Renovation in Relation to FHA 232 Financing: According to HUD, a renovation is a rehabilitation involving 75% or less of a facility or building’s value before rehabilitation. HUD 232 loans permit the renovation of eligible properties for seniors, including nursing homes and assisted living facilities.

To learn more about FHA 232 loans, fill out the form below to speak to a HUD/FHA loan expert.

Renovations eligible for HUD 232 financing include rehabilitation of existing buildings, new construction, and modernization of existing buildings. The renovation must involve 75% or less of the facility or building’s value before rehabilitation. Eligible renovations include, but are not limited to, roof replacement, window replacement, HVAC system replacement, plumbing and electrical system upgrades, and other improvements. For more information, please visit https://www.hud232.loan/hud-232-glossary/renovation.

In order to qualify for a HUD 232 loan for renovations, 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 renovation 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.

HUD 232 financing for renovations offers a variety of benefits, including:

• Less time and money spent on the approval and origination process
• 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

The risks associated with using HUD 232 financing for renovations include the potential for cost overruns, delays in construction, and the need for additional funding. Additionally, there is a risk of not meeting the requirements of the loan, which could result in the loan being denied or the borrower being unable to complete the renovation. Additionally, there is a risk of not being able to secure the necessary permits or approvals for the renovation, which could also lead to delays or additional costs.

For more information on the risks associated with HUD 232 financing for renovations, please refer to the HUD 232 Loan Program Guide.