Amherst Nursing Home

sims mortgage funding refinances a nursing home with fha insurance in 56 days

Sims Mortgage Funding, Inc. recently closed a HUD-insured loan for the Amherst Nursing Home. The loan was insured under the Section 223(a)(7) refinance program and was funded through the sale of 40-year taxable Government National Mortgage Association (GNMA) mortgage-backed securities. The purpose of the new loan was to prepay the existing FHA-insured loan, which had an 8.625% interest rate, and to provide a source of funds to make repairs and improvements to the facility. The Sims financing produced approximately $160,000 in annual debt service savings.

challenge

Amherst is a 134-bed skilled nursing facility owned and operated by a local family-held company with a 40-year history of providing care in Western Massachusetts. Ownership had two, somewhat conflicting objectives for its refinance. First, it wanted to close its new loan as quickly as possible after July 1, 2008, the first date its existing high-interest rate loan could be prepaid and second, it wanted to finance in the new loan the cost of making some needed repairs and improvements to the property. Typically, the inclusion of repairs and improvements into a “straight” refinancing application causes a longer FHA review period, requires additional documentation at closing and results in the borrower posting an escrow equal to 10% of the repair amount. Sims had to find a way to structure the transaction so that the cost of repairs could be included in the application without causing any delays in its review.

implementation

In the refinance application, Sims treated the cost of the repairs as an additional deposit to the existing reserve for replacement fund, not as a separate repair escrow. This technique saved the borrower approximately $26,000 at closing, since the 10% escrow was not required and enabled FHA to review the application and close the new loan on an expedited basis; it took HUD approximately 35 days to issue its Firm Commitment for mortgage insurance and 21 days to close.