Finance Your Senior Housing or Assisted Living Property Today

With Americans aging faster than ever before, senior housing has never been in higher demand— and investing in senior housing has never been more profitable. When it comes to financing senior housing and assisted living facilities, borrowers have a wide variety of options. Seniors housing and assisted living loans can be used for a variety of purposes, including construction acquisitions, refinancing, and partial or substantial property improvements.

Nearly every type of senior housing can be financed, including assisted living facilities, nursing homes, intermediate care facilities, contiunum-of-care facilities, and Alzheimer's and dementia care facilities.

Typical sources of financing for seniors housing include bank financing, bridge loans, Fannie Mae multifamily loans, Freddie Mac multifamily loans, HUD 232 loans for assisted living and senior housing, SBA 7(a) loans, SBA 504 loans, and USDA loans.

In this comprehensive guide to senior housing loans, we’ll walk you through each of these types of financing, including the rates, terms, and required documentation.

Purchasing New Properties: With 10,000 Americans turning 65 each day, demand for senior living and healthcare properties continues to grow, leading to current assets generally rising in value due to the high demand.

Rate or Term Refinance: If you currently high-interest loan from a bank or private lender, you may be able to refinance it into a less-expensive, fixed-rate loan from Fannie Mae, Freddie Mac, or HUD.

Cash-Out Refinancing: If you have significant equity built up in your property, many lenders will allow you to take cash out. However, cash-out refinances often have a lower LTV allowance than traditional purchases or refinances.

Financing Property Portfolios: If you own more than one senior living property, you may be able to secure a portfolio loan from a CMBS, Bank, Fannie Mae or Freddie Mac lender. This can save you significant time and money, and can sometimes make it easier to finance lower-performing properties, as they can sometimes be offset by your higher-performing properties, particularly when the loan is cross-collateralized/cross-defaulted, which means that all properties act as collateral for the loan, and if one property defaults, the entire loan goes with it.

Financing a Pre-Stabilized Property: If you’ve just built (or purchased a newly built) seniors housing property or a property that has recently gone undergone substantial rehabilitation, you may need a bridge loan until the property stabilizes and you can refinance with a more attractive Fannie, Freddie, or HUD loan.

Types of senior living properties typically eligible for financing include:

Independent Living Communities: Independent living is the closest to traditional apartments, and generally consists of a typical apartment complex limited to residents between the ages of 55-62 and older, who do not have significant mobility or daily living issues. The main difference between these and regular apartments is the property and community management, as these communities often have events, classes, and other optional, shared activities.

Nursing Homes: A nursing home is generally the last stage in a patient’s continuum of care. A patient may start out in an independent living facility, transition to assisted living due to aging, and finally, transition to a nursing home when they need 24/7 medical care. In nursing homes, many patients require assistance with daily activities, including bathing, dressing, and taking medication.

Assisted Living Facilities: Assisted living centers offer a convenient middle-ground between the 24/7 monitoring of a nursing home and the relatively laissez-faire attitude of an independent living community. In assisted living, adults with some degree of disability and some degree of independence get a moderate level of treatment, including regular medical checkups and monitoring.

Intermediate Care Facilities: When a senior citizen is injured, but appears to be on the road to recovery, they often need temporary assistance with daily activities until they get on their feet. An intermediate care facility is somewhere between a hospital and a temporary nurinsg home. After healing and doing physical therapy, a patient might be discharged back to their own home, assuming they were fully able to take care of themselves.

Continuum-of-Care Centers: In a continuum-of-care facility, a resident can enter when they’re younger and rest assured that they’ll be taken care of through all stages of the aging process. These communities generally contain independent living, skilled nursing, and assisted living units. The resident can then transition seamlessly as their needs change over time.

Memory or Altheimer’s Care Centers: Hundreds of thousands of Americans suffer from memory disorders, and for some, it can severely impact their ability to complete activities of daily living, like bathing and eating. Memory care centers are specifically designed with these patients in mind, and can offer round-the-clock care when needed, particularly for the most impacted patients.

