New Construction

HUD/FHA Section 232 Mortgage Insurance

Purpose

New construction loans provide attractive, long-term, fixed-rate loans for the construction of nursing homes, intermediate care facilities, mental health and rehabilitation properties, and assisted living facilities. Both construction and 40-year permanent financing are provided under one loan.

Eligibility

A Certificate of Need (CON) is required for nursing homes or intermediate care facilities in states which have active CON programs. Projects in states without CON programs are eligible if an independent market study confirms the project's viability. A market study is required for all construction projects.

Loan Features

• No personal recourse.
• Low, fixed-rate interest.
• 40-year amortization (in cases of ground lease, the term must be a minimum of 50 years to qualify for the 40-year amortization, otherwise the amortization period will be 10 years less than the term of the ground lease).
• Mortgage amount is the lesser of: 90% of estimated value (95% for a non-profit), 90% of replacement cost (95% for a non-profit), or a mortgage which can be supported using 90% of replacement cost (95% for a non-profit), or a mortgage which can be supported using 90% of the project's net operating income (less proprietary income) (95% for a non-profit). Replacement cost includes hard and soft costs, fees, land value and major movable equipment.
• Construction and permanent financing in one loan.
• Fully assumable with negotiable prepayment provisions.

Requirements

• Prevailing wage rates (Davis-Bacon Act) must be paid under the construction contract.
• Audited certification of construction cost is required.
• Borrower must provide HUD with annual audited financial statements for the mortgagor entity each fiscal year after closing.

Facilities requiring entrance fees are not eligible.