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New Construction, Modernization or Expansion

HUD Section 242

Affordable Financing for Acute Care Hospital Construction, Equipment and Refinancing

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.

Maximum Loan

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).

Maximum Term

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.

Personal Liability

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.