The FHA 242 program provides mortgage insurance for acute care hospitals – including Critical Access Hospitals – for loans to finance new construction, expansion, modernization, equipment, and refinancing of existing debt. U.S. Government backing of financing results in AA/AAA credit rating enabling hospitals to obtain very attractive interest rates.
- Facility must be an acute care hospital (i.e., no more than 50% of patient days attributable to the following services: chronic convalescence and rest, drug and alcoholic, epileptic, nervous and mental, mental deficiency, and tuberculosis).
- Mortgage cannot be insured if construction project is already under way.
No maximum loan amount; Maximum 90% loan-to-value ratio (i.e., can borrow up to 90% of the estimated replacement cost of the project).
Construction period, plus 25-year, self-amortizing, permanent loan.
Minimum Financial Requirements
Over past three fiscal years:
- Aggregate debt service coverage ratio greater than 1.25.
- Aggregate operating margin greater than 0.
FHA loan is non-recourse.
Yes, subject to FHA approval.
Upfront Fees and Expenses
Love Funding’s processing fee is $5,000. The client must pay for all third party reports, which include a Phase I Environmental Assessment and CPA firm-prepared study of market need and financial feasibility.
FHA Fees and Mortgage Insurance Premium
Upfront FHA fees of 0.8% of the mortgage amount, which can be included in the financing. Annual Mortgage Insurance Premium (MIP) is 0.7% of the outstanding loan balance.
Other FHA Requirements
- If the state has a Certificate of Need (CON) process, a CON must be issued or pending.
- Davis-Bacon prevailing wage requirements apply to construction projects.
- Starting with commencement of amortization, FHA requires insured hospitals to make contributions to a Mortgage Reserve Fund (MRF). The MRF is a fund which, at FHA’s discretion, may assist the hospital with mortgage payments if the need arises.