The most common types of seniors housing and assisted living financing loans are bank loans, bridge loans, Fannie Mae loans, Freddie Mac multifamily loans, HUD multifamily loans, SBA loans, and USDA loans.

Bank Loans: Banks lend to relatively strict guidelines, however, because they generally keep their loans on-book (and don’t sell them), you may be able to get flexibility in other ways. In-house servicing can also provide. a better experience for the borrower.

Hard Money/Bridge Loans: Bridge loans are generally used before a property is fully stabilized due to recent construction or renovation, or, in some cases, if a borrower has credit, legal, or financial issues. Bridge loans are offered at lower rates by more conventional commercial lenders, and at higher rates by hard money and private money lenders, which often have fewer (if any) credit, income, or background guidelines.

CMBS Loans: Non-recourse CMBS loans have competitive fixed-rate terms with loan lengths of 5,7, or 10-years. Borrower net worth requirements are significantly lower than for other types of loan, starting at just 25% of the loan amount with 10% liquidity. However, the process of getting a CMBS loan can be expensive and time-consuming, and pre-payment can pose a serious financial challenge, as defeasance is often required.

Fannie Mae Seniors Housing Loans: Fannie Mae Seniors Housing Loans are perhaps the most generous on the market, offering leverage up to 80% in certain scenarios. These loans are non-recourse and have terms of between 5 and 30 years.

Freddie Mac Seniors Housing Loans: Fannie Mae Seniors Housing Loans are also quite generous in the leverage they provide, with loans permitted up to 75% LTV. Loans are available in 30-year fixed-rate terms and 5-10 year floating-rate terms.

SBA Loans: SBA (7)(a) loans can be utilized for purchases of new senior housing facilities, or for the refinancing of current high-interest loans, including business operating costs and working capital. In contrast, SBA 504 loans are designed to finance real estate, construction, and heavy equipment. SBA loans ca

USDA Loans: For seniors housing or motels in rural areas, the USDA offers extremely inexpensive fixed-rate financing, with terms up to 40-years.

Below, we’ll review the standard terms for each of these loans.

Regional banks, national banks, and credit unions offer financing for the purchase, rehabilitation, construction, rehabilitation, and refinancing of senior living communities.

Senior housing bank loan terms generally include:

• Size: $500k to $5 million+

• Maximum LTV: 65-70%

• Loan Term: 5-10 years

• Interest Rates: Vary

• Credit Score: 700+

• Third-Party Reports:

  • Full Appraisal

  • Phase I ESA

  • Architectural and Engineering Reports (for construction financing)

Senior housing bridge loans are available from banks, private lenders, and hard money lenders, and are generally intended for recently constructed, pre-stabilized properties or distressed properties that are undergoing remodeling or substantial rehabilitation. Sometimes, these loans may be structured as mini-perm loans. In other scenarios, particularly when the property is particularly distressed, or the borrower has poor credit or is facing legal issues, a bridge loan from a hard money lender may be the only option.

Senior housing bridge loan terms include:

• Size: $500k to $5 million+

• Maximum LTV: 75%-80% 

• Loan Term: 6-36 months

• Interest Rates: Vary based on market rates

• Credit Score:

  • 660-700+ for lower-interest bridge loans

  • 500+ for hard money bridge loans

• Third-Party Reports:

  • Full Appraisal

  • Phase I ESA

  • Architectural and Engineering Reports (for construction financing)

Fannie Mae Seniors Housing Loans offer some of the most competitive terms on the market today. They offer terms and amortizations up to 30 years, fixed and adjustable-rate interest options, and can be used for the purchase of acquisition of a variety of seniors housing property types, including independent living communities, assisted living facilities, and Alzheimer's/Dementia care centers.

