Across the United States, skilled nursing and assisted living facilities are in high demand and under pressure, and newer, improved and more spacious facilities are necessary. If you’re looking for a loan to meet this need through new construction, or by updating an existing facility with substantial rehabilitation, the U.S. Department of Housing and Urban Development (HUD) Section 232 loan is designed to help you complete your essential work. This article will help you gain an initial understanding of HUD 232. You can learn more by reading the full handbook.
Am I Eligible For a HUD 232 Loan?
Only specific properties are eligible for the HUD 232 loan. These include nursing homes, assisted living facilities, and more homes that require skilled nursing teams to take care of residents. If your project includes independent living facilities, these must account for less than 25% of your facility. You must also offer more than 20 beds and be licensed with your project state/municipality.
Please note, the HUD 232 loan does not apply to all healthcare facilities. For example, rehabilitation homes and office buildings for medical purposes are not eligible.
Is a HUD 232 Loan Right for Me?
The HUD 232 healthcare program is for development teams with a history of success. If you have had three years or more experience running facilities similar to your new project, the HUD 232 loan may be for you. For investors with little experience, a highly skilled operator can increase your eligibility; you might consider offering your facility operator an ownership percentage to instill trust in potential lenders. Experience working on HUD projects, in particular, is essential, as many guidelines, processes, and reporting requirements must be adhered to.
Advantages of the HUD 232 Loan
The HUD 232 construction and substantial rehabilitation loan has multiple benefits over other, similar loan programs. Choose the HUD 232 loan for:
- A fully amortized loan term up to 40 years, plus the construction period.
- A loan that is interest-only during the construction phase, and converts to a 40-year fixed-rate term post-construction. This protects against rising interest rates during the construction period.
- A loan that safeguards you against rising interest rates and includes interest rate payments in the mortgage.
- A loan that allows for the appraised value of the land to be used to reduce your cash requirement.
- Great loan-to-value financing, in comparison to other loans for similar facilities.
- A loan that is non-recourse, and assumable.
Disadvantages to the HUD 232 Loan
There are some disadvantages to the HUD 232 loan program, including the need to pay the Davis Bacon prevailing wage, which can increase the hard costs of the project. However, costs vary by the location of the project. The developer should work with their general contractor to determine to what extent the Davis Bacon requirement will impact the project.
LSG Lending Advisors has facilitated transactions where the Davis Bacon prevailing wage requirement did not increase the cost of the project.
Apply for a HUD 232 Loan Today
Interested in applying for the HUD 232 loan? There are a few documents you’ll need to determine eligibility. Gather an executive summary of your proposed facility, and detailed pro-forma including bed types, income, and expense projections, and construction cost estimates.
Contact LSG Lending Advisors today to determine if your project will qualify for a HUD 232 loan.