ELIGIBLE PROPERTIES:
Proposed new construction, substantial rehabilitation, replacement, modernization, remodeling, equipment and expansions or refinances of hospitals (including non-profit, profit, critical access and community-based).
ELIGIBILITY REQUIREMENTS:
In order to qualify, at least 20% of the mortgage amount must be for construction, modernization and/or equipment.
- Over the last three full fiscal years, the facility’s aggregate operating
margin must have been greater than or equal to $0 and the average
DSCR must have been greater than or equal to 1.25 (use of projected FHA debt service permitted).
- At least 50% of patient days must be acute care (critical access hospitals [CAH] are exempted).
- First lien position on all real estate improvements. Exceptions for leased equipment.
- No construction has begun.
MAXIMUM LOAN:
90% of the FHA estimated replacement cost (including net book value of
existing plant, property and equipment).
INTEREST RATES:
Fixed rate determined by market rates at the time of rate lock.
LOAN TYPE:
Construction loan, which converts to a 25-year, fully amortizing permanent loan.
RECOURSE:
Non-recourse.
PREPAYMENT:
Typically closed for prepayment from 5-10 years based on market conditions and funding source. In the event of a 5-year prepayment lockout, prepayment is typically open at 105% in year 6, declining 1% per year. Variations are possible based on market conditions and borrower preferences.
WAGE REQUIREMENTS:
Davis-Bacon prevailing wages required.
ANNUAL MORTGAGE INSURANCE PREMIUM:
During the construction period, the MIP is paid annually in advance, based on a rate established by FHA. The rate is fixed at Initial Endorsement. After commencement of amortization, the MIP is escrowed monthly based on the average principal balance.
ESCROWS:
Monthly escrows for real estate taxes, property insurance, reserves for replacement (major movables), sinking fund (if applicable), mortgage reserve fund and mortgage insurance premiums (MIP).
APPLICATION FEE:
A non-refundable fee of 0.3% of the requested mortgage amount is payable to FHA, plus estimated underwriting costs for feasibility/market study, environmental assessment and other loan processing costs.
INSPECTION FEE:
For new construction projects, 0.5% of the mortgage amount is payable to FHA at Initial Endorsement. For sub-rehabilitation projects, 0.5% of the costs of improvements is paid to FHA at Initial Endorsement.
FINANCING AND PLACEMENT FEES:
Negotiable.
BOND ENHANCEMENT:
Program can be used to provide a AAA-rating credit enhancement of tax exempt bonds.
CLOSING EXPENSES:
Standard transaction costs, including legal fees, title insurance and survey.
OTHER FHA REQUIREMENTS:
Additional FHA requirements:
- Escrow equivalent to 2% of the mortgage amount for working capital,
typically released 12 months after project completion if loan is not in
default. Escrow can be in the form of cash or letter of credit.
- 100% performance and 100% payment bond.
- If a state has a Certificate of Need (CON) process, the CON must be
issued or pending.
- Final application requirements include a feasibility report, environmental assessment, project drawings and pricing.
Borrower must agree to make monthly payments into a Mortgage Reserve Fund that will build to a balance equal to one year of debt service after 10 years.
FHA PROCESSING TIME:
There are three stages of review for the 242 Program: Preliminary Review, Pre-Application and Firm Commitment. FHA’s goal review time for the stages is:
- Preliminary Review: 10 business days.
- Pre-Application Meeting: 30 days.
- Firm Application Submission: 120 days to commitment.Construction loan, which converts to a 25-year, fully amortizing permanent loan.
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This is a summary of general program terms, which are subject to change. This is not a commitment to lend.