Considering a hospital construction project? Shopping for affordable financing? FHA can help make it happen! Shown below are the steps your facility can take to access capital for construction projects through the Federal Housing Administration.
Sinai Health System, Chicago, IL; $98 million FHA-insured mortgage
Self-Assessment - The first step is for you to perform a self-assessment to determine if FHA mortgage insurance is right for you. Feel free to contact us if you have any questions!
FHA's hospital program is for licensed acute care facilities. Is the facility a licensed acute care hospital? Are at least 50 percent of the facility's patient days for acute care services?
Critical access hospitals are exempt from the patient day requirement.
Does your State have a Certificate of Need (CON) process? Hospitals in CON states need to obtain the necessary CONs to be eligible for this Program.
FHA has a 90 percent maximum loan-to-value requirement. After the project construction is completed, will the mortgage exceed 90% of the estimated book value of all property, plant, and equipment that secures the mortgage?
If the Loan-To-Value exceeds 90 percent, does the hospital have sufficient capital to make an equity contribution? If the planned hospital is a start-up, will it have sufficient working capital to cover start-up costs?
Is the facility willing and able to grant an FHA-insured lender a first lien on the property, plant, and equipment that secures the mortgage (including patient receivables)? Do local government restrictions prevent the hospital from granting a first lien to FHA?
FHA requires insured hospitals to make contributions to a Mortgage Reserve Fund (MRF). The MRF is a �rainy day� fund that, at FHA's discretion, may assist the hospital with mortgage payments if the need arises. Is the hospital willing to make monthly payments that will build to a balance equal to two years of debt service after 10 years?
Over the last three full Fiscal Years, has the hospital's average operating margin been equal to or greater than 0 percent, and the average debt service coverage ratio been equal to or greater than 1.25x? FHA mortgage insurance is for hospitals with a history of positive operating performance.
Is the hospital planning to refinance debt as part of the project? FHA will allow the refinancing of capital debt with mortgage proceeds if the work was completed more than two years before the Mortgagee files a Section 242 application with FHA. Also, if debt is refinanced, the construction component of the mortgage must be at least 20 percent of the total proposed mortgage amount.
FHA cannot insure a project already under construction. If your project is already under construction, FHA mortgage insurance is not right for you.
Are you planning a Design/Build project? FHA only considers Design/Build projects with mortgage amounts under $30 million.
Does the hospital and project fulfill a community need? FHA's hospital mortgage insurance program was created to assist hospitals and projects that are urgently needed by the community in which they are located.
FHA carefully reviews facilities that are physician-owned. If physician ownership is present, the hospital must comply with the Stark amendments and anti-kickback prohibitions. In addition, investor-owned hospitals are reviewed for their impact on existing healthcare providers, particularly those providing uncompensated care.
Chose a Lender - If you do not already have a mortgage lender, FHA maintains a list of lenders who are active in the hospital mortgage insurance program.
Preliminary Review - As a free service to the hospital and lender, FHA performs a preliminary review of the hospital and project to make sure that basic eligibility criteria are met. The purpose of the preliminary review is to identify any obvious factors that would cause an application to be rejected before the hospital and lender expend the resources needed to prepare a full application.
The preliminary review focuses on the same criteria as the Self Assessment, described above. These factors include statutory eligibility, market need, financial strength, and any other known factors that have the potential to cause an application to be rejected.
If you would like FHA to conduct a preliminary review of your hospital, please contact a staff member. A staff member can tell you what information you need to provide in order for FHA to conduct a Preliminary Review.
Pre-Application Meeting - If the hospital passes the preliminary review, the lender and representatives of the hospital are invited to FHA headquarters for a pre-application meeting. If the hospital passes the Preliminary Review, FHA will invite the hospital and the lender to visit FHA headquarters for a pre-application meeting.
The pre-application meeting is an opportunity for the hospital and lender to summarize the proposed project, for FHA to describe the application process, and for issues that could affect the eligibility or underwriting of the proposed loan to be identified and discussed. Following the meeting, FHA may (1) invite the hospital to submit an application or (2) identify issues that must be resolved before a full application will be accepted for processing.
It is important to note, however, that FHA's participation in a pre-application meeting, or an invitation to submit a full application, shall in no way be construed as an indication that a subsequent application will be approved.
Application Submission - Should the hospital have a satisfactory pre-application meeting, the mortgage lender and hospital may develop an application according to FHA guidelines. For information on the contents of an application, please refer to the Applicant's Guide.
Underwriting - Once the application is complete, the underwriting process begins. A client service team composed of staff members from FHA conducts the underwriting process.
Commitment - If the hospital and project meet FHA's requirements and the FHA Commissioner approves the application, a commitment for mortgage insurance is issued.
Closing - Following commitment, FHA counsel assists the mortgage lender, hospital, and their legal representatives to close the loan.
Construction - During construction, HUD staff members monitor and approve loan draws and perform monthly site visits.
Final Endorsement - Once construction is completed and the final draw has been made, the final mortgage amount is established and amortization begins.
![[Photo: Sinai Health System, Chicago, IL]](../../fha/images/sinai.jpg)
