HUD 242 Loan - New Construction or Rehabilitation of Hospitals

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Eligible Properties

Acute care & critical access hospitals (at least 50% of patient days must be acute care days).

Eligible Borrowers

For-profit, non-profit, and public entities.



Loan Amount

No minimum/no maximum (subject to General Loan Parameters).

General Loan Parameters

Maximum loan cannot exceed 90% Loan to Value.

Interest Rate

Fixed-rate, subject to market conditions at the time of rate lock.

Term & Amortization

Interest-only term equal to actual construction period, plus 25 years fully amortizing.




Fully assumable, subject to HUD approval.


Typically loans are prohibited from prepayment for the 1st year, then have a 9% penalty declining 1% each year thereafter until 0%.  Alternative lockout and prepayment structures are available.

Mortgage Insurance Premium

0.70% at closing,
0.70% annually thereafter.

Professional Liability Insurance

HUD requires a minimum coverage of $1 million per occurrence and $3 million aggregate.  Waivers may be granted in cases where premiums are high and claims history is clean.

Davis-Bacon Wages

Payment of prevailing wages is required by HUD for all contractors and subcontractors.

  • Up to 20% of the mortgage amount may be used for capital improvements and equipment.
  • Escrows required for repairs, mortgage insurance premium, taxes, insurance, and replacement reserves.
  • Third party reports include appraisal, Market Need and Financial Feasibility study, PCNA, and Phase I.