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Pros and Cons of HUD 232 Loans
HUD 232 loans have a variety of advantages and disadvantages. Major advantages include the fact that these loans are fixed-rate, non-recourse, and offer incredibly high leverage. Some major disadvantages include the high upfront costs, long waiting times, and annual audits that these loans require. Keep reading to learn more of the advantages and disadvantages of HUD 232 HUD 232 FHA-insured mortgages and the HUD LEAN loan process.
BENEFITS OF HUD 232 FINANCING
* For purchase and refinancing, HUD offers up to a 35 year loan term and amortization. Over the life of the loan, this saves the borrowers a good deal of money and frees up cash for other expenditures.
* For new construction of healthcare facilities, only HUD offers only a 40 year, fixed rate, non-recourse loan program.
* Loans are low interest, fixed rate, non-recourse, fully assumable with no balloon payments.
* This program has one of the highest LTVs (Loan-to-value ratio) available.
* There are no financial capacity requirements, no geographic restrictions, and no minimum population requirements.
* This assisted living financing program allows for repair and improvement funds.
* HUD 232 allows supplemental financing.
DRAWBACKS OF HUD 232 FINANCING
* HUD 232 loans come with significant upfront costs.
* FHA senior housing financing has higher fees than conventional loans which are added to the total loan costs.
* Compared to the process for conventional loans, the application process for FHA senior housing financing is longer, usually a minimum of 120 days.
* Borrowers must pay MIP (Mortgage Insurance Premiums), both initially and as an annual premium.
* HUD property inspections are required.
* Annual audited operating statements are required.
* HUD 232 requires replacement reserve escrows.
* This program restricts owner distribution and also has cash out restrictions.
Advantages for a HUD 223(f) FHA Transaction
* Up to a 35 year fixed rate, fully amortizing loan (eliminates interest rate risk)
* Lowest long term fixed rate of any multifamily loan program available
* Non-recourse
* Assumable mortgage
* LTV's 5% to 10% higher than other programs (highest LTV% in the market place)
* 10 year step down pre-payment that can be customized
* Minimum DSCR (Debt Service Coverage Ratio) of 1.176%
* No balloon payments, no yield maintenance, or defeasance
Disadvantages for a HUD 223(f) FHA Transaction
* Higher initial replacement reserves required (estimated $1,000 per unit)
* Expensive approval process (higher HUD and FHA fees add to the cost of the loan)
* MIP (Mortgage Insurance Premium) required
* HUD property inspections required
* More paperwork and longer time from start to close than other transactions
* Annual financial statement audits by CPA are required
* Semi-annual cash distributions to ownership
The advantages of a HUD 223(f) transaction far outweigh the disadvantages. Over the last 5 years HUD has streamlined their underwriting processes and have consolidated their offices which has increased their efficiency and time to approve transactions. We will be there every step of the way to help navigate your transaction and provide you with a detailed proposal of terms and costs for you to make an informed decision.