Why HUD Financing?

Are you looking to refinance your nursing facility or intermediate care facility (ICF), build a new assisted living or undertake a combination of projects such as substantial rehabilitation of your nursing facility and build a new assisted living?  There are financing options beyond conventional loans that may be a better fit for your project.

HUD through its Section 232 (also known as the LEAN) program provides mortgage insurance for residential care facilities such as skilled nursing facilities, assisted living, intermediate care facilities and board and care homes.  Some of the advantages of HUD loans include low, fixed rates usually lower than conventional rates, longer loan terms and amortization periods and nonrecourse loans. Non-recourse loans are loans that the lender is only able to seize collateral and not a borrower’s personal property if the borrower defaults on the loan.  Non-recourse loans do not require personal or corporate guarantees. The table below highlights some of the key features of HUD/FHA insured loans compared to conventional loans. For a more detailed summary of the comparison and common terms, click here.

 Comparison Between HUD Loans and Conventional Financing


FHA-Insured Loans

Conventional Loans

New construction, substantial rehabilitation, refinance or purchase, refinance of existing FHA-insured loans
Purchase, refinance, rehabilitation, and/or bridge to permanent agency financing
Max. Term/Amortization
35 years or more depending on loan type/fully amortized
Varies, but terms are typically are between 5-15years with a balloon payment
Loan-to-Value / Loan-to-Cost
80%/90%-100% depending on loan and ownership type
70 - 80%
Debt Service Coverage Ratio
1.45x depending on loan and ownership type
Varies, but typically between 1.20x and 1.65x
Mortgage Insurance Premium
.65%/.77% depending on loan type
Replacement Reserves
Monthly reserves required for replacement and repairs
Generally, not required
Fully assumable with HUD approval
Not assumable
None, fully non-recourse
Recourse, non-recourse, and partial recourse options available depending upon transaction profile
Quarterly and year-to-date operator-certified financial statements to both lender, and HUD. Annual financial audits required to be filed with HUD
Lender dependent, typically annual submissions required
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