Healthcare Programs

Why Choose FHA's Section 232 Program?

Section 232 is an FHA loan product that provides mortgage insurance for residential care facilities. Residential healthcare facilities such as nursing homes, assisted living facilities, and board and care facilities are all examples of this type of housing. Section 232 may be used to finance the purchase, refinance, new construction, or substantial rehabilitation of a project. A combination of residential healthcare uses is acceptable - e.g. refinance of a nursing home coupled with new construction of an assisted living facility. The benefit to the lender is that the loan is insured by FHA. The benefit to the borrower is that the loan is at a fixed interest rate, often lower than conventional rates, and is non-recourse.

Office of Residential Care Facilities Home

Underwriting and Closing Section 232 Loans

Loan Servicing and Asset Management

Assisted Living Requirements

Board and Care Requirements

Skilled Nursing Requirements

New Construction/Substantial Rehabilitation Requirements

New Purchase Requirements

Refinancing Requirements

For projects that are not currently FHA insured (223f loans)

For projects that are currently FHA insured (223f or 223a7 loans)

*MasterLease required if there is an operating lease for three or more facilities and/or totaling $15 million dollars

** HUD may grant term extensions up to 12 years beyond the remaining term if the lender demonstrates that the additional term will inure to the benefit of the insurance fund. In no event may the loan term extend beyond the maximum term under the Section of the Act of the original mortgage - 223f’s = 35 years. 232 New Construction, Substantial Rehabilitation, or 241a = 40 years.

Note: These charts are limited and preliminary and shall not be construed as an approval of a submission. Program participants must follow all application submission procedures.

FHA Credit Enhancement:

• U.S. Government Backing Enhances Your Hospital's Creditworthiness
• Your Resulting AA to AAA Credit Rating = Lower Interest Rates
• Lower Interest Rates = More Spending Power to Address Community Needs

Hospitals That Choose FHA:

• Hospitals in all 50 States and Territories
• Acute Care Hospitals
• Critical Access Hospitals
• Large Urban Teaching Hospitals
• Hospitals in Systems
• For-Profit, Not-for-Profit, and Government-Owned Hospitals

FHA-Insured Loan Uses:

• Remodeling
• Expansion
• Modernization
• Equipment
• Refinancing
• Acquisitions

Attractive Loan Terms:

• No Maximum Loan Amount
• Loan-to-Value May Be Up To 90%
• No Cash Required At Closing with Sufficient Equity
• FHA Insures 99% of Loan Amount

Flexible Funding Options:

• Taxable Bonds
• Tax-Exempt Bonds
• Ginnie Mae Securities
• Whole Loan Placements

Section 242 of the National Housing Act was enacted by Congress in 1968 to support capital financing for urgently needed hospitals and encourage lending for needed hospital projects. Since its inception in 1968, we have insured nearly 500 loans, with a total principal amount of more than $22 billion in 43 US states and Puerto Rico.

OHF is comprised of two divisions with approximately 22 professionals, with expertise in the financing and operations of hospital facilities:

• Underwriting Division:
  • Functions include all underwriting activities involved in the review and processing of Section 242 mortgage insurance applications
• Asset Management Division
  • Functions include portfolio management, default prevention, and risk management

The FHA Section 242 loan program offers credit enhancement that facilitates the construction and refinancing of healthcare facilities through private lenders. Without FHA mortgage insurance, lenders may not lend to our facilities, or would do so only at prohibitively high interest rates. With FHA insurance, hospitals enjoy lower operating and capital costs. With FHA insurance, more facilities are built, modernized, and refinanced, which enhances access to healthcare in the communities these hospitals serve.

Our loans can be funded through the taxable GNMA securities or through tax-exempt bond issues. Because the loans are insured by the federal government the bonds receive a rating of AAA/AA+.

Within the Section 242 program Mortgage Insurance Program, there are a variety of financing options to meet varying needs. The Section 242 program currently offers four types of loans (the numbers reference sections of the National Housing Act).

• Section 242:

The Section 242 program is designed for hospitals that are planning a construction project. While hospitals are allowed to refinance debt with proceeds from a Section 242 financing, to qualify for Section 242, at least 20% of the mortgage amount must be used for a construction project. This program is designed for hospitals that do not already have an existing loan that was funded through FHA.

• Section 223(f):

The Section 223(f) program is designed for the refinancing of debt not presently insured by HUD. To qualify for this program, at least 80% of the mortgage amount must be used to refinance debt. If there is a substantial rehabilitation component to the project, it may comprise no more than 20% of the mortgage amount. Proceeds from a Section 223(f) loan may also be used to acquire an existing hospital.

