FHA SECTION 232/223(a)(7) – Lean Processing

Loans to refinance Skilled Nursing, Assisted Living or Specialized Use Facilities subject to existing FHA-insured loans

PROGRAM FEATURES

• Expedited processing protocol requires no appraisal and a limited environmental review for projects involving capital improvements only.
• Requires a 1.11 X debt service coverage ratio (DSC) based on net operating income (NOI) for the trailing 12 months prior to the submission of the application.
• Maximum loan can’t exceed the original amount of the existing FHA-insured loan.
• Payback of transaction costs via debt service savings must not take longer than 10 years; HUD prefers a shorter payback period.
• The mortgage term may be extended 12 years beyond the term of the current FHA insured mortgage, with HUD’s approval, to a maximum of 40 years. However, under Lean, extensions may be considered only with appropriate mitigation measures necessary to offset the risk of the longer term.
• If a term extension is requested, a project capital needs assessment (PCNA) is required. The PCNA will look at the capital needs of the project over a single, 15 year period. The minimum reserve for replacement deposit is $1,000 per unit per year or such higher amount as is indicated by the PCNA, even with an initial deposit to the reserve for replacement escrow.

FEES

No inspection fee is required. An annual 0.55% Mortgage Insurance Premium (.45% for Tax Credit Transactions) is paid to FHA as part of the monthly mortgage payment.

ESCROWS

• Full escrows required for property insurance, real estate taxes, and FHA mortgage insurance premium. These should be similar to what is currently being paid.
• Replacement reserve escrow for on-going replacement of depreciable items is required for the term of the loan. Projects must obtain a new PCNA every 10 years, with the reserve for replacement deposit adjusted based on the results of the PCNA.