What Is a HUD Section 232 Loan?

Key points

• Section 232 covers nursing homes, assisted living and board and care, alone or combined on one project.
• Refinance and acquisition loans are commonly written as 232/223(f); there are also construction and streamlined refinance options.
• Underwriting looks at the operator and the care business as closely as the real estate.
• The program is governed by HUD Handbook 4232.1, not the MAP Guide.
• Lenders must be FHA and MAP approved with a MAP-approved healthcare underwriter.

What Section 232 finances

HUD describes Section 232 as mortgage insurance on loans for residential care facilities. FHA insurance protects the lender against loss if the borrower defaults, and HUD evaluates each proposal on whether it is an acceptable insurance risk; it is not a competitive allocation. Permitted uses include purchase, refinance, new construction and substantial rehabilitation, and HUD expressly allows combinations. Like other HUD loans, these are long-term, fixed-rate, fully amortizing and non-recourse with standard carve-outs.

Facilities that provide housing without the licensed care that defines Section 232, such as some independent living communities, are generally financed under multifamily programs instead. The line depends on licensing and the services provided, so it is worth confirming at the start.

How Section 232 loans are processed

All Section 232 applications use LEAN, HUD's standardized processing method for healthcare loans, and the program rules are in HUD Handbook 4232.1. Lenders submit applications and closing documents through HUD's 232 Healthcare Portal. HUD requires the lender to be FHA approved and MAP approved, and the underwriter to be a MAP-approved healthcare underwriter. Section 232/223(f) loans moved to LEAN on September 1, 2008, and the rest of the program followed on March 1, 2009.

What HUD looks at in a healthcare deal

A residential care facility is both real estate and an operating business. HUD's review typically extends beyond the building to the people and contracts that produce the income. Borrowers should expect attention to:

• The operator: experience, financial statements, licensing and regulatory survey history.
• The operator lease or management agreement, where owner and operator are separate entities.
• Occupancy and payer mix, including reliance on Medicaid, Medicare and private pay.
• Accounts receivable financing, which must fit within HUD's structure if the operator uses it.
• Physical condition, through a capital needs assessment, and environmental review.

Obligations after closing

Insured facilities report operating results to HUD on an ongoing basis. ORCF's portal collects quarterly operator financial information from lenders on insured facilities and processes asset management transactions such as reserve releases and changes of operator. Owners should plan for this reporting as a permanent cost of HUD financing, along with the regulatory agreement's limits on distributions and transfers.

Bridge-to-HUD for healthcare

Healthcare bridge loans usually exist because a facility cannot yet meet HUD's tests: a recent acquisition, an operator transition, a renovation, or a dip in occupancy that needs time to recover. The bridge carries the facility until the new operator has enough history and the numbers support HUD sizing. Borrowers should plan the bridge term around the time needed to produce that history, plus the HUD process itself.

Bravo Capital is a HUD-approved MAP and LEAN lender. Seven of the 26 HUD firm commitments Bravo has received since April 2022 were Section 232/223(f) loans totaling $146.4 million, and all 26 commitments closed. In Bravo's experience a 232/223(f) takes about six months from engagement to closing, at about two months per stage.

Where to go next

For Bravo's Section 232 terms and requirements, see HUD 232 loans.

For Bravo's 232/223(f) closing record, see HUD closing scorecard.

For Bravo's process for healthcare borrowers, see HUD 232 Express Lane.

Related guides: Bridge-to-HUD for Skilled Nursing and Senior Care Facilities; Operator Transitions in a Healthcare Bridge-to-HUD Plan; Assisted Living Bridge-to-HUD: From Acquisition to Section 232; HUD Section 232 Master Leases for Healthcare Portfolios.

Related terms: LEAN: HUD's Section 232 Processing Method Explained; What Is ORCF? HUD's Office of Residential Care Facilities; Operator Lease: How HUD Treats Owner and Operator in Section 232; Accounts Receivable Financing in HUD Section 232 Loans.

For portfolio figures by state, metro and program, see the HUD multifamily data hub. Bravo Capital’s record: all 26 HUD firm commitments received since April 2022 have closed, totaling $526.0 million (HUD Closing Scorecard).