• Section 241:

The Section 241 program is a supplemental loan program for hospitals that have a Section 242 or Section 223(f) loan outstanding. A Section 241 loan can be used to fund capital improvements, expansions, and rehabilitation.

• Section 223(a)(7):

The Section 223(a)(7) loan program is for the refinancing of existing HUD-insured debt. In very limited circumstances, loans proceeds may also be used to fund critical repairs on the mortgaged property.

Eligibility Requirements:

• For-profit, not-for-profit, and municipally owned hospitals are eligible:
• The borrower must be licensed and regulated by the state or a political subdivision of the state.
• Certificates of Need are required in States with a CON program
• The program insures loans for Acute Care hospitals. To qualify, more than 50% of a hospital’s adjusted patient days must be in acute care categories.
• The borrower must have the ability to grant first lien on real estate, other capital assets and accounts receivable.
• The borrower must have 3-year Aggregate operating margin of 0%, or better.
• The borrower’s 3-year average historical debt coverage must be 1.25x or better.
• Construction projects already under construction are generally not permitted.

Advantages of Our Program:

• Loan-To-Value: With 90% interim and permanent financing available, we permit access to more capital than many commercial alternatives.
• Interest rates are low due to the high credit rating for FHA backed bonds (AAA/AA).
• Supplemental loans are available through the Section 241 program which provides a vehicle to fund future capital needs.
• Portfolio hospitals may refinance existing HUD loans through the Section 223(a)(7) programs.

Our clients are comprised of a wide base of lenders who originate FHA-insured loans for hospital facilities across the country. As more and more hospitals are using FHA insurance to access capital for construction projects, we have made it a priority to improve the responsiveness, consistency, and communication of the Section 242 program to our clients. By establishing collaborative relationships and clear communication channels, OHF continually strives to improve the quality of its services to better serve the lenders and hospitals participating in our programs.

Links to more information:

List of All Active FHA Hospital Loans

FHA Section 242 Commitments Issued Since Fiscal Year 2001

List of Section 242 Lenders

Through its Section 242 mortgage insurance program, FHA has supported and strengthened hundreds of hospitals and communities across the country. Please visit the links below for press releases, articles, and features on hospitals that have accessed capital through the Section 242 program.

OHF News

Expanding Access to Care in New Mexico

First FHA-Insured Hospital Using Opportunity Zone Incentives

Updated Section 242 Documents (2020)

Section 242 Pre-Screening Tool (for potential applicants)

Section 242 Features and News Articles

Medical University of South Carolina (MUSC) - The Federal Housing Administration (FHA) announced that its Office of Hospital Facilities has completed a refinance transaction on April 7, 2022 for the Medical University Hospital Authority (MUHA) of South Carolina.

Russell Medical Center - In January 2017, Russell Medical Center in Alexander City, AL, lowers the interest rate on the hospital's $30 million mortgage by 1.7% through a Section 242/223(f) refinancing.

Union Hospital - In October 2016, Union Hospital in Terra Haute, Indiana, closed on a $266.6 million mortgage refinancing achieved under Section 242's 223(f) program.

Kaleida Health (https://www.kaleidahealth.org/) - In October 2014, Kaleida Health hosted a ceremonial groundbreaking for the John R. Oishei Children's Hospital, made possible through fundraising, state support, and a $120 million HUD-insured loan. The loan is the sixth HUD financing for the Buffalo, New York-based Kaleida Health System.

St. Barnabas Hospital - St. Barnabas Hospital in the Bronx, New York, began a $20 million project in June 2014 to replace its 100-year old boiler-powered heating/cooling system, which will save the hospital millions in annual energy costs and ensure that the facility has a reliable source of energy for years to come. This project was made possible by an $86 million Section 223(a)7 refinancing loan that closed in 2013, which allowed the hospital to refinance its debt and fund critical repairs.

St. John's Lutheran Hospital - In August 2012, HUD issued a $32 million commitment to build a replacement facility for a 60-year old critical access hospital in Libby, Montana, saving an estimated $21 million in interest costs over the life of the loan.

Rio Grande Hospital - As OHF rolls out streamlined guidance for its Section 223a(7) refinancing program for portfolio hospitals, FHA approves a $10.7 million refinancing for Rio Grande Hospital.

Parkview Community Hospital - As the first hospital refinancing loan issued under the 242/223(f) refinancing program in April 2011, this Riverside, California hospital was able to achieve $3.1 million in annual debt service savings with its FHA-insured 223(f) refinancing.

