Borrowers No Longer Have To Wait To Utilize The HUD 232 Program After Taking Cash Out From Another Lender

HUD's 232 loan program, specifically its HUD 232/223(f) product, is widely recognized as one of the best loan products for acquiring or refinancing senior living properties, including assisted living facilities, nursing homes, intermediate care centers, and Alzheimer' s/memory care facilities. The program offers incredibly long, fixed-rate terms and is non-recourse and fully assumable. Despite its many benefits, the program does not allow borrowers to take cash out, which could be a roadblock for borrowers who want additional funds to make upgrades or repairs to their facility. In fact, borrowers traditionally have needed to wait 24 months after taking cash out from a lender before refinancing with HUD, often referred to as a "loan seasoning" period.

Borrowers can now seek HUD 232/223(f) financing for senior living properties immediately after taking cash out from another lender, provided that the proposed loan is between 60-70% LTV.

Fortunately for borrowers, HUD recently adjusted their rules to eliminate this waiting period for the 232 program, provided that the proposed loan fits several other parameters. Specifically, the loan must be 70% LTV or less if 50% or more of the existing indebtedness was used for project improvements (not cash-out), while the loan must be 60% LTV or less if less than 50% of the existing indebtedness was used for project improvements (and 50% or more of the existing indebtedness was taken as cash-out). As with all other types of HUD 232 loans, approval will depend on the property's appraisal and a minimum of 36 months of stabilized historical cash flow.

For those who may not know, the terms of the HUD 232 loan program include:

  • Term: 10-35 year fixed-rate term (the term is capped at 35 years or 75% of the remaining economic life of the property, whichever is less)
  • Loan Size: $2 million minimum (average loan size is $7.6 million)
  • Recourse: Loans are non-recourse with standard carve-outs
  • LTV/DSCR: LTV up to 80% (with no cash-out)/1.45x minimum DSCR
  • Assumability: Loans are fully assumable with a small fee and FHA/lender approval
  • Refinancing: Low-cost refinancing available through the HUD 232/223(a)(7) program; supplemental financing available through the HUD 232/241(a) program
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