Fannie Mae Seniors Housing Loans terms include:

• Size: $5 million+ (some exceptions possible)

• Terms:  5-30 years

• Use:  Purchase or refinancing

• Amortization:  Up to 30 years

• Recourse: The majority of loans are non-recourse with standard “bad boy” carve-outs

• Interest Rates:  Fixed and adjustable-rate loans are available 

• Prepayment:  Defeasance, yield maintenance, or step-down prepayment fees

• Max LTV: 

• 75% (80% for fixed-rate, tax-exempt bonds)

• 70% for Alzheimer's/Dementia care properties

• 70% for properties with a Skilled Nursing component

• Decrease max. LTV by 5% for cash-out refinances

• Minimum DSCR:  

• 1.30x for independent living only

• 1.40x for properties with 50% or more Alzheimer's/Dementia care

• 1.45x for 100% Alzheimer's/Dementia care properties

• 1.50x for properties with a Skilled Nursing component

• Weighted average calculation is used for properties with less than 50% Alzheimer's/Dementia care units

• Commercial Space: No more than 10% of the net rentable area can be commercial space, and that space cannot produce greater than 10% of the project's effective gross income (EGI).

• Eligible Assets: 

  • Stabilization: Only stabilized properties permitted

  • Unit Size: Between 5-50 units

  • Legal Structure: Eligible borrowers must be single asset entities

  • Entrance Fees: Properties with entrance fees are not eligible for financing

  • Manufactured Housing Communities: Allowed pursuant to compliance with other eligibility standards.

  • Lien Rules: Loans must be first liens for acquisitions or refinances

  • Owner/Operator Experience Requirements: Borrowers need to have a minimum of at least 5 years of successful experience owning and/or managing senior living properties, including having previously managed at least 5 properties.

Like Fannie Mae Seniors Housing Loans, non-recourse Freddie Mac Seniors Housing Loans also permit the financing and refinancing of independent living (IL), assisted living (AL), skilled nursing (SN), and memory care properties. Except for Fannie Mae’s program and the occasional CMBS loan, these are perhaps the highest-leverage assisted living and seniors housing loans available with LTVs up to 75%. Freddie Mac Seniors Housing Loans have terms up to 30-years for fixed-rate loans, with 5-10 year terms for floating-rate mortgages.

• Loan Size: Generally $5 million+, determined LTV and DSCR requirements

• Loan Use:  Purchase or refinancing seniors housing, including independent living (IL), assisted living (AL), skilled nursing (SN), and memory care properties. For properties with a limited amount of skilled nursing residents (SN), income derived from these residents cannot exceed 20% of the asset’s net operating income (NOI).

• Loan Terms:  Up to 30 years for fixed-rate loans, 5-10 year terms for floating-rate financing

• Amortization:  Up to 30 years, with interest-only payment options 

• Max. LTV/Min. DSCR:  

  Independent Living Properties: 

• 5-7 Year Loans:

  • Amortizing: 75%/1.30x

  • Partial Term Interest-Only: 70%/1.30x

  • Full Term Interest-Only: 65%/1.40x

• 7 Year Loans:

  • Amortizing: 75%/1.30x

  • Partial Term Interest-Only: 75%/1.30x

  • Full Term Interest-Only: 65%/1.40x

• 7+ Year Loans:

  • Amortizing: 75%/1.30x

  • Partial Term Interest-Only: 75%/1.30x

  • Full Term Interest-Only: 65%/1.40x

Assisted Living Properties (50%+ units):  

• 5-7 Year Loans:

  • Amortizing: 70%/1.45x

  • Partial Term Interest-Only: 70%/1.45x

  • Full Term Interest-Only: 60%/1.55x

• 7-Year Loans:

  • Amortizing: 75%/1.40x

  • Partial Term Interest-Only: 75%/1.40x

  • Full Term Interest-Only: 65%/1.50x

• 7+ Year Loans:

