Skip to content

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.

Eligibility

  • 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.

Assumability

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.