In a market where conventional loans are becoming increasingly difficult to obtain by skilled nursing facility owners, the HUD loan remains an accessible product for such properties, declares Jeffrey Davis, Cambridge Realty Capital Companies’ Chairman. “The financial landscape is changing for skilled nursing facilities. We expect to see the demand for HUD loans growing over the next three years because of this.”
The operating costs of skilled nursing facilities are outpacing the rate of inflation, a trend that doesn’t appear to be waning over the next few years. In light of this, conventional lenders are red-flagging these borrowers, leaving many owners anxiously trying to find alternatives.
But, says Davis, skilled nursing facility owners need not panic. Nor do they need to pursue drastic measures, like selling these facilities, or making drastic cuts to their operating budgets. “In spite of the challenging and unpredictable conventional lending market, HUD has stayed true to its mission to provide capital to skilled nursing facility borrowers,” proclaims Davis. “Not only will HUD fill the funding void for skilled nursing facilities, but HUD loans also offer some enticing features.”
When people think of HUD loans, they immediately think of competitive interest rates and lower credit score thresholds. While this is certainly true, this merely scratches the surface when it comes to the benefits of HUD funding.
HUD funding was designed from its inception to be more accessible than conventional funding because it fulfills an important mission: to encourage the building and provision of affordable housing and care for Americans. In its earliest form, it was created to honor the service of Americans who contributed to the efforts of World War I, as well as to prevent a housing crisis for soldiers returning from service overseas after the war.
While this funding has morphed over the years to keep up with the changing times (including becoming administered by the agency now known as “HUD”), much about it has remained the same. “HUD has strived to keep its loan in a similar look and feel for decades,” Davis states.
What also hasn’t changed is its mission: to provide access to housing for all Americans, regardless of their ability to pay. Today there are a variety of programs under the HUD umbrella, addressing everything from homelessness to the provision of healthcare.
For this reason, HUD’s benefits reach beyond competitive interest rates. They include:
- 80% loan-to-value
- 30-35 year term and amortization
- Fixed, predictable rates; contrary to commercial banks, conduit lenders, private lenders, insurance companies, etc., there is no rate volatility once locked in
- No balloon or call
- Several forms of negotiable prepayment penalties
- HUD, combined with Ginnie Mae, provides guaranteed backing, allowing the borrower to obtain the most competitive, long-term, fixed-rate pricing
Borrower concerns over red tape and processing wait times over HUD loans have some historical grounding. But, says Davis, HUD has worked hard to address these problems, solving many of them by introducing the HUD Lean process in recent years.
Still, delays can arise, but often they are due to provider inexperience, so Davis urges borrowers to choose a provider, such as Cambridge Realty Capital, with extensive experience and a high success rate in obtaining HUD funding for its clients.