  • Amortizing: 75%/1.40x

  • Partial Term Interest-Only: 75%/1.40x

  • Full Term Interest-Only: 65%/1.50x

  • Skilled Nursing Properties (Max. 20% of NOI): 60%/1.55x

• 5-7 Year Loans:

  • Amortizing: 70%/1.50x

  • Partial Term Interest-Only: 70%/1.50x

  • Full Term Interest-Only: 60%/1.65x

• 7-Year Loans:

  • Amortizing: 75%/1.45x

  • Partial Term Interest-Only: 75%/1.45x

  • Full Term Interest-Only: 65%/1.55x

• 7+ Year Loans:

  • Amortizing: 75%/1.45x

  • Partial Term Interest-Only: 75%/1.45x

  • Full Term Interest-Only: 65%/1.55x

Refinancing Test: 

Refinance tests are necessary for loans above 55% and with DSCRs of:

• Independent Living: Greater than or equal to 1.45x

• Assisted living: Greater than or equal to 1.55x

• Skilled Nursing: Greater than or equal to 1.60x

  All partial-term interest-only loans must pass the Refinance Test.

• Required Business Entities: Corporations, LLCs, LPs, generally need to be structured as a special purpose entity (SPE). For tenancies in common (TICs), each member needs to be a special/single-purpose entity. TICs are typically not recommended. For loans smaller than $5 million, borrowers may be able to be Single Asset Entities instead of SPEs.

• Prepayment Penalties: Defeasance or yield maintenance is required for fixed-rate loans. Floating rate loans have significantly more prepayment options. There are no penalties during the last 90 days of the loan’s term.

• Assumability:  Loans are generally assumable with lender/servicer approval and a 1% fee

• Closing Timing: Most deals typically take 60-90 days to close, faster for repeat borrowers utilizing the same lender.

HUD 232 loans offer long-term, fixed-rate terms up to 30 years. Like other HUD multifamily loans, these loans are fully non-recourse, and can be used for construction and substantial rehabilitation, through the traditional HUD 232 program, and for acquisitions and refinances, through the associated HUD 232/223(f) program.

• Loan Purpose: Construction, acquisition, rehabilitation of properties intended for senior citizens

• Loan Size: $2 million minimum (average loan size is $7.6 million)

• Loan Term:

  • 10-year minimum, fully amortizing

  • Up to 40-year fixed-rate term for new and rehabilitated properties

  • Up to 35-year fixed-rate terms for non-rehab acquisitions that can be funded with Government National Mortgage Association (GNMA) mortgage-backed securities

• Skilled Nursing Facilities/Independent Living Units: 80% LTV (for profit), 85% LTV (nonprofit) 

• Assisted Living Facilities: 

  • New Construction: 75% LTV (for profit), 80% (nonprofit) 

  • Purchase: 80% LTV (for profit), 85% LTV (nonprofit) 

  • Substantial Rehabilitation: 80% LTV (for profit), 85% LTV (nonprofit) 

    • Or, 90% of HUD-eligible replacement costs (whichever is less)

    • For borrower-owned properties, 100% of the existing mortgage debt or 90% of the “as is” market value of the property before rehabilitation (95% for nonprofits)

    • For properties that will be bought and substantially rehabilitated, 85% of the purchase price of the property or 90% of the current market value of the property before rehabilitation (95% for nonprofits)

    • This also applies to skilled nursing facilities/independent living units

• DSCR: 1.45x minimum DSCR

If you want to purchase or refinance an existing, stabilized seniors housing property, a HUD 232/223(f) loan could be the perfect choice. Typical terms include:

• Loan Purpose: Purchase or refinancing of properties intended for senior citizens

• Loan Size: Starting at $2 million (average loan size is $7.6 million)

• Loan Term: 10 years minimum, maximum 35 years (or 75% of the remaining economic life of the property, whichever is less)

• LTV:

  • Purchase:

    • 85% of the acquisition price or appraised value (for-profits), whichever is less

    • 90% of the acquisition price or appraised value (nonprofits), whichever is less

  • Refinance::

    • 100% of the cost to refinance or 85% of appraised value (for-profits), whichever is less

    • 100% of the cost to refinance or 90% of appraised value (nonprofits), whichever is less

• DSCR: Minimum 1.45x

CMBS loans, also known as conduit loans, are another great option for many senior housing investors. CMBS loans have relatively lenient requirements for borrowers, typically requiring a net worth of 25-50% of the loan amount, with 10% liquidity. CMBS financing is fully non-recourse with bad-boy carve-outs.

