A very good funding program will soon be getting better for those senior housing/healthcare borrowers who use bridge loans while waiting to qualify for permanent funding under HUD’s Section 232 Lean Healthcare Mortgage Insurance Program.

Cambridge Realty Capital Companies Chairman Jeffrey A. Davis says proposed changes to the HUD 232 Handbook contain updates that will enable some borrowers to bridge more quickly into the 232 program than current rules allow.

Historically, bridge loans have been used by borrowers when acquiring properties or in those situations where the borrower wants cash out for some reason, such as a partner buyout.  A bridge loan can be structured in a way that has the borrower’s end goal of eventually qualifying for HUD financing in mind, Mr. Davis said.

“The key word is ‘eventually.’  Under the old rules, all borrowers choosing to segue into HUD financing in this way were required to wait 24 months before applying to HUD.  Today, some borrowers may be able to simultaneously apply for a bridge loan and HUD financing at the same time,” he added.

“When this is the case, the conventional bridge loan will remain in place until the HUD 232 application is processed and approved three or four months later.  It takes about six months for HUD 232 applications to work their way through the loan approval and commitment process. In contrast, conventional bridge loans routinely close in about half the time or less.”

Mr. Davis says proposed new seasoning requirements for bridge loans keep the two-year limit in place if the requested 232 loan is greater than or equal to 71 percent of loan-to-value (LTV). However, if LTV is lower, the borrower may be able to refinance a bridge loan without waiting two years.

It all comes down to the percent of existing debt used for project purposes.

The Cambridge Chairman says changes to the HUD 232 Handbook were in a comment period that ended June 1.  Most likely, recommended changes to the program will be implemented sometime this summer.

“Interest rate risk is an important consideration.   If projections that interest rates will be rising in the years ahead ring, true borrowers who are able to lock in today’s lower rates sooner rather than later will find themselves in an enviable position,” he noted.

Mr. Davis says other changes to the HUD 232 Handbook were recommended.  For example, another change will enable operators to include some operational debts in their refinance package, which was not allowed in the past.

“We’re urging clients to contact us for an evaluation of how the various rule changes at HUD might impact their long-term business finance plans,” he said.

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