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BK-0910597

Hospital-FHA Section 242

Under section 242 of the National Housing ACT, the FHA provides mortgage insurance for both non-profit and for-profit hospitals to facilitate their capital development projects, especially is underserved or underserved communities.  Since the program's inception in 1968, HUD has insured 312 hospitals for over $9.2 billion nationwide

Section 242 is a credit enhancement tool that allows hospitals to reduce their mortgage interest rate and receive 90% LTV with no limits on loan amount.  Section 242 can be used for construction or permanent financing, with taxable or tax-exempt bonds, and the proceeds can also be used to pay off outstanding capital debt

Product Overview:

(For a Printable PDF of this program, please click here)

Eligibility                                                                                              For the new construction, rehabilitation or modernization of licensed hospitals

Loan Amounts                                                                                       

  • No minimum. No maximum
  • A minimum of 20% of the approve mortgage amount must be used for new construction, rehabilitation or modernization.  Up to 80% of the approved mortgage amount can be used for refinancing existing capital debt

Term/Amortization                                                                                Up to 25 years fully amortized

Interest Rate                                                                                        Low, fixed rate established by market spread over the 10 year treasury

Debt service coverage ratio                                                                1.25x minimum

Loan to value                                                                                       90% maximum

Personal recourse                                                                                Non-recourse

Prepayment                                                                                        Varies by product

Certificate of Need                                                                                CON required if hospital is in a CON state

Feasibility study                                                                                    Required

Third Party Fees                                                                                    Includes legal, appraisal, engineering, and environmental reports.  Seismic reports and survey may also be required

Assumability                                                                                        Assumable with lender approval

Venture Placement Fee                                                                        1% to 2% dependent on property