CMBS terms and requirements typically include: 

• Loan Size: $2 million+, no maximum

• Loan Terms: 5, 7, and 10-year fixed-rate terms, interest-only (I/O) financing available for well-qualified borrowers 

• Amortization: 25-30 years 

• DSCR/LTV:

  • Independent Living: 1.25x -1.35x, 75% LTV

  • Assisted Living: 1.35-x 1.45x, 70% LTV

  • Skilling Nursing: 1.40- 1.50x, 65% LTV

  • Intermediate Care: 1.40- 1.50x 65% LTV

• Eligible Properties:

  • Properties must have experienced management

  • Operators or operating companies must be licensed/certified in the state in which they are doing business

  • Triple net (NNN), absolute net leases, or credit-tenant leases (CTLs) are recommended

• Loan Pricing: Based on current swap rate or relevant U.S. Treasury rate, leverage and debt service ratios, as well as the property’s quality. Borrowers may buy down their rate in certain scenarios.

• Loan Assumption: Fully assumable pursuant to master servicer approval and a fee, generally 1% 

• Prepayment: Yield maintenance or defeasance 

• Recourse: Generally non-recourse with standard bad-boy carve-outs

• Third-Party Reports: Third-party reports are paid for by the borrower, and typically include: 

  • Full appraisal 

  • Phase 1 ESA (Environmental Assessment)

  • Property Condition Assessment (PCA) is often required  

• Rate locks: Available at loan commitment, 30-day rate locks may also be available with lender approval 

• Replacement Reserves: Typically required and paid for by borrower on a per-year, per-unit basis, may be waived or reduced in some situations, particularly for Class A assets 

• Lender Legal Fees: Generally $15,000 for smaller loans, larger for larger loans 

• Origination Fees: Generally 1%, can be higher in some scenarios

SBA 7(a) loans can be an ideal option for financing or refinancing senior living properties. Unlike CMBS and most bank loans, SBA 7(a) loans can provide working capital for property renovations, marketing, FF&E (furniture, fixtures, and equipment), or other operating expenses. A borrower may take out multiple SBA loans for different purposes, provided they do not exceed the $5 million limit. SBA 7(a) loans are also often used to refinance higher-interest bank or hard money loans.

In general, a borrower must be an actively managed business, not a real estate investment company, so real estate companies who manage, (but don’t operate) senior housing facilities are not eligible.

Technically, a borrower must have looked for financing elsewhere to apply for an SBA loan and must fit the SBA’s size requirements, which vary by industry.

• Size: Up to $5 million

• Loan Term: Up to 10 years for working capital, up to 25 years for real estate 

• Rates: Rates generally range between 4.5% and 6.5% depending on loan size and maturity 

• Loan Use: Purchasing real estate, working capital, equipment, purchasing a business or franchise, refinancing higher-interest debt

• Credit Score Requirement: Generally 680+

• Down Payment: 10-20% of the total loan amount. 

• Collateral: Generally required for non-real estate loans, otherwise real estate functions as the collateral. 

• Approval Timeline: Some SBA 7(a) loans can be approved in as little as 7 days, while most are approved within 45 days of application. 

SBA 504 loans allow for the purchase of real estate, heavy equipment, and other fixed assets for small businesses, including hotels. In contrast to SBA 7(a) loans, however, the SBA 504 Loan Program can be used for ground-up construction projects, pursuant to some additional due diligence. Also, unlike the SBA 7(a) program, SBA 504 loans cannot be used for working capital. 

