FHA SECTION 232/223(f) REFINANCE/ACQUISITION GUIDELINES

 

Purpose: Provides unsubsidized mortgage insurance for Residential Care Facilities (Nursing Homes, Intermediate Care Facilities, Board and Care Homes and Assisted Living Facilities). Eligible projects are those which have been constructed or received a major rehabilitation not less than 36 months before loan application.

Program Terms and Conditions

Maximum Loan:

Refinancing:

  1. The loan is the LESSER of: 100% of existing indebtedness plus transaction costs, initial deposit to replacement reserve and repairs, or
  2. 85% of value of realty and major moveable equipment.

Acquisition:

The loan is the LESSER of:

  1. 85% of purchase price and all costs, or
  2. 85% of value of realty and major moveable equipment.

Interest Rate: The interest rate stated in the note will be fixed for the term of the loan. The interest rate is a function of the market for loans backed by FHA insurance and will be fixed at the date the insurance commitment is issued by HUD.

Maximum Term of Loan: Lesser of 35 years or 75% of the remaining economic life.

Assumption: The loan is assumable subject to the regulations for a Transfer of Physical Assets (TPA). A fee of one half of one percent (1/2 of 1%) is to accompany the TPA information package.

Personal Liability: The loan is non-recourse.

Prepayment: The loan is prepayable to the extent allowed based upon the prepayment language utilized when the loan is placed with an investor. Investors allow varying prepayment provisions and could require a prohibition on prepayment of up to ten years. Standard prepayment provisions are as follows:

  1. 5% the first year declining by 1% each year thereafter.
  2. 5 year lock-out, 5% the sixth year declining 1% each year thereafter.
  3. 10 year lock-out, 0% thereafter

The type of prepayment provision has a direct relationship to the interest rate required by the investor. The longer the prepayment prohibition, the lower the interest rate an investor will allow.

Fees and Costs

FHA Application: $3.00 per $1,000 of the mortgage amount.

Mortgage Fees: The maximum allowable fees can include a Placement Fee of 1.5% and a Financing Fee of 2.0%.

MAP Processing Fee: The MAP Processing Fee in an amount necessary to pay appraisal, environmental, market study and property inspection costs incurred to process the loan.

Mortgage Insurance Premium: One percent (1%) for the first year (payable at closing) and one half of one percent (.5%) per year thereafter (payable in monthly installments).

Fees: The FHA Application Fee, Placement Fee, Financing Fee, initial Mortgage Insurance Premium and MAP Processing Fee are included as financeable costs of the FHA Insured Loan.

Commitment Fee: When the loan is committed to be funded by an investor, a one half of one percent (1/2 of 1%) deposit fee is required by the investor. This fee is not a financeable fee. It is refundable only in the event the loan is purchased by the investor.

Funding: Permanent financing is accomplished in the form of either 100% participation interest in the insured loan, a GNMA security, or Tax Exempt Bonds which are placed with institutional investors.

Commercial Income: Commercial income, vacancy and collection loss, operating expenses and replacement reserves attributable to commercial space must be calculated separately from the residential. A vacancy factor of not less than 10 percent must be used

Residential Income: In addition to routine income, other income may also be included based on the operating history of the project and whether income from these sources are common in the market.

Secondary Financing: Secondary financing, when added to the FHA Insured Mortgage, is allowed up to an amount not to exceed 92.5% of the Appraised Value of the real estate and major moveable equipment. Surplus cash notes will be required.

FHA Cash Requirements For Closing:

The borrower will need cash or letters of credit at loan closing for the following items:

  1. Costs in excess of the FHA mortgage loan amount.
  2. Operating Deficit Escrow if determined to be needed by FHA.
  3. Required Repairs Escrow if determined to be needed by FHA
  4. Latent Defects Escrow equal to 2½% (or greater as warranted) of the repair cost maintained for 15 months from completion of repairs.