation
According to HUD’s rehabilitation guidelines, a Substantial Rehabilitation consists of one of the following:
Two or more major building components must be replaced OR
Costs must be at least 15% of the project's value (fair market value) after completion OR $6,500 per dwelling unit.
What are the requirements for a property to qualify for a HUD 232 loan?
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. The full list of eligibility requirements for HUD 232 loans includes:
- Facilities must offer ongoing, continuous care and oversight for individuals requiring long-term care or medical attention
- Facilities must be licensed by an appropriate municipality or state body
- Properties must have been completed at least three years prior (for acquisition or rehabilitation financing)
- 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
What types of improvements are considered substantial rehabilitation for HUD 232 loans?
According to HUD’s rehabilitation guidelines, a Substantial Rehabilitation consists of one of the following:
- Two or more major building components must be replaced OR
- Costs must be at least 15% of the project's value (fair market value) after completion OR $6,500 per dwelling unit.
HUD defines Major Building Components as: “Roof structures; wall or floor structures; foundations; and plumbing, central heating and air conditioning, or electrical systems.” In addition, the term ‘Major’ signifies a component’s importance and the extent of its replacement. For example, a Major Building Component significantly affects a facility’s performance and use. Because of this, it cannot be minor or cosmetic. Also, at least 50% of the component must be replaced. HUD leaves the determination up to architectural staff.
How much of the property must be rehabilitated to qualify for a HUD 232 loan?
In order to qualify for a HUD 232 loan for substantial rehabilitation, the rehabilitation must involve replacing two major building systems, and the costs must equal or exceed 15% of the estimated fair market value of the property, or $6,500 per unit. According to HUD’s rehabilitation guidelines, a Substantial Rehabilitation consists of one of the following:
- Two or more major building components must be replaced OR
- Costs must be at least 15% of the project's value (fair market value) after completion OR $6,500 per dwelling unit.
Major Building Components are defined as: “Roof structures; wall or floor structures; foundations; and plumbing, central heating and air conditioning, or electrical systems.” At least 50% of the component must be replaced. HUD leaves the determination up to architectural staff.
What are the benefits of a HUD 232 loan for substantial rehabilitation?
HUD 232 loans for substantial rehabilitation have a variety of benefits for large-scale owners of senior properties, including:
- Less time and money spent on the approval and origination process
- 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
What are the eligibility requirements for a HUD 232 loan for substantial rehabilitation?
To qualify for a HUD 232 loan for substantial rehabilitation, a project must meet one of two major requirements. Either the hard cost of any repairs and improvements must exceed 15% of the project's value after completion, or two or more major building components (ex. plumbing, electrical, roof) must be substantially replaced. According to HUD’s rehabilitation guidelines, a Substantial Rehabilitation consists of one of the following:
- Two or more major building components must be replaced OR
- Costs must be at least 15% of the project's value (fair market value) after completion OR $6,500 per dwelling unit.
HUD defines Major Building Components as: “Roof structures; wall or floor structures; foundations; and plumbing, central heating and air conditioning, or electrical systems.” In addition, the term ‘Major’ signifies a component’s importance and the extent of its replacement. HUD leaves the determination up to architectural staff.
Major Building Components
HUD defines Major Building Components as: “Roof structures; wall or floor structures; foundations; and plumbing, central heating and air conditioning, or electrical systems.” In addition, the term ‘Major’ signifies a component’s importance and the extent of its replacement.
For example, a Major Building Component significantly affects a facility’s performance and use. Because of this, it cannot be minor or cosmetic. Also, at least 50% of the component must be replaced. HUD leaves the determination up to architectural staff.