Links to External Press Releases

Russell Medical Center - January 2017 - On January 10, 2017, HUD closes on a $30.2 million refinancing of Russell Medical Center in Alexander City, AL.

Medical University Hospital Authority - September 2016 - On September 7, 2016, HUD issued an insurance commitment for a $316 million Section 241 supplemental loan to the Medical University Hospital Authority teaching hospital in Charleston, South Carolina.

Knox Community Hospital - January 2012 - Knox Community Hospital in Mt. Vernon, Ohio, closed on a 25-year fixed rate loan that will save the hospital an expected $8.4 million in interest expenses with FHA insurance over the life of the loan.

Articles

Even in Today's Economy, Creative Solutions Get Hospital Projects Built> - HealthLeadersMedia.com, April 30, 2010.

Program Policy

Statute

Hospital Mortgage Insurance Statute

Regulations

Hospital Mortgage Insurance Regulation (24 CFR Part 242)

Federal Register Publication of Final Rule for Refinancing Hospital Loans - Effective March 7, 2013

Handbook

Hospital Mortgage Insurance Handbook 4615.1 REV-1

Guides and Application Materials

Preliminary Application Review

Pre-Application Guide

HUD Applicant Data Request

Adjusted Patient Days Worksheet

Full Application Review

Applicant's Guide

Applicant's Guide for Critical Access Hospitals

Financial and Statistical Tables

Financial and Statistical Tables for Critical Access Hospitals

HUD Reference Materials

HUD's Online Library has links to Freedom of Information Act reading room, lists of reports, periodicals, and literature on housing, homelessness, public and Indian housing, etc. for basic research.

Address

U.S. Department of Housing and Urban Development
Office of Healthcare Programs
451 7th Street, SW
Washington, DC 20410

Office of the Deputy Assistant Secretary - Room 6264
Office of Hospital Facilities
Office of Residential Care Facilities

To reach a specific OHP staff member, please visit HUD's employee directory.

Email

Office of Hospital Facilities
Hospitals@hud.gov

Office of Residential Care Facilities
LeanThinking@hud.gov

Office of Architecture and Engineering
OAEQuestions@hud.gov

1. Self-Assessment

The first step is to perform a self-assessment to determine if FHA mortgage insurance is right for you. Please refer to our Pre-Application Guide for more information.

2. Choose a Lender

If you do not already have a mortgage lender, FHA maintains a List of Lenders who are active in the hospital mortgage insurance program.

3. Preliminary Review

As a free service to the hospital and lender, FHA performs a preliminary review of the hospital and project to identify any obvious factors that would cause an application to be rejected before the hospital and lender expend the resources needed to prepare a full application.

If you would like FHA to conduct a preliminary review of your hospital, please complete the appropriate preliminary template in the Pre-Application Guide and submit it to the Office of Hospital Facilities. Feel free to contact us if you have any questions!

4. Pre-Application Meeting

If the hospital passes the preliminary review, the lender and representatives of the hospital are invited to FHA headquarters for a pre-application meeting.

The pre-application meeting is an opportunity for the hospital and lender to summarize the proposed project, for FHA to describe the application process, and for issues that could affect the eligibility or underwriting of the proposed loan to be identified and discussed. Following the meeting, FHA may (1) invite the hospital to submit an application or (2) identify issues that must be resolved before a full application will be accepted for processing.

5. Application Submission

Should the hospital have a satisfactory pre-application meeting, the mortgage lender and hospital may develop an application according to FHA guidelines. For information on the contents of an application, please refer to the Applicant's Guide. For critical access hospitals, please refer to the Applicant's Guide for Critical Access Hospitals.

6. Underwriting

Once the application is complete, the underwriting process begins. A client service team composed of staff members from FHA conducts the underwriting process.

7. Commitment

If the hospital and project meet FHA's requirements and the FHA Commissioner approves the application, a commitment for mortgage insurance is issued.

8. Closing

Following commitment, FHA counsel assists the mortgage lender, hospital, and their legal representatives to close the loan.

9. Construction

During construction, HUD staff members monitor and approve loan draws and perform monthly site visits.

10. Final Endorsement

Once construction is completed and the final draw has been made, the final mortgage amount is established and amortization begins.

Helpful Tools

• 2022 Lender Training Materials (to access a video of the 2022 Lender Training, please contact Hospitals@hud.gov)
• 2020 Lender Training Materials
• 2019 Lender Training Materials

HUD Reference Materials

HUD's Online Library has links to Freedom of Information Act reading room, lists of reports, periodicals, and literature on housing, homelessness, public and Indian housing, etc. for basic research.