If you’re interested in investing in nursing homes or senior care facilities, the Department of Housing and Urban Development’s 232 loan might be a good financing option.
The loan program was created to support the purchase, construction, rehabilitation, and refinancing of real estate aimed at aging Americans.
Are you thinking about a nursing home or assisted living facility investment? Here’s what you need to know about this loan product.
Details of the HUD 232 loan program
The HUD 232 loan program is administered by the department’s Office of Residential Care Facilities. Though the office doesn’t technically issue the loans, it does insure them, making it safer and more affordable for lenders to originate these loans for investors.
HUD 232 loans are designed for use only on nursing homes, assisted living facilities, intermediate care facilities, and board and care facilities. and can be used for the following purposes:
- To purchase or refinance an existing facility.
- To construct a new care facility.
- To substantially rehabilitate an existing care facility.
- To purchase or replace major movable equipment, install adult day care facilities, implement energy conservation measures, or add fire safety equipment to a facility.
The program offers financing up to 40 years on new and rehabilitated facilities and 35 years for existing ones without substantial rehabilitation.
Are you eligible for a HUD 232 loan?
There are a lot of requirements if you want to use a HUD 232 loan to finance your next healthcare investment. On the property side, your facility must accommodate at least 20 residents who need skilled nursing care or continuous care from licensed medical professionals. Your facility also must be licensed and regulated by the appropriate state agency.
You also must:
- Put down anywhere from 5% to 25%, depending on the type of project and loan.
- Be an investor, builder, developer, public entity, or private nonprofit corporation.
- Pay the application fee and inspection fee, which vary based on loan type.
- Pay for up-front mortgage insurance, as well as monthly mortgage insurance across the loan term.
- Purchase professional liability insurance, fidelity bond insurance, property insurance, and hazard insurance.
- Have at least three years of experience in operating a similar facility.
- Submit a Fair Housing marketing plan, if it’s a new construction or rehabilitation project.
The lender will also need to conduct a site visit to inspect and appraise the property before you can be approved for the loan.
Benefits of HUD 232 loans
The biggest benefit of the 232 loan program is that it offers low interest rates -- typically lower than those seen on conventional loans or other investor-focused loan programs.
Loan terms are also long (between 35 and 40 years), allowing for more affordable monthly payments. This means more cash flow, too, which can help cover the costs of staffing and operating your facility.
Finally, HUD loans are non-recourse and secured by an asset. Though this does mean the lender can seize the facility if the loan isn't repaid, it protects investors from other financial losses should the property lose value.