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HUD 232/223(f) Healthcare - Purchase Financing & Refinancing

HUD/ FHA 232/223(f) is a federal loan program to finance or refinance the development of residential care facilities. Investors and developers may qualify for this FHA®-insured funding for the purchase, construction, rehabilitation or refinance of facilities such as nursing homes, board and care properties, and assisted living centers. HUD® 232 is overseen by the Office of Residential Care Facilities under the purview of the Federal Housing Administration.

HUD loans are backed by the federal government and available through FHA-approved lenders. For commercial developers, a HUD loan may offer favorable terms that provide financial stability during the planning and construction process. FHA 232/223(f) financing is a sound option for developers who want to expand their presence in their residential care industry or upgrade the quality of their existing facilities with long term, fixed-rate, non-recourse senior debt.

Keep reading below to learn more, or simply click here to download our easy-to-read HUD 232/223(f) loan term sheet.

Facts to Consider

FHA 232 loans may be used to refinance or purchase existing properties, to renovate existing facilities, or a combination of these purposes. For example, HUD funding for a new purchase of a board and care facility and rehabilitation of a nursing home is acceptable.

HUD 232 is a loan product for borrowers who seek new financing. Those with existing FHA funding can access the streamlined refinancing process through HUD 223(a)(7). This option helps borrowers to reduce interest rates and increase cash flow to existing projects.

There are strict guidelines about qualifying properties for FHA's 232/223(f). Developers must show that the facilities meet licensing standards and fulfill the right purposes. Specifically, there is a cap in the percentage of independent living units allowed in qualifying buildings. Facilities must not be new, and borrowers must meet strict conditions.

Eligible Properties

HUD's FHA 232/223(f) loans are for healthcare properties, specifically skilled nursing care facilities. Eligible properties must be already established and not new construction projects in the planning stages. Specifically, HUD requirements include:

  • Skilled nursing or assisted living facilities

  • Must be licensed and regulated by municipality or state authority

  • Properties offering care for people who need long-term care or medical attention

  • Complete for at least three years

  • Recent additions less than three years old are acceptable as long as the addition is not larger than the original facility

  • Commercial space is not to exceed 20 percent of floor area or income

  • Independent living units cannot comprise more than 25 percent of use

  • Must accommodate 20 or more patients who require continuous or skilled nursing care

Properties with entrance fees are ineligible, as are hospitals, clinics, halfway houses, and similar facilities. Similarly, properties that do not provide continuous care, such as retirement homes, boarding houses or other facilities that only provide room and board are ineligible.

Eligible Borrowers

  • For-profit, nonprofit, and public borrowers are eligible. These may include investors, developers, builders, and nonprofit entities.

  • FHA & HUD requires borrowers to be experienced owner-operators of similar facilities. Credit and financial capacity requirements must also be met.

Use of Proceeds

In addition to strict guidelines on loan borrowers and eligible properties, HUD imposes limitations on how funds are to be utilized. Specifically, HUD allows for the financing of reserve funds for replacement over a 15-year period, but those rehabilitation costs cannot exceed 15 percent of the project's overall value once repairs are complete.

Loan Amount/Leverage/DSCR

The maximum loan amount depends on the nature of the borrower, as the FHA sets different rates depending on whether the debtor is for-profit or nonprofit.

For purchase transactions:

  • Lesser of 85 percent of the acquisition price or appraised value (for-profits)

  • Lesser of 90 percent of the acquisition price or appraised value (nonprofits)

For refinance transactions:

  • Lesser of 100 percent of the cost to refinance or 85 percent of appraised value (for-profits)

  • Lesser of 100 percent of the cost to refinance or 90 percent of appraised value (nonprofits)

Although these are the maximum amounts, the HUD/FHA application process may require greater credit scrutiny if larger amounts are requested.

The Debt Service Coverage Ratio (DSCR) must be greater than or equal to 1.45x.

Synopsis of Costs

The costs associated with a HUD 232/223(f) loan are dependent on specific loan circumstances. In general, borrowers are responsible for:

  • Non-refundable HUD application fee: $3 per $1,000 (0.3 percent) of the loan amount.

  • FHA inspection fee: 0.5 percent paid from loan proceeds.

  • Lender application fees applied to due diligence activities and third-party reports, including credit reports, appraisals, plans and specs reviews, and market studies.

  • Good faith deposit (rate lock and commitment): Between 0.5 percent and 1 percent of loan amount paid at time of commitment and refunded at closing.

  • Initial replacement reserves.

  • Standard borrower closing costs.


Escrows are required for taxes, mortgage insurance premiums, property insurance and depreciable item replacement reserves. If repairs are needed, a 120 percent refundable escrow is required, 100 percent of which is funded from loan proceeds and 20 percent of which is funded by the borrower.

Mortgage Insurance Premium

The annual Mortgage Insurance Premium (MIP) is 1 percent payable at closing. The MIP is 0.65 percent annually thereafter.

Term & Amortization

Loans must last a minimum of 10 years. The maximum term on an HUD 232/223(f) loan is 35 years or 75 percent of the remaining life of the facility, fully amortizing.

Interest Rate

HUD's FHA 232/223(f) loans are at a fixed interest rate, subject to market conditions. Your HUD lender can provide more information about interest rates if you explore the option of applying for an HUD 232/223(f) loan.


HUD loans are non-recourse to principals with standard carve-outs.


The loan is assumable with FHA/HUD approval. The assumability fee is 0.05 percent, payable to HUD.


Prepayment is generally an option with approved HUD's FHA 232/223(f) insured mortgages. The federal authority normally imposes a two-year lock-out where prepayment is not an option and there is a penalty that declines as the loan ages.


FHA 232/223(f) are subject to the LEAN application process. This streamlined procedure eliminates paperwork reduplication and implements a checklist for lenders and borrowers to follow in order to promote efficiency within the application process. It generally progresses in five steps:

  • Step One: Submission of application

  • Step Two: Preliminary underwriting

  • Step Three: Initiate third-party verification and due diligence measures

  • Step Four: Receipt of HUD firm commitment letter

  • Step Five: Finalization of loan documentation and closing

Refinanced Properties

Any current mortgages or other loans incurred on the property within two years of application must meet specific program eligibility guidelines and may have seasoning requirements. In addition, equity take-out loans may be eligible for immediate refinancing, depending on the loan amount and HUD-insured loan-to-value ratio.


LEAN transactions for HUD's FHA 232/223(f) loans typically take four to six months from application to closing. The actual time frame varies depending on the complexity of the application and the receipt of applicant information.

Post-Closing Reporting

FHA 232/223(f) loans require the owner of the property to submit audited financial statements each year within 90 days of the close of the fiscal year. These statements must be prepared in accordance with 24 CFR 5.801 and 200.36 guidelines. Additionally, the operators of the property must submit quarterly financial statements.

Get Qualified!

To apply for a HUD 232/223(f) loan please go to our Apply Page. Or send an email with your contact information and details about your project to today.

If a HUD 232/223(f) loan isn't right for your residential care facility project, please visit for more options that include bank financing, life company financing, Fannie Mae®, Freddie Mac® and more. You may also e-mail directly at

Call Now: (877) 585-8645

Speak With a HUD Insured Multifamily & Healthcare Finance Specialist