These loans are issued by Community Development Corporations (CDCs), non-profit community funding institutions that are regulated and certified by the SBA, in partnership with SBA-certified lenders, including banks and credit unions.

The CDC provides the majority of the loan with an SBA guarantee, and the lender provides the remaining portion of the loan with a similar guarantee from the SBA. Qualified borrowers may combine an SBA 7(a) loan for working capital for expenses like marketing and operations, with an SBA 504 loan in order to fully fund the construction and initial operation of a senior living facility.

• Size: Up to $5 million

• Loan Term: 20 years for land and buildings

• Rates: Vary, current maximum rates for the CDC portion of an SBA 504 loan are between 2.08 and 2.18% above the relevant U.S. Treasury Index (5-year index is used for 10-year loans, while the 10-year index is used for 20-year loans). 

• Loan Use: Real estate, land, and other fixed assets such as heavy equipment. No working capital is allowed. 

• Credit Score: Lenders typically require scores of 680+, but there is no official minimum. 

• Down Payments: Minimum 10% down payment required for most borrowers 

• Approval Timeline: Loans for land or real estate are generally approved in 65 to 75, while heavy equipment loans often close within 45 days. 

USDA multifamily loans typically utilize the agency’s well-known USDA 538 loan program, which finances the purchase or construction of multi-unit properties for low-income to middle-income residents, including the elderly and the disabled.

• LTV: Up to 90%, Up to 70% LTC (loan-to-cost)

• Loan Amount: No set limit

• Loan Purpose: Acquisitions, refinances, or construction of independent living, assisted living, skilled nursing, and memory care properties. Refinances can be used to repay higher-interest debt or to finance property improvements.

• Terms: 40-years fixed and fully-amortizing

• Prepayment Penalties: Vary, typically limited to 3-5 years after origination 

• Borrower Requirements:  

  • Borrowers may be corporations, partnerships, individuals, public bodies, cooperatives, or other legal entities, including profits and non-profits.

  • Indian tribes on a federal or state reservation and federally recognized tribal groups are also eligible. 

  • Individuals must be citizens of the United States or U.S. legal permanent residents. 

  • Corporations or other private institutional borrowers need to be, at minimum, 51% owned by either U.S. citizens or U.S. permanent legal residents. 

• Project Eligibility: Funded projects must: 

  • Be located in rural areas, defined as cities or towns with less than 50,000 people, as well as the adjacent areas of these cities or towns. 

  • Provide employment to local residents.  

  • Improve the economic or environmental climate.

  • Promote the conservation, development, and use of water for aquaculture; or reduce reliance on nonrenewable energy resources by encouraging the development and construction of solar energy systems and other renewable energy systems.

• Tangible Equity for Purchases: Proforma 20% to 25% for hotels, depending on individual state. 

• Tangible Equity for Refinances: 10%

• USDA Guarantee Fee: Varies with the loan amount.

  • Loans of up to 5 million: 80% guarantee, fee: 3 points on 80% of the loan.

  • Loans of 5 to 7 million: 70% guarantee, fee: 3 points on 70% of the loan.

  • Loans from 7 to 10 million: 60% guarantee, fee: 3 points on 60% of the loan.

• Origination/Closing Costs: Generally between $13,500 to $20,000, including:

  • Lender Processing Fee: $1,000 to $4,000.

  • Appraisal and Property Review: $4,000 to $6,000.

  • Phase I Environmental Assessment (ESA): $2,000.

  • Survey: $2,000 to $3,000, not needed if recent copy available. 

  • Lender Legal: $4,000 to $7,000 if outside attorney is used.  

  • Miscellaneous Fees: Generally $500 to $1,000, including: 

    • Credit reports

    • Tax services

    • UCC search

    • Other documentation

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