AIT - Residential Health Care Facilities

The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), provides mortgage insurance to facilitate the development and refinancing of nursing homes, intermediate care facilities, board and care homes and assisted living facilities. The 232 program is FHA's program for the new construction or substantial rehabilitation of these residential health care properties. In addition, under Section 232 pursuant to Section 223(f), these properties may be purchased or refinanced without substantial rehabilitation although repairs and improvements are permitted. A mortgage insured under Section 232 or 232/223(f) may include the cost of major movable equipment for operating the health care facility.

The Section 232 and 232/223(f) programs are not direct loan programs. FHA insures loans originated by private, HUD-sponsored lenders. Prospective project sponsors/mortgagors are responsible for finding a HUD-approved lender to make a loan and submit an application for commitment to the HUD State/Area Office with jurisdiction for the property location.

Benefits:

• Long term, fixed-rate financing (for up to 40 years for new and rehabilitated properties and up to 35 years for existing properties without rehabilitation)

• Federal guarantee results in AAA rating on financing
• Eligible for securitization by the Government National Mortgage Association (Ginnie Mae)
• Provides construction and permanent financing for new construction and substantial rehabilitation projects
• Non-recourse loans
• Loans may finance major movable equipment

Program Eligibility:

• Nursing homes and intermediate care facilities: 20 beds or more. Board and care homes and assisted living facilities: 5 or more bedroom accommodations or units.

• Properties must be licensed (or certified in some jurisdictions) by the appropriate State or local agency

• Nursing homes and intermediate care facilities must have a State Certificate of Need (CON) or alternate market study if the State does not issue CONs

• Eligible mortgagors include profit-motivated and private nonprofit mortgagors. Nursing homes and assisted living facilities may also be developed by public mortgagors.

• Must be owned by a single asset entity
• Properties must comply with specified HUD, state, and local standards

Mortgage Limitations:

• For new construction and substantial rehabilitation cases, the maximum insurable mortgage amount is the LOWER of:

• 90% of FHA's estimate of the project's value (may be up to 95% for nonprofit sponsors)
• The amount that can be amortized by 90% of net income for debt service (95% for nonprofit sponsors)
• For existing properties under Section 232/223(f), the LOWER of:
• 85% of FHA's estimate of the project's value (up to 90% for nonprofit sponsors)
• The amount that can be amortized by 85% of net income for debt service (90% for nonprofit sponsors)

Mortgage Term and Interest Rate:

• Term is limited to the lower of 40 years for new construction and substantial rehabilitation (35 years for existing properties under Section 232/223(f)),or 3/4 of the project's remaining economic life

• Interest rates are negotiated between the lender and the borrower

Other Requirements:

• Applications may be staged (e.g., Site Appraisal and Market Analysis stage, firm commitment). Application and inspection fees apply. The application fee aggregates to $3.00 or $1000 of requested mortgage amount at the firm commitment stage. The inspection fee is $5.00 per $1,000 of mortgage amount for new construction or rehabilitation. A lower inspection fee is collected under Section 232/223(f)

• Owner must sign Regulatory Agreement with HUD governing project operations
• Projects are subject to cost certification

• Prevailing wage requirements under the Davis-Bacon Act apply to new construction and substantial rehabilitation but not to projects under Section 232/223(f)