FHA HUD 232/223(f) Program
Eligible Property: Skilled nursing facilities, assisted living and board and care facilities. Must have license. Independent Living Units are allowed up to 25% of total beds/units.
Use of Loan Proceeds: Purchase or refinance, including moderate repairs and/or upgrades. No cash out allowed. All existing debt to be refinanced must be an obligation of the current real estate owning entity, and i) be at least two years old, or ii) have been used for an eligible purpose. Eligible purposes include arms-length acquisition, property improvements, coverage of operating deficits, and other Project related costs.
Borrower Type: Single Purpose Entity (SPE) – Profit and not-for-profit acceptable.
Debt Service Coverage Ratio: 1.45x
Interest Rate: Fixed rate set at Rate Lock. Generally rates are well below other alternative loans.
Maximum Term and Amortization: Lessor of 35-years, or 75% of remaining useful life.
Guaranty: Non-recourse – subject to Bad Boy carve-outs.
Assumable: Yes, subject to HUD approval.
Prepayment Penalty: Typically a 2-year lockout followed by a prepay penalty schedule that starts at 8% and declines by 1% per annum until year ten, and open at par thereafter. Alternative prepayment provisions are available, but may impact the interest rate on the loan.
Fees and Expenses:
- FHA application fee — 0.30% of Loan Amount — payable to HUD.
- Mortgage Insurance Premium
- Inspection fee — greater of $30 per unit or 1.0% of required repairs cost
- Appraisal, Phase I environmental, project capital Report (PCR a/k/a PCNA)
- Lender financing fee.
- Good Faith Deposit
- Other standard real estate transactional costs (legal, title, survey, etc.).
Required Escrows: Monthly for property insurance, Real Estate Taxes, reserves for replacement and mortgage insurance premiums.
Mortgage Insurance Premium (MIP): MIP of 1.0% of Loan Amount due at Loan closing. 0.65% of Loan Amount due annually; 0.45% for Projects with low income housing tax credits.
Timing: Often these close between 4 and 6-months.