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FHA’s 232 Program

FHA’s 232 Program. Affordable Financing for Assisted Living. Goals of Session . To provide an overview of the 232 program, its requirements and its benefits To compare the 232 program with conventional financing To answer any questions you might have about the 232 program.

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FHA’s 232 Program

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  1. FHA’s 232 Program Affordable Financing for Assisted Living

  2. Goals of Session • To provide an overview of the 232 program, its requirements and its benefits • To compare the 232 program with conventional financing • To answer any questions you might have about the 232 program

  3. What is the 232 program and why is it beneficial?

  4. What is the 232 program? The 232 program is a mortgage insurance program run by the Department of Housing and Urban Development that allows lenders to provide long-term, fixed rate financing to senior housing projects, assisted living facilities and nursing homes.

  5. How does Mortgage Insurance Work? Loan Guarantee Adds additional layer to financing

  6. Basic Requirements of the 232 Program • Can be used for new construction, rehabilitation, or refinance of existing housing, including assisted living, independent living, and health care facilities. • Loan amount must be $1MM or greater • Davis-Bacon Wage requirements apply to new construction or major rehabiliation • Can be used to credit enhance Bonds

  7. Basic Requirements of the 232 Program Basic Loan Terms • Fixed rate • Fully amortizing • Non-recourse • 99% insured through FHA or 100% insured with GNMA

  8. Basic Requirements of the 232 Program Basic Loan Terms • Annual mortgage insurance premium of 0.50% required • If applicable, 0.25% GNMA fee included in the rate • Mortgage amount limited by the lower of the required DSCR, 90% (95% for non-profits) of the eligible replacement cost or LTV

  9. Basic Requirements of the 232 Program Basic Loan Terms • DSCR of 1.11x for For-profit entities and 1.053x for Non-profit entities • Replacement Reserves based on Engineering report, however as a general rule 0.6% of building cost per year required and 10% of FF&E. • Interest Reserve Required at Construction Period plus 2 months.

  10. Basic Requirements of the 232 Program Loan Term • For New Construction and Major Rehabilitation, loan terms can be up to 40 years • For Refinances, loan term can be up to 35 years • Prepayment penalties may apply

  11. Basic Requirements of the 232 Program Loan Pricing • For New Construction and Major Rehabilitation, estimate pricing using the the 30 year treasury plus 250 basis points • For Refinances, estimate using the 30 year treasury plus 220 basis points

  12. Basic Requirements of the 232 Program Additional Up-Front Costs for Insured Loan • HUD Examination Fee of 0.3% of total project cost • MIP at closing of 1.0% of total project cost • For Construction loans, HUD Inspection fee of 0.5% of total project costs • Due Diligence costs may be higher to adhere to FHA requirements

  13. Total Uses of Funds Bond FHA Conventional Refinance Amount $0 $0 $0 $0 Hard Costs $10,000,000 $10,000,000 $10,000,000 Environmental Clean-up $0 $0 $0 Soft Costs: Soils $2,000 $2,000 $2,000 Legal $50,000 $25,000 $15,000 Architect $150,000 $150,000 $150,000 Title/Closing $15,000 $15,000 $15,000 Bond Fees $283,500 $0 $0 Financing Fees $150,000 $150,000 $150,000 Appraisal $6,500 $6,500 $4,500 Survey $6,000 $6,000 $6,000 Reserves $230,000 $230,000 $230,000 Developer Fee $800,000 $800,000 $800,000 FHA MIP $114,423 $111,500 $0 FHA Exam (.003) $57,000 $57,000 $0 FHA Inspectionn (.005) $95,000 $95,000 $0 Engineering $5,000 $5,000 $3,500 Environmental Report $4,500$4,500$2,200 Total Soft Costs $1,968,923 $1,657,500 $1,378,200 Total Uses of Funds $11,968,923 $11,657,500 $11,378,200 Sources of Funds FHA Insured Mortgage (232) $11,370,477 $11,074,625 $9,102,560 Equity $598,446 $582,875 $2,275,640 Total Sources of Funds $11,968,923 $11,657,500 $11,378,200 Bond, FHA, Conventional

  14. Financing and Debt Services Bond FHA Conventional Total Loan $11,370,477 $11,074,625 $9,102,560 Interest Rate 6.40% 8.40% 9.00% Term 40 40 20 Amortization 40 40 20 MIP (0.50%) 0.50% 0.50% 0.00% Debt Service $794,118 $968,730 $997,15 MIP $56,852 $55,373 $0 Total Annual DS $850,971 $1,024,104 $997,15 Required DSCR 1.05 1.05 1.35 Revenue $893,519 $1,075,309 $1,346,157 Bond, FHA, Conventional

  15. FHA: Pros: Lower Rates Longer Terms Longer Amort. Cons: Processing Time HUD Oversight Extra Cost Conventional: Pros: Flexibility Usually easier to access reserves No MIP Cons: Shorter term Shorter Amort. Higher rate Pros and Cons

  16. Question and AnswerTime

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