Section 232: FHA-insured healthcare facility refinancing
Skilled nursing, assisted living, board and care and memory care. The structure is as attractive as the apartment programs — 35 years, fully amortizing, fixed, non-recourse — but the underwriting is materially stricter, the premium is higher, and cash-out is prohibited outright.
Key terms
Current as of October 13, 2026
- Skilled nursing LTV
- 80% / 85% non-profit
- Assisted living, existing
- 80%
- DSCR, all types
- 1.45x
- 232/223(a)(7) DSCR
- 1.11x
- MIP 232/223(f)
- 1.00% / 0.65%
- Cash-out
- Not permitted
- Debt seasoning
- Two years
The insurable mortgage is the lowest result among all applicable criteria.
Three corrections before anything else. Section 232 was excluded from the September 2025 multifamily MIP reduction — healthcare premiums did not drop to 0.25%. Maximum leverage on a 232 refinance is 80% for-profit and 85% non-profit, not the 85%/90% published on some prominent sites. And HUD does not permit insured proceeds to be used for equity takeout on a Section 232 transaction, notwithstanding pages that say it “may be available.” Each of these errors is live in the field today and each one overstates what a healthcare owner can achieve.
What the program covers
Section 232 insures mortgages on residential care facilities. Unlike an apartment building, the collateral is an operating business as much as real estate — value depends on licensure, census, payer mix and management quality. HUD underwrites accordingly, through the Office of Healthcare Programs under the LEAN protocol and Handbook 4232.1 rather than the MAP Guide.
Eligible facility types
- Skilled nursing facilities
- Assisted living facilities
- Board and care / residential care facilities
- Memory care
- Independent living units, subject to a percentage limit above which a waiver is required
The executions
- 232/223(f) — refinance or acquisition of an existing facility
- 232/223(a)(7) — streamline refinance of an existing FHA-insured healthcare loan, at 1.11x coverage
- 232 new construction / substantial rehabilitation
- 232(i) — fire safety equipment, at 1.11x coverage
- 241(a) — supplemental loan behind an existing insured first, for capital improvements
Maximum leverage
| Facility type | Status | For-profit | Non-profit |
|---|---|---|---|
| Skilled nursing / independent living | New or existing | 80% | 85% |
| Assisted living | New | 75% | 80% |
| Assisted living / board and care | Existing | 80% | 75% |
Applications proceeding under the debt seasoning exception are subject to different percentages. The higher non-profit benchmarks are not automatic — they require a demonstrated operating track record, significant management experience and a solid financial history.
Coverage
The handbook sets a minimum debt service coverage ratio of 1.45x for all project types, with two exceptions: 232/223(a)(7) and 232(i), which require 1.11x. Against 1.15x for market-rate apartments, the 30-basis-point gap is the clearest statement of how differently HUD views an operating healthcare business.
On healthcare transactions the coverage test binds far more often than LTV. If a sponsor is discussing a 232 refinance primarily in leverage terms, the sizing has probably not been run.
Loan sizing
The criteria stack
As on the multifamily side, the maximum insurable mortgage is the lowest of the applicable criteria, rounded down to the nearest $100.
232/223(f) purchase or refinance
- The LTV test, at the applicable percentage above
- The DSCR test at 1.45x — NOI divided by 1.45, capitalized at the sum of the interest rate, the MIP rate and the initial curtail rate, adjusted for ground rent and special assessments
- A purchase-cost test on an acquisition, or a refinance-cost test on a refinance
Note the MIP in the denominator. Healthcare annual MIP is 65 basis points against 25 for multifamily. The same NOI therefore supports a smaller loan on a healthcare asset for reasons unrelated to the coverage ratio.
232/223(a)(7) streamline
- The original principal amount of the existing loan
- 100% of refinance costs — current principal, transaction costs, repairs and reserve deposits
- The amount supported by a 1.11x DSCR
Term may extend to the remaining term of the existing loan plus up to twelve years with HUD approval, but cannot exceed the original term. No appraisal is typically required; a new PCNA is required if the last is more than two years old. HUD application fee 0.15%. MIP 50 basis points upfront and 55 annual.
Figures on this page are current as of October 13, 2026. See primary sources for every document cited.
Cash-out is prohibited
The handbook states that HUD does not permit FHA-insured loan proceeds to be used directly for an equity takeout on Section 232 transactions. There is no exception matrix, no LTV band at which it becomes available, and no structure that works around it.
Proceeds must retire existing project debt and pay the costs of refinancing, and the refinance must lower monthly debt service. Eligible uses are payoff of project debt including prepayment penalties, transaction and closing costs, HUD-approved repairs with a completion assurance escrow, and the initial replacement reserve deposit. Anything supportable beyond those uses does not go to the borrower — the loan is sized down.
Why this keeps being misreported. The multifamily side permits cash-out to 80% LTV, and the two programs are described in the same breath constantly. Separately, the Section 232 debt-seasoning exception is keyed to LTV bands, and at least one lender term sheet presents those bands as though they were equity-takeout tiers. They are not. The full treatment, with the citation.
If liquidity is the objective
Rule FHA out early rather than halfway through an application. Realistic alternatives to price instead: conventional or bridge debt at lower leverage with recourse; a sale-leaseback with a healthcare REIT; a 241(a) supplemental for genuine capital improvements; or a 232/223(f) now to fix rate and term, with liquidity raised elsewhere in the stack.
Two-year debt seasoning
Existing debt generally must have been in place for two years as of the application submission date. Debt younger than that can still be refinanced if it was incurred for a purpose FHA recognizes — an arm's-length acquisition, capital improvements, or funding operating losses. The common thread is that the money went into the facility; debt placed to take equity out or fund an affiliate does not qualify, and debt created by an identity-of-interest lender draws additional scrutiny on exactly that point.
A reduced-seasoning exception exists, keyed to LTV bands — under 60%, 60–70%, above 70% — together with how much of the existing debt went to project purposes. Lower leverage buys more tolerance for younger debt.
Recent purchases are disadvantaged twice. If the facility was bought within the last three years, the transaction is generally ineligible for the reduced-seasoning exception and existing debt is generally capped at 80% of the purchase price for sizing purposes. An operator who bought a distressed facility cheaply and turned it around cannot refinance against the new value inside that window. How to work with the rule.
Note also that the multifamily relief for recently completed properties — the post-2020 replacement for the three-year rule — is a multifamily provision and does not reach Section 232. Healthcare has no comparable accommodation.
Premiums
Healthcare MIP did not change in 2025
The September 2025 notice that set multifamily MIP at a uniform 0.25% lists neither Section 232 nor Section 242 anywhere in its table. Healthcare premiums were addressed by a separate notice and were carried forward unchanged.
| Program | Upfront | Annual | Apartment comparison |
|---|---|---|---|
| 232 new construction / substantial rehab | 77 | 77 | 25 / 25 |
| 232/223(f) refinance or acquisition | 100 | 65 | 25 / 25 |
| 232/223(a)(7) streamline | 50 | 55 | 25 / 25 |
| 241(a) supplemental | 72 | 72 | 25 / 25 |
| 242 hospitals | 70 | 70 | — |
One change did reach the healthcare programs: the Green and Energy Efficient MIP Initiative was eliminated for all applicable 232 programs, for applications received on or after August 25, 2025. A 232 application underwritten on a 25-basis-point green premium needs re-running. What 40 basis points costs.
Structure and portfolio provisions
The master lease trigger
Once a borrower or related group crosses a portfolio threshold — broadly three or more properties, or $15 million, within an 18-month period — HUD requires the facilities to be held under a master lease. The structure cross-collateralizes and cross-defaults them, so stronger facilities support weaker ones. That can make an otherwise unfinanceable facility financeable; it also means selling one asset out of the structure requires HUD consent and a release.
The 18-month look-back catches sponsors who are not pursuing a portfolio strategy at all. Sequencing consequences.
Operator diligence
HUD reviews the operator's qualifications, licensure history and financial capacity, not just the borrower's. Where borrower and operator are separate parties, the operator file is frequently the pacing item in underwriting, and a licensure problem at the operator level can stop a loan on a physically sound building. Budget more time than a comparable apartment transaction.
Independent living units
ILUs within a Section 232 project are subject to a percentage cap, above which a waiver is required. A continuing care campus with a large independent living component may not fit the program as structured, so measure the ILU share early rather than assuming it.
Currency note. HUD has posted Rev-2 redlines to Chapters 2 and 3 of the Section 232 Handbook, touching loan sizing and seasoning. Those are drafts posted for industry feedback, not operative guidance. We have found no competitor site covering them at all; for an owner planning a 2027 refinance they are the more consequential of HUD's two pending revisions. Both drafts summarized.
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