How can real estate investors use the HUD 232 loan?
If you are interested in investing in nursing homes or care facilities for the elderly, loan 232 from the Ministry of Housing and Urban Development could be a good financing option.
The loan program was created to support the purchase, construction, rehabilitation and refinancing of real estate for aging Americans.
Are you considering a retirement home or Ease of assisted living investment? Here is what you need to know about this loan product.
HUD 232 Loan Program Details
The HUD 232 loan program is administered by the department’s Office of Residential Care Facilities. Although the bureau does not technically issue the loans, it does provide them, making it safer and more affordable for lenders to provide these loans for investors.
HUD 232 loans are designed for use only in nursing homes, assisted living facilities, intermediate care facilities, and boarding and care facilities. and can be used for the following purposes:
- To buy or refinance an existing installation.
- Build a new care facility.
- Thoroughly rehabilitate an existing care facility.
- To purchase or replace major mobile equipment, install adult day care centers, implement energy conservation measures, or add fire safety equipment to a facility.
The program provides funding for up to 40 years for new and rehabilitated facilities and 35 years for existing facilities without substantial rehabilitation.
Are you eligible for a HUD 232 loan?
There are many requirements if you want to use a HUD 232 loan to fund your next healthcare investment. On the property side, your facility must accommodate at least 20 residents who require qualified nursing or continuing care from licensed health professionals. Your facility should also be licensed and regulated by the appropriate state agency.
You must also:
- Deposit between 5% and 25%, depending on the type of project and loan.
- Be an investor, builder, developer, public entity, or private not-for-profit corporation.
- Pay the application fees and inspection fees, which vary depending on the type of loan.
- Pay upfront mortgage insurance, as well as monthly mortgage insurance for the life of the loan.
- Purchase professional liability insurance, loyalty bond insurance, property insurance and risk insurance.
- Have at least three years of experience operating a similar facility.
- Submit a marketing plan for fair housing, if it is a new construction or rehabilitation project.
The lender will also need to make an on-site visit to inspect and appraise the property before you can be approved for the loan.
Benefits of HUD 232 loans
The biggest advantage of the 232 loan program is that it offers low interest rates – generally lower than those seen on conventional loans or other investor-focused loan programs.
Loan terms are also long (between 35 and 40 years), allowing more affordable monthly payments. It also means more cash flow, which can help cover the personnel and operating costs of your facility.
Finally, HUD loans are non-recourse and secured by an asset. While this means that the lender can foreclose on the facility if the loan is not repaid, it protects investors from further financial loss in the event of the property losing value.