Streamlined FHA program for purchase or refinance transactions. The costs of new capital projects (i.e., construction and/or equipment) may be included in the loan, provided they are less than 20% of the loan amount.
Facility must be a licensed acute care hospital. Borrower may be non-profit, for-profit or a public entity.
No maximum loan amount, however, no cash- out refinancing is permitted. 90% loan-to-value limitation. Refinancing transactions may not exceed the cost to refinance the existing indebtedness (i.e., the amount required to pay off the indebtedness plus transaction costs). Acquisition transactions may not exceed the cost to acquire the hospital, including the actual purchase price of the land and improvements.
25-year self-amortizing permanent loan.
FHA loan is non-recourse.
Yes, subject to FHA approval.
Upfront Fees and Expenses
Love Funding’s processing fee is $5,000. The borrower must pay for any third party reports, which always include a Phase I Environmental Assessment and may include study of market need and financial feasibility prepared by a CPA firm (HUD will determine the need for such a study on a case-by-case basis).
- FHA application (examination) fee: 0.3% of mortgage amount
- FHA inspection fee (refinancing or acquisition only): 0.1%
- FHA inspection fee (for projects with limited rehabilitation:
|Hard Cost % or Mortgage Amount||Inspection Fee|
|Less than 5%||0.1%|
|5% to 10%||0.2%|
|10% to 15%||0.3%|
|15% to 20%||0.4%|
Mortgage Insurance Premium
Annual Mortgage Insurance Premium (MIP) is 0.65% of the outstanding loan balance.
The hospital must have an aggregate operating margin of at least 0.00% and an average debt service coverage ratio of at least 1.40 for the past three years, and meet three of the following seven criteria:
- Total operating expenses will be decreased as a result of refinancing by at least 0.25%.
- New interest rate will be at least 50 bps less than the current rate.
- Current interest rate has increased at least 1% since January 1, 2008, or will very likely increase by that amount within a year of filing an application.
- Total annual debt service in the most recent audited financials is at least 3.4% of total operating revenues.
- Credit enhancement on current financing has been or will imminently be withdrawn or expired, or the provider has been or will be downgraded.
- Existing financing has overly restrictive or onerous bond covenants.
- Other circumstances exist that demonstrate that the hospital’s financial health depends upon refinancing its existing capital debt.
Other FHA Requirements
- If the state has a Certificate of Need (CON) process, a CON must be issued or pending.
- Mortgage cannot be insured if a major construction project is currently underway. Construction would need to be complete for at least two years prior to applying for an FHA refinance loan.
- Starting with commencement of amortization, FHA requires insured hospitals to make contributions to a Mortgage Reserve Fund (MRF). The MRF must be funded through annual contributions so that it achieves a funding level equal to one year of debt service by five years after commencement of amortization and two years of debt service after ten years of amortization. The MRF may be used, at FHA’s discretion, to assist the hospital with mortgage payments if the need arises.