FHA Section 232 Is The Perfect Financing Solution for Nursing Home/Assisted Living Developers!

FHA Section 232 is the best financing available today to develop Nursing Homes or Assisted Living Facilities.

And the need is much greater today more then ever! Why?

With the aging of the baby boomer generation, there is currently a huge strain on existing nursing home and assisted living facilities. There aren't enough beds to meet the demand. Now is the time for developers to get in and begin developing these properties. And the FHA Section 232 financing program is the best way to finance these developments.

What Is This Program?

FHA Section 232 is a Federal mortgage insured program. It doesn’t mean that FHA is providing the funding…they are insuring the actual lenders against defaults. Section 232 is a section under the National Housing Act (to read the actual code, visit http://uscode.house.gov and perform a search for "12 U.S.C. 1715w").

It allows the FHA (Federal Housing Administration) to provide mortgage insurance to HUD approved lenders. This is to assist in the development or substantial rehabilitation of assisted living facilities or nursing homes. The loan program allows for long-term mortgages (up to 40 years) that can be financed with Government National Mortgage Association (GNMA) Mortgage Backed Securities.

Who Can Use The FHA Section 232 Construction/Substanital Rehabilitation Financing?

This program is available for both non-profit and for-profit developers, public entities or investors. The maximum loan amount allowed with this type of financing is 95% of the estimated value of physical improvements and major movable equipment for non-profits and 90% for for-profit developers.

Eligible Property Types?

The facility must have a minimum of 20 beds and the residents must require skilled nursing care or continuous care. The facilities must be properly licensed/regulated by the appropriate state or local agencies.

What Are The Benefits?

There are so many good benefits of using this program:

• Term/Amortization - It is a 40 Year Amortization/40 Year Term (with no balloon).
• Interest Rate - A low, fixed interest rate, based on market spreads over the Ten-Year Treasury Yield. The interest-only construction loan automatically converts to 40-year permanent loan. Both construction and permanent rate are fixed prior to the start of construction.
• Loan To Cost - It is 90% maximum (for-profits) and 95% maximum (non-profits).
• Personal Liability - It is non-recourse for both the construction and permanent loans.
• Debt Coverage Service Ratio - A minimum 1.10 DSCR.
• Loan Amounts - There are no maximum loan amounts and minimum loan amounts vary by lender.

What Are The Downsides To This Program?

• Loan Processing Time - With HUD approved MAP (Multifamily Accelerated Processing) lenders, the process can take 3 to 6 months. Non-MAP lenders can take 6 to 9 months.
• General Contractor Requirements (GC) - GC’s must conform with prevailing wage standards under the Davis-Bacon Act and have a project completion bond.
• Prepayment Penalties - The prepayment terms are negotiable but they are usually a 5 year lock-out period then a declining prepay schedule after (5%, 4%, 3%, etc…).

In today's times of credit crunch and tighter lending criteria, many developers are finding it increasingly hard to obtain good financing that makes their projects work. FHA Section 232 financing is usually the only way that developers can make their projects work (from a numbers stand point). I would recommend this program as the best on the market.

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