FHA® 242, 242/223(f) and 242/223(a)(7)

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Arbor provides FHA-insured loans for acute care hospital facilities ranging from large teaching institutions to small rural critical access hospitals. The FHA assists hospitals access affordable financing for capital projects. Uses include new construction, refinancing, and modernization, remodeling, equipment and expansion.

Loan Term 25-year permanent loan plus a construction period.

Fully amortizing not to exceed 90% of remaining economic life.

Maximum Loan Amount No limit on the amount that can be insured, subject to a loan-to-replacement cost of 90% or the costs to refinance in a 242-223(f). Hospitals may pledge existing assets to meet the loan-to-value test.
Fixed Rate Fixed rate for the length of the mortgage.
Underwriting Criteria
  • 3-year minimum breakeven operating margin
  • 3-year minimum 1.25 Debt Service Coverage
  • Greater than 50% acute-care patient days
  • First Lien on hospital real estate and accounts receivable
Program Selection Applicability
  • 242 New construction, or rehab/addition to existing hospital
    • At least 20% of loan amount used for construction, rehab, repairs, and equipment (CRRE)
  • 242/223f
    • Acquisition or refinance of existing hospital
    • <20% of loan used for CRRE
    • Hospital construction must have been completed 2 years prior to HUD application submission
  • 242/223a7
    • Refinance of existing HUD-insured hospital loan
    • <20% of loan used for CRRE
    • Loan size limited to HUD original loan amount; term may be extended by 12 years, not to exceed 25 years total term
  • 242/241a
    • 20% or greater CRRE for existing HUD-finance hospitals
HUD Inspection Fee
  • 242 and 242/241a Programs: 0.5% of CRRE
  • 242/223f and 223a7 Programs: Varies between 0.1% and 0.4% depending CRRE
Mortgage Reserve Fund 0.2% of the loan amount escrowed each year during years 1-10 of the loan term
HUD Mortgage Insurance Premium (MIP)
  • 242 0.70% per year
  • 242/223f 1% upfront; 0.65% per year
  • 242/223a7 0.55% upfront; 0.55% per year
  • 242/241a 0.55% per year
Eligible Borrower

The mortgagor shall be a public mortgagor (i.e., an owner of a public facility), a private non-profit corporation or association, or a profit-motivated mortgagor meeting the definition of “hospital” in §242.1. The mortgagor shall be approved by HUD and, except in those cases where the hospital is leased as permitted in §242.72, shall possess the powers necessary and incidental to operating a hospital. Eligible proprietary or profit-motivated mortgagors may include forprofit corporations, limited partnerships, and limited liability corporations and companies, but may not include natural persons, joint ventures, and general partnerships. Any proposed mortgagor must demonstrate that it has a continuity of organization commensurate with the term of the mortgage loan being insured.

For new organizations, or those whose continuity is necessarily dependent upon an individual or individuals, broad community participation is required.

Recourse Non-recourse
Required Reports Study of market need and financial feasibility, Phase I and Appraisal.
Prepayment Negotiable, depending on the term and loan amount.
Expense Escrow Yes – sufficient to cover Arbor’s expenses and third-party report costs
Origination Fee Negotiable
HUD Application Fee A commitment fee that, when added to the application fee will aggregate $3 per $1,000 of the amount of the loan set forth in the commitment, shall be paid within 30 days of the date of issuance of the commitment. If such fee is not paid within this 30-day period, the commitment shall automatically terminate.
HUD Inspection Fee 0.5% of the mortgage amount for new construction or sub-rehabilitation. Between 0.10% and 0.40% for 5% to 19% hard costs.
Legal/Closing Fee Borrower pays Arbor’s counsel fee and miscellaneous closing costs.
Davis Bacon Davis Bacon wage requirements apply to new construction and/or subrehabilitation. Not required on repairs pursuant to 242 / 223(f).
HUD Mortgage Insurance Premium 0.70% of the loan amount for a 242. 0.65% for a 242 / 223(f).
Arbor Commercial Mortgage | arbor.com | 800.ARBOR.10