Overview of the Program:

Streamlined FHA program designed to allow borrowers in existing FHA Section 232 insured loans to lower the interest rate, extend the term, fund project repairs and increase the replacement reserve. For-profit and not-for-profit borrowers may apply for FHA mortgage insurance under this program.

HUD Section 232(a)7

Refinance of an Existing FHA Healthcare Insured Loan

MAXIMUM LOAN

Lesser of:

  • Original principal amount of existing insured mortgage;
  • DSC of 1.11x (1.05x for non-profit borrowers);
  • 100% of eligible transaction costs, including existing indebtedness, repairs, fees, third party costs and initial reserve deposit.

MAXIMUM TERM

HUD may approve a term of up to 12 years beyond the remaining term of the existing mortgage, but not exceed the original term. Term extension request must be supported by condition of property, replacement reserve balance and/or debt coverage ratio.

PERSONAL LIABILITY

FHA loan is non-recourse.

ASSUMABILITY

Yes, subject to FHA approval.

FEES AND EXPENSES

Borrower is responsible for the payment of the HUD application fee at submission. One half of the application fee is refunded after closing. Most other transaction costs are eligible for inclusion in the mortgage.

MORTGAGE INSURANCE PREMIUM

Borrower is responsible for the payment of the HUD application fee at submission. One half of the application fee is refunded after closing. Most other transaction costs are eligible for inclusion in the mortgage.

QUALIFIED PROPERTIES

Properties with existing FHA insured loans are eligible.

OTHER FHA REQUIREMENTS

  • Replacement reserve balance must be transferred in full at closing.
  • The streamline nature of the underwriting does not require a new appraisal, market study, or environmental assessment; however, a new PCNA is required as part of the application if:
  • A term extension is being requested;
  • 10 years or more have passed since last HUD reviewed PCNA;
  • Medicare/Medicaid fire sprinkler requirements are not currently met.
  • Funds to cover minor repairs, improvements and costs of the transaction can be included in the loan amount; Davis-Bacon prevailing wage requirements do not apply to any repairs.
  • Outstanding debt incurred in connection with capital improvements already made to the property may also be included in the loan amount, subject to HUD approval.
  • A PCNA is required every 10 years.
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Overview of the Program:

This program provides non-recourse, assumable financing for the purchase or refinance of existing assisted living, memory care and intermediate or skilled nursing facilities. An independent living component no greater than 25% to 30% of the total units is allowable.

HUD Section 232 pursuant to 223(f)

Healthcare Acquisition or Refinance Loan

MAXIMUM LOAN

Loan amount for the refinance or purchase of existing properties is the lesser of:

  1. 80% (85% non-profit) of market value;
  2. A mortgage amount supported by a DSC of 1.45x;
  3. 100% of the transaction cost for a refinance, and 85% of the transaction cost for a purchase transaction. Recognizable transaction costs include repairs, initial replacement reserves, third party reports, closing costs, along with eligible existing indebtedness or purchase price.

MAXIMUM TERM

A maximum term of 35 years, or 75% of the remaining economic useful life.

PERSONAL LIABILITY

FHA Loan is non-recourse.

ASSUMABILITY

Yes, subject to FHA approval.

REPAIRS/REPLACEMENTS

Allowed up to 15% of the appraised value of the property after completion of repairs, so long as no more than one building system is substantially renovated or replaced.

FEES AND EXPENSES

The client must pay for all third party reports, which include a phase I environmental site assessment, a full appraisal, and a PCNA (Property Capital Needs Assessment). Funds must be remitted to Century, and these contractors are engaged and paid by Century directly. Financing and permanent placement fees of up to 3.5% are based on final loan amount, due upon commitment and payable from mortgage proceeds at closing.

MORTGAGE INSURANCE PREMIUM

Annual Mortgage Insurance Premium (MIP) is 1.0% at closing (one year pre-paid) and 0.50% annually thereafter.

QUALIFIED PROPERTIES

The facility must have been completed or substantially rehabilitated for at least three years prior to the date of the application. Projects with additions completed less than three years previous are eligible as long as the addition was not larger than the original project size and number of beds.

OTHER FHA REQUIREMENTS

HUD application fee is 0.3% of mortgage amount due at the time of submission of the Firm Application.

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Overview of the Program:

This program provides non-recourse, assumable construction and permanent financing to build new or substantially rehabilitate Assisted Living, Memory Care, and Intermediate or Skilled Nursing Facilities.

HUD Section 232

Healthcare New Construction or Substantial Rehabilitation Loan

QUALIFIED PROPERTIES

New construction or substantial rehabilitation of Assisted Living, Memory Care, and Intermediate or Skilled Nursing Facilities.

  • Maximum processing occupancy of 95%
  • Commercial space cannot exceed 10% of gross floor area or 15% of gross income
  • Independent living units cannot exceed 25% of total units in the project (up to 30% with a waiver)

MAXIMUM LOAN

For new construction, the lesser of:

  1. 90% of the HUD eligible Replacement Cost of the facility (hard costs, soft costs and land value);
  2. 80% of the market value for Skilled Nursing Facilities (up to 85% of market value for qualified Non-Profit borrowers) and 75% of market value for Assisted Living and Memory Care facilities (up to 80% of market value for qualified Non-Profit borrowers);
  3. Minimum Debt Service Coverage of 1.45x.

For substantial rehabilitation, loan amount is determined in the same fashion unless the mortgagor already owns the property. If the mortgagor owns the property, the cost criterion equals the redevelopment cost plus the lesser of the existing indebtedness before rehabilitation or 90% of the estimated value of the project before rehabilitation. For a property to qualify for substantial rehabilitation, the cost of repairs, replacements and/or improvements to the existing property must exceed 15% of the project’s value after completion (not including costs of an addition). Additionally, a property can qualify if two or more major building components are being substantially replaced (at least 50%), regardless of cost.

MAXIMUM TERM

40-year (fully amortizing) plus construction period, or 75% of remaining useful life.

PERSONAL LIABILITY

FHA Loan is non-recourse.

ASSUMABILITY

Yes, subject to FHA approval.

FEES AND EXPENSES

0.30% application fee due at submission of application. Financing and permanent placement fees of up to 3.5% are based on final loan amount, due upon commitment and payable at closing. HUD inspection fee for new construction is 0.5% of mortgage amount.

MORTGAGE INSURANCE PREMIUM

0.57% of loan amount due at initial loan closing for each 12 months of construction term, or part thereof; 0.57% of outstanding principal balance thereafter.

OTHER FHA REQUIREMENTS

  • Working capital deposit equal to 2% of the mortgage is escrowed at closing, subject to release one year after substantial completion.
  • Initial Operating Deficit Escrow will be required and can be posted in cash or letter of credit. Typically equal to 12-18 months of debt service and released upon property maintaining 1.45x debt service coverage for 3 consecutive months.
  • Debt service reserve is required and ranges from 6-12 months of principal, interest and MIP payments; will be held until an average debt service coverage of 1.45x is met for 12 consecutive months (no month can be below 1.25x).
  • Any “off site” construction costs or demolition costs require separate funding by the mortgagor.
  • The general contractor must pay Davis-Bacon prevailing wage rates as required by the Department of Labor.
  • The mortgagor must retain a qualified arms-length supervisory architect during construction.
  • A cost certification by the general contractor and owner will be required after construction completion.
  • The general contractor must execute a guaranteed maximum price contract, provide a 100% performance and payment bond (or cash or letter of credit acceptable to FHA), and have liquid net worth equal to at least 5% of the project construction contract plus all other uncompleted construction work.
  • The client must pay for all third party reports, which include a market study, a phase I environmental assessment, a full appraisal, an architectural/engineering review and a cost analysis. Funds must be remitted to Century and these contractors are engaged and paid by Century directly.
  • Escrows for property taxes, insurance, MIP and replacement reserves required.
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