The Fox Group - HUD 232 program overview
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This document discusses the HUD Section 232 mortgage insurance program, which provides financing for nursing homes, assisted living facilities, and other healthcare properties. It covers eligible project and lending types, financing amounts up to 90% of costs, required third-party reports, and the multi-step application and approval process involving initial discussions with HUD, submitting a formal application, and finalizing financing terms before closing. The program aims to facilitate affordable, long-term financing for healthcare facilities.
The Fox Group - HUD 232 program overview
- 1. HUD SECTION 232 MORTGAGE INSURANCE PROGRAM A Potential Financing Vehicle for Nursing Homes and Assisted Living Facilities www.foxgrp.com
- 2. Introduction Program applies to variety of health care facilities Provides for: ◦ New construction ◦ Purchase and rehabilitation ◦ Refinance and rehabilitation HUD issues insurance policy that guarantees a lender against default by borrower www.foxgrp.com
- 3. Introduction (cont.) Project benefits from HUD involvement: ◦ Easy entry into financial markets ◦ Access to lowest cost financing Applications submitted to HUD via FHA approved mortgagee www.foxgrp.com
- 4. Detailed Program Characteristics www.foxgrp.com
- 5. Eligible Projects Skilled Nursing Facilities (Nursing Homes) Assisted Living Facilities Board and Care and Independent Living Facilities Intermediate Care Facilities www.foxgrp.com
- 6. Eligible Projects - continued Personal Care Facilities Psychiatric Facilities Rehab Hospitals Drug and Alcohol Centers Other Special Purpose Facilities www.foxgrp.com
- 7. Lending Situations New construction (note: Certificate of Need or license required for all nursing projects in CON states) Refinancing of an existing facility Acquisition of an existing facility Rehabilitation and expansion of an existing facility www.foxgrp.com
- 8. In cases of acquisition or refinance of an existing facility… Project must be three years or older AND Refinance or acquisition must involve rehabilitation expenditures which exceeds the greater of: ◦ (1) $6,500 per dwelling unit OR ◦ (2) 15% of the project’s value after completion of all rehabilitation OR Rehabilitation must involve the replacement of more than one major building component www.foxgrp.com
- 9. What is a “major building component”? Electrical systems Heating and air conditioning systems Plumbing systems Roof structures Foundation Ceiling, wall or floor structures www.foxgrp.com
- 10. Loan types Permanent loan: 40 years Construction loan: as required Characteristics Fixed rate (based on current market conditions for taxable financing) Non-recourse Fully assumable Pre-payable www.foxgrp.com
- 11. Financing amount New construction: 90% loan to cost Acquisition/rehabilitation: 90% loan to value Refinancing/rehabilitation can be 100% loan to cost provided that the mortgage does not exceed 90% of HUD’s approved of value. HUD’s valuation approaches: ◦ Value by comparable sales ◦ Value of comparable lease values, capitalized www.foxgrp.com
- 12. In “loan to cost”, what are included in the costs? Construction (inc HUD fees: overhead & profit) ◦ MIP (0.5% per yr) Design fees ◦ Inspection (0.5% one time) Municipal fees ◦ Exam (0.3%) Inspection fees ◦ Processing (2.0%) Construction ◦ Financing (1.5%) interest Title/recording fees Insurance reserve Legal/audit fees Real estate tax Furniture, fixtures & reserve equipment www.foxgrp.com
- 13. Required third party reports Independent appraisal Market feasibility report Credit report Engineering report Environmental report All reports must be in accordance with HUD standards and guidelines. Cost of these reports borne by borrower. www.foxgrp.com
- 14. Some additional details… Loan amortized based upon 40 years All construction personnel must be paid prevailing wage pursuant to the Davis-Bacon Act (important point to keep in mind when considering construction costs) Eligible borrowers can be both for profit and not for profit entities (note: public bodies must create private, NFP mortgagor corporation in order to participate) www.foxgrp.com
- 16. Owner must post 2% working capital line of credit (released at completion of construction. Applies to for profits only) Contractor must post Performance & payment bond equal to 100% of construction costs OR 15% (of construction costs) letter of credit HUD requires Initial Operating Deficit Letter of Credit (approximately four to six months of debt service) as assurance mortgage payments made during lease up period www.foxgrp.com
- 17. Steps To Expect In The HUD Loan Application Process www.foxgrp.com
- 18. A conference involving several parties including but not limited to ownership, architect, mortgage broker and HUD personnel. This initial discussion is aimed at ascertaining the level of interest on the part of HUD, to insure the proposed project. Issues to be discussed: Site plan Market strength Building design Environmental issues The goal would be to secure an invitation by HUD to submit a formal application. Step One: Pre-application www.foxgrp.com
- 19. The filing of a “Firm Commitment Application” to HUD involves providing information on the project, the sponsors, the management agent and the architect. In addition the following items are submitted to HUD: Working drawings and specifications Financial information on the general contractor Construction costs Also due at this time is the HUD application fee of 0.3% of the mortgage amount. Upon approval of the application, HUD will issue commitment in writing to insure a mortgage at a given dollar amount and set interest rate. Step Two: File a HUD application www.foxgrp.com
- 20. Once the borrower receives a firm commitment from HUD, they can then move forward with contacting lenders and ascertaining which relationship will serve their needs the best. At this point, with the commitment from HUD and the selection of the appropriate lender, the legal process of closing can occur and the development of the project can proceed. Step Three: Financing Finalization and Closing www.foxgrp.com
- 21. consultants to the healthcare industry Phone: (909) 931-7600 Email: contact@foxgrp.com Web: www.foxgrp.com Providing Excellence to the Healthcare Community Since 1989