FHA SECTION 241 – Lean Processing

Supplemental loans to expand or renovate existing skilled nursing, assisted living or specialized use facilities already financed with FHA-insured loans.


  • Used when it is not feasible to refinance a project’s FHA-insured loan as part of an addition or renovation because the current loan has a favorable interest rate or because prepayment is still subject to a lock-out.
  • Combines construction and permanent financing into a single transaction approved at the same time.
  • Maximum insurable loan is generally the lesser of: a) 90% of the cost of the improvements; b) 90% of the increase in value after the completion of the renovations/expansions; c) an amount supported by a 1.45 debt service coverage (DSC) ratio; and, d) an amount based on total indebtedness.
  • Loan is pre-payable, assumable and non-recourse.
  • Underwriting is generally based on underwriting standards of existing FHA insured loan program; additions to existing properties generally must be self-supporting from a net operating income standpoint.
  • The supplemental loan is typically cross-defaulted with the primary insured loan and shares the same collateral.


0.30% Application Fee to FHA
0.72% Mortgage Insurance Premium
0.45% Mortgage Insurance Premium – Tax Credit Transactions
0.50% Inspection Fee
2.00% Maximum Financing (Origination) Fee
1.50% Maximum Placement Fee
2.00% Costs of Issuance for Tax-Exempt Bond Transactions

An annual 0.72% Mortgage Insurance Premium (.45% for tax credit transactions) is paid to FHA as part of the monthly mortgage payment.


  • Replacement reserve escrow for on-going replacement of depreciable items is required for the term of the loan. The amount of the annual deposit will be revised after 10 years based on a capital needs assessment.
  • Working capital deposits or operating deficit escrows are generally not required unless the project involves the addition of new beds.