FHA SECTION 232 NEW CONSTRUCTION/

SUBSTANTIAL REHABILITATION 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 include proposed new construction, substantial rehabilitation of existing projects and acquisition or refinance of existing projects.

Program Terms and Conditions

Maximum Loan New Construction:

1. Lesser of 90% of HUD's estimate of value including major moveables; or
2. 90% of HUD's estimate of value based upon of earnings attributable to realty and nonrealty, but excluding proprietary earnings.

Rehabilitation:

1. Acquisition: 90% of estimated rehabilitation cost plus the lesser of 90% of purchase price or 90% of estimated value before rehabilitation.
2. Property Owned: 100% of estimated rehabilitation cost plus the lesser of existing debt on property or 90% of estimated value before rehabilitation.

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 a commitment to insure is issued by HUD.

Maximum Term of Loan: Lesser of 40 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 at the time of firm commitment application.

FHA Inspection Fee: 0.5% of mortgage amount payable at closing.

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 plan review costs incurred to process the loan.

Mortgage Insurance Premium: 0.57% per year for the construction/rehabilitation time period (payable at closing) and 0.57% per year thereafter (payable in monthly installments).

Fees: The FHA Application Fee, FHA Inspection 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.

Prevailing Wage Required: Yes.

Cost Certification Required: Yes.

Applicable MPS: FHA Minimum Property Standards for multifamily construction.

FHA Cash Requirements for Closing:

1. Letters of Credit
   1. Initial Operating Deficit - To be determined by FHA, if any.
   2. Anticipated Discounts - Only new construction initial endorsements.
   3. Working Capital - Two percent (2.0%) of the mortgage amount.
   4. Offsite and Demolition Escrows, if any.
   5. Non-mortgageable Equipment and Furnishings - the initial cost of minor expendable non-realty items.
2. Performance and Assurance of Completion Bonds for 100% of the construction costs are required. This may be substituted with a Letter of Credit for 15% of the construction cost. At final endorsement, the performance bond or Assurance of Completion Letter of Credit are released in exchange for a Latent Defects Letter of Credit or cash in the amount of 2.5% of the construction costs.