What is an assisted-living facility loan?
An assisted-living facility is a type of senior housing that is considered a commercial real estate asset because it produces income. Assisted-living facilities include group homes, nursing homes, continuing care communities and memory care centers. Commercial mortgages can be obtained to construct, purchase, refinance or take cash out of these properties.
What are some common types of assisted-living facility loans?
Federal agencies and the government-sponsored enterprises (GSEs) offer mortgages for many types of senior housing. The U.S. Small Business Administration (SBA) is one source. The SBA’s 504 loan program, for example, allows the borrower to make a 10% downpayment on a mortgage of up to $5 million, with the remaining funds coming from a bank and a certified development company that partner on the project.
The U.S. Department of Housing and Urban Development (HUD) also offers financing for assisted-living facilities. HUD programs are typically long term in nature (10 to 40 years) with downpayment requirements ranging from 10% to 25%. Loan amounts start at $2 million.
Fannie Mae and Freddie Mac offer medium- and long-term financing on acquisitions of stabilized properties by experienced real estate developers and sponsors. The GSEs limit the maximum loan-to-value ratio to 75% to 80%. With assisted-living facilities, loans through the GSEs require a minimum debt-service-coverage ratio in the range of 1.40 to 1.55 — meaning that the property must generate at least 40% to 55% more income than the level of debt.
Who offers assisted-living facility loans?
Many banks, nonbanks and private lenders offer mortgages for assisted-living facilities. For standard loan scenarios involving borrowers with prime credit, strong documentation and prior experience, use the commercial search engine and select “assisted living” under property type.
Borrowers with nonprime credit or those in search of bank-statement programs due to nontraditional income documentation can also qualify for an assisted-living facility loan with shorter terms and/or higher downpayment amounts through private or